01 Hisrich Ch 01

1 THE ENTREPRENEURIAL PERSPECTIVE CHAPTER 1 The Nature and Importance of Entrepreneurs CHAPTER 2 The Entrepreneurial and Intrapreneurial Mind CHAPTER 3 The Individual Entrepreneur CASES FOR PART 1

1 THE NATURE AND IMPORTANCE OF ENTREPRENEURS

LEARNING OBJECTIVES

1 To introduce the concept of entrepreneurship and its historical development. 2 To explain the entrepreneurial decision process. 3 To identify the basic types of start-up ventures. 4 To explain the role of entrepreneurship in economic development. 5 To discuss the ethics and responsibilities associated with entrepreneurship.

OPENING PROFILE

DAVID REYNOLDS • Are you sure the courses you are taking will help you fulfill your future goals? • Do you ever question what you will be doing next year? What about five years down the road? If any of these questions sound familiar to you then you have something in common with 21-year-old David Reynolds. Like many young people, David was unsure about his future plans when he entered university. In fact, the only reason he enrolled at Mount Saint Vincent University (MSVU) was its close proximity to his house. David readily admits that he graduated from high school with no clear future goals and lots of questions: “When I graduated from high school I felt like I was on top of the world for about three weeks. Then I started to wonder, what would I do next? I knew I wasn’t a great student and was more than a little afraid about what I was going to do at university or even why I was going.” As David was pondering his future career goals, MSVU was unveiling its Entrepreneurial Skills Program (ESP). The aim of this multidisciplinary program is to expose students to entrepreneurship as a career option and to enhance the entrepreneurial skills of future graduates. The program consists of extracurricular activities such as starting and running a business, a mentorship program, access to entrepreneurship counselling, and exposure to successful entrepreneurs through a speakers’ series. By chance David enrolled in an introductory business class taught by the ESP coordinators. When he heard about the program he decided to join. “I signed up for the access to mentors and the ability to add something of value to my resume—to be honest, I never even thought about becoming an entrepreneur or really knew what an entrepreneur was. My main goal for enrolling in the program was to improve my chances of landing a job.” Two years later, David is the CEO of a corporation called QuickSnap, named after the shoe-fastening device he invented, and he runs a successful landscaping company. He now has clear goals, including becoming a millionaire before the age of 29 and retiring when he is 40. How did David go so quickly from having no future plans to wanting to retire at the age of 40? Reynolds recalls, “I joined ESP and suddenly I’m in love with the concept of entrepreneurship. I discovered I could be my own boss, work in any

3

4

PART 1 THE ENTREPRENEURIAL PERSPECTIVE

business that I wanted to, and have unlimited earning potential. I went from no direction in my life to wanting to start 100 businesses at once. Then one day I noticed a friend struggling to fasten his laces and the idea hits me: Why not eliminate tying laces? I thought about what such a product would look like, drew a picture of the device, and then actually made one with materials I found at home.” Sounds like a classic rags-to-riches story, doesn’t it? There is, however, one glitch: the money isn’t pouring in just yet. David has discovered that manufacturing and selling a product doesn’t happen overnight and, in fact, doesn’t happen in a few short months either. David admits he made some mistakes early that slowed his progress. “In our ESP sessions we were encouraged to think big, to think that anything was possible, and to plan, plan and plan. So what did I do? I started with no business plan. I just totally ignored the advice of my ESP counsellors. I was sure this was a killer product, and everybody I showed my homemade prototype to was certain I would sell millions. But six months later, I was nowhere close to manufacturing one.” Rather than give up, David drew upon the counselling and mentorship available through the ESP program and wrote a detailed business plan, made arrangements to manufacture the product in China, and made contacts with major retail chains including Wal-Mart. David thought he was on his way, “I was sure I was set, I had a great product with interested retailers all I needed was some initial capital to get going.” So he started to look for some sources of financing and discovered the following obstacles: • Banks did not want to lend to him without signed contracts and significant collateral. • Retailers would not sign a contract without a finished product. • He wasn’t eligible for the majority of Canadian government programs because he was manufacturing overseas. Unfortunately, if he were to manufacture in Canada, the business would not be viable. • Any potential investors wanted a large equity position in the company Many people would have given up, but David refused to quit. He has since discovered government youth loan programs that he is eligible for and he hoped to start manufacturing QuickSnap in 2005. In addition, David is investigating some other ideas he has developed, including a medical device and home exercise equipment. Will he succeed? Only time will tell, but one thing is certain: David is happy choosing entrepreneurship as a career choice. “I love being an entrepreneur, it has opened up so many doors for me. If QuickSnap doesn’t work out, than something else will. The biggest thing I learned through studying entrepreneurship is that anything is possible if you work hard enough.” The story of David Reynolds reflects the story of many entrepreneurs in a variety of industries and various-sized companies. The historical aspect of entrepreneurship, as well as the decision that David Reynolds and others have made to become entrepreneurs, is reflected in the following remarks of two successful entrepreneurs: Being an entrepreneur and creating a new business venture is analogous to raising children—it takes more time and effort than you ever imagine and it is extremely difficult

CHAPTER 1 THE NATURE AND IMPORTANCE OF ENTREPRENEURS

5

and painful to get out of the situation. Thank goodness you cannot easily divorce yourself from either situation. When people ask me if I like being in business, I usually respond: On days when there are more sales than problems, I love it; on days when there are more problems than sales, I wonder why I do it. Basically, I am in business because it gives me a good feeling about myself. You learn a lot about your capabilities by putting yourself on the line. Running a successful business is not only a financial risk, it is an emotional risk as well. I get a lot of satisfaction from having dared it—done it—and been successful.

Does the profile of David Reynolds and these quotes fit your perception of the career of an entrepreneur? Entrepreneurship is an exciting field of study. Research indicates that individuals who study entrepreneurship are three to four times more likely to start a business, and will earn 20 to 30 percent more, than students studying in other fields. To understand the field better, it is important to learn about the nature and development of entrepreneurship, the decision process involved in becoming an entrepreneur, and the role of entrepreneurship in the economic development of a country. Do you think that you possess the characteristics of an entrepreneur as displayed in the “Opening Profile” and in the quotes above? You may want to take our Entrepreneur Assessment Quiz in Table 1.1 before reading further. Note that this quiz has not been validated statistically and should only be used a discussion tool. To help evaluate whether you have some of the abilities necessary to be a successful entrepreneur, take the Entrepreneur Assessment Quiz below. Note that this quiz has not been validated statistically. If you score well, however, you may have the ability to be a successful entrepreneur. If you don’t score well, don’t be discouraged as research indicates that the majority of people can increase their entrepreneurial characteristics and chances of success by studying entrepreneurship. Furthermore, many entrepreneurs believe that both passion for an idea and the desire to succeed are the most important ingredients for entrepreneurial success. After you have completed the quiz, count the number of Yes answers. Give yourself one point for each Yes. If you score above 17 points, you have the drive to be an entrepreneur—the desire, energy, and adaptability to make a viable business venture a success. If you score between 13 and 17 points, your entrepreneurial drive is not as apparent. While you definitely have the ability to become an entrepreneur, make sure you are willing to commit to the process prior to starting a new venture. If you scored less than 13 points, your entrepreneurial drive is even less apparent and you should consider enhancing your drive through the study of entrepreneurship and small business management. Again, keep in mind that that the quiz is not a scientifically validated indicator of entrepreneurial drive. Such an instrument has not yet been developed.

NATURE AND DEVELOPMENT OF ENTREPRENEURSHIP Who is an entrepreneur? What is entrepreneurship? What is an entrepreneurial career path? These frequently asked questions reflect the increased national and international interest in entrepreneurs by individuals, university professors and students, and government officials. In spite of all this interest, a concise, universally accepted definition has not yet emerged.

6


TABLE 1.1

Entrepreneur Assessment Quiz

1. Can you start a project and see it through to completion in spite of a myriad of obstacles? _____ Yes

_____ No

2. Can you make a decision on a matter and then stick to the decision even when challenged? _____ Yes

_____ No

3. Do you like to be in charge and be responsible? _____ Yes

_____ No

4. Do other people you deal with respect and trust you? _____ Yes

_____ No

5. Are you in good physical health? _____ Yes

_____ No

6. Are you willing to work long hours with little immediate compensation? _____ Yes

_____ No

7. Do you like meeting and dealing with people? _____ Yes

_____ No

8. Can you communicate effectively and persuade people to go along with your dream? _____ Yes

_____ No

9. Do others easily understand your concepts and ideas? _____ Yes

_____ No

10. Have you had extensive experience in the type of business you wish to start? _____ Yes

_____ No

11. Do you know the mechanics and forms of running a business (tax records, payroll records, income statements, balance sheets)? _____ Yes

_____ No

12. Is there a need in your geographic area for the product or service you are intending to market? _____ Yes

_____ No

13. Do you have skills in marketing and/or finance? _____ Yes

_____ No

14. Are other firms in your industrial classification doing well in your geographic area? _____ Yes

_____ No

15. Do you have a location in mind for your business? _____ Yes

_____ No

16. Do you have enough financial backing for the first year of operation? _____ Yes

_____ No

17. Do you have enough money to fund the start-up of your business or have access to it through family or friends? _____ Yes

_____ No

18. Do you know the suppliers necessary for your business to succeed? _____ Yes

_____ No

19. Do you know individuals who have the talents and expertise you lack? _____ Yes

_____ No

20. Do you really want to start this business more than anything else? _____ Yes

_____ No


entrepreneur Individual who takes risks and starts something new

7

The development of the theory of entrepreneurship parallels to a great extent the development of the term itself. The word entrepreneur is French and, literally translated, means “between-taker” or “go-between.”

Earliest Period An early example of the earliest definition of an entrepreneur as a go-between is Marco Polo, who attempted to establish trade routes to the Far East. As a go-between, Marco Polo would sign a contract with a money person (forerunner of today’s venture capitalist) to sell his goods. A common contract during this time provided a loan to the merchant–adventurer at a 22.5 percent rate, including insurance. While the capitalist was a passive risk bearer, the merchant–adventurer took the active role in trading, bearing all the physical and emotional risks. When the merchant–adventurer successfully sold the goods and completed the trip, the profits were divided with the capitalist taking most of them (up to 75 percent), while the merchant–adventurer settled for the remaining 25 percent.

Middle Ages In the Middle Ages, the term entrepreneur was used to describe both an actor and a person who managed large production projects. In such large production projects, this individual did not take any risks, but merely managed the project using the resources provided, usually by the government of a country. A typical entrepreneur in the Middle Ages was a cleric—the person in charge of great architectural works, such as castles and fortifications, public buildings, abbeys, and cathedrals.

17th Century The reemergent connection of risk with entrepreneurship developed in the 17th century, with an entrepreneur being a person who entered into a contractual arrangement with the government to perform a service or to supply stipulated products. Since the contract price was fixed, any resulting profits or losses were the entrepreneur’s. One entrepreneur in this period was John Law, a Frenchman, who was allowed to establish a royal bank. The bank eventually evolved into an exclusive franchise to form a trading company in the New World—the Mississippi Company. Unfortunately, this monopoly on French trade led to Law’s downfall when he attempted to push the company’s stock price higher than the value of its assets, leading to the collapse of the company. Richard Cantillon, a noted economist and author in the 1700s, understood Law’s mistake. Cantillon developed one of the early theories of the entrepreneur and is regarded by some as the founder of the term. He viewed the entrepreneur as a risk taker, observing that merchants, farmers, craftsmen, and other sole proprietors “buy at a certain price and sell at an uncertain price, therefore operating at a risk.”1

18th Century In the 18th century, the person with capital was differentiated from the one who needed capital. In other words, the entrepreneur was distinguished from the capital provider (the present-day venture capitalist). One reason for this differentiation was the industrialization occurring throughout the world. Many of the inventions developed during this time were reactions to the changing world, as was the case with the inventions of Eli Whitney and Thomas Edison. Both Whitney and Edison were developing new technologies and were unable to finance their inventions themselves. Whereas Whitney financed his cotton gin with expropriated British crown property, Edison raised capital from private sources to

8


develop and experiment in the fields of electricity and chemistry. Both Edison and Whitney were capital users (entrepreneurs), not providers (venture capitalists). A venture capitalist is a professional money manager who makes risk investments from a pool of equity capital to obtain a high rate of return on the investments.

19th and 20th Centuries In the late 19th and early 20th centuries, entrepreneurs were frequently not distinguished from managers and were viewed mostly from an economic perspective: Briefly stated, the entrepreneur organizes and operates an enterprise for personal gain. He pays oservices he employs, and for the capital he requires. He contributes his own initiative, skill, and ingenuity in planning, organizing, and administering the enterprise. He also assumes the chance of loss and gain consequent to unforeseen and uncontrollable circumstances. The net residue of the annual receipts of the enterprise after all costs have been paid, he retains for himself.2

entrepreneur as an innovator An individual developing something unique

KC Irving is one of the best examples of this definition. Irving invented nothing, but rather adapted and developed new technology in the creation of products to achieve economic vitality. Irving emerged as one of the most dominant entrepreneurs of the twentieth century, primarily through his unremitting competitiveness rather than his inventiveness or creativity. In the middle of the 20th century, the notion of an entrepreneur as an innovator was established: The function of the entrepreneur is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological method of producing a new commodity or producing an old one in a new way, opening a new source of supply of materials or a new outlet for products, by organizing a new industry.3

The concept of innovation and newness is an integral part of entrepreneurship in this definition. Indeed, innovation, the act of introducing something new, is one of the most difficult tasks for the entrepreneur. It takes not only the ability to create and conceptualize but also the ability to understand all the forces at work in the environment. The newness can consist of anything from a new product to a new distribution system to a method for developing a new organizational structure. Edward Harriman, who reorganized the Ontario and Southern railroad through the Northern Pacific Trust, and John Pierpont Morgan, who developed his large banking house by reorganizing and financing the nation’s industries, are examples of entrepreneurs fitting this definition. These organizational innovations are frequently as difficult to develop successfully as the more traditional technological innovations (transistors, computers, lasers) that are usually associated with being an entrepreneur. This ability to innovate can be observed throughout history, from the Egyptians who designed and built great pyramids out of stone blocks weighing many tons each, to the Apollo lunar module, to laser surgery, to wireless communication. Although the tools have changed with advances in science and technology, the ability to innovate has been present in every civilization.

DEFINITION OF ENTREPRENEUR TODAY The concept of an entrepreneur is further refined when principles and terms from a business, managerial, and personal perspective are considered. In particular, the concept of entrepreneurship from a personal perspective has been thoroughly explored in this century. This exploration is reflected in the following three definitions of an entrepreneur:


9

In almost all of the definitions of entrepreneurship, there is agreement that we are talking about a kind of behavior that includes: (1) initiative taking, (2) the organizing and reorganizing of social and economic mechanisms to turn resources and situations to practical account, (3) the acceptance of risk or failure.4 To an economist, an entrepreneur is one who brings resources, labor, materials, and other assets into combinations that make their value greater than before, and also one who introduces changes, innovations, and a new order. To a psychologist, such a person is typically driven by certain forces—the need to obtain or attain something, to experiment, to accomplish, or perhaps to escape the authority of others. To one businessman, an entrepreneur appears as a threat, an aggressive competitor, whereas to another businessman the same entrepreneur may be an ally, a source of supply, a customer, or someone who creates wealth for others, as well as finds better ways to utilize resources, reduce waste, and produce jobs others are glad to get.5 Entrepreneurship is the dynamic process of creating incremental wealth. The wealth is created by individuals who assume the major risks in terms of equity, time, and/or career commitment or provide value for some product or service. The product or service may or may not be new or unique, but value must somehow be infused by the entrepreneur by receiving and locating the necessary skills and resources.6

Although each of these definitions views entrepreneurs from a slightly different perspective, they all contain similar notions, such as newness, organizing, creating, wealth, and risk taking. Yet each definition is somewhat restrictive, since entrepreneurs are found in all professions—education, medicine, research, law, architecture, engineering, social work, distribution, and the government. To include all types of entrepreneurial behaviour, the following definition of entrepreneurship will be the foundation of this book: entrepreneurship Process of creating something new and assuming the risks and rewards

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.7

This definition stresses four basic aspects of being an entrepreneur regardless of the field. First, entrepreneurship involves the creation process—creating something new of value. The creation has to have value to the entrepreneur and value to the audience for which it is developed. This audience can be (1) the market of organizational buyers for business innovation, (2) the hospital’s administration for a new admitting procedure and software, (3) prospective students for a new course or even college of entrepreneurship, or (4) the constituency for a new service provided by a nonprofit agency. Second, entrepreneurship requires the devotion of the necessary time and effort. Only those going through the entrepreneurial process appreciate the significant amount of time and effort it takes to create something new and make it operational. As one new entrepreneur so succinctly stated, “While I may have worked as many hours in the office while I was in industry, as an entrepreneur I never stop thinking about the business.” Assuming the necessary risks is the third aspect of entrepreneurship. These risks take a variety of forms, depending on the field of effort of the entrepreneur, but usually centre around financial, psychological, and social areas. The final part of the definition involves the rewards of being an entrepreneur. The most important of these rewards is independence, followed by personal satisfaction. For profit entrepreneurs, the monetary reward also comes into play. For some profit entrepreneurs, money becomes the indicator of the degree of success. For the person who actually starts his or her own business, the experience is filled with enthusiasm, frustration, anxiety, and hard work. There is a high failure rate due to such things as poor sales, intense competition, lack of capital, or lack of managerial ability. The financial and emotional risk can also be very high. What, then, causes a person to make this difficult decision? The question can be best explored by looking at the decision process involved in becoming an entrepreneur.

10


ENTREPRENEURSHIP VERSUS SMALL BUSINESS MANAGEMENT The terms entrepreneur and small business management have been used interchangeably over the past 25 years by educators, researchers, and authors. While this is generally accepted usage, it is important to note that the two terms are defined quite differently and refer to vastly different practices. As described above, an entrepreneur or a person who engages in entrepreneurship is someone who innovates or creates. A small business manager, on the other hand, is a person who is engaged in the actual management of a business. David Reynolds, described in the “Opening Profile,” is constantly developing new products and innovative ways of managing his business, thus he would be described as an entrepreneur. A small business owner who starts a small business but never creates new products or develops new ways to manage his business only engaged in one act of entrepreneurship when he started the business. It is worth mentioning that some entrepreneurs never want to become full-time managers and would prefer to hire professional managers to look after the day-to-day activities associated with running a company. These entrepreneurs prefer to create rather than manage ventures. For example, Craig Dobbin, who founded CHC Helicopter, a Canadian business that offers a variety of air services to offshore oil and gas companies, grew the company from a single helicopter into the dominant player in the marketplace. He replaced himself as CEO when he realized that the company was more of an operating entity rather than an entrepreneurial company. Dobbin acknowledges that while he was good at growing the business, he prefers to let professional managers worry about managing operations while he does what he loves—deal-making and expanding the company.8

AS SEEN IN PROFIT MAGAZINE ENTREPRENEURSHIP IN CANADA If you were to ask business executives to name the great centres of entrepreneurship, few of them— even the Canadians—would mention Canada. Yet the reality, contends venture capitalist and technology entrepreneur Leonard Brody, is that this country punches far above its weight in breeding groundbreaking companies, especially in the tech and Web sectors. Brody, who was a senior executive at Onvia Canada, Canada’s fastest-growing startup in PROFIT magazine’s 2000 listing, is now a Vancouver-based venture partner at GrowthWorks Capital, one of Canada’s largest national technology funds. He cowrote the recently published Everything I Needed to Know About Business…I Learned From a Canadian, which profiles 16 Canadian entrepreneurs. In an interview with PROFIT senior editor Jim McElgunn,

Brody makes the case for considering Canada one of the world’s centres of entrepreneurial excellence. PROFIT: Just how good are Canadians as entrepreneurs? If you look at the Canadians who’ve gone out and founded world-class technology companies, very few countries in the world are having as much of an impact on the technology business on a per-capita basis as Canada. Look at the size of the companies that have come out of here. Look at every subsector of technology and you haven’t got a Canadian company that’s doing well; rather, you’ve got a Canadian company that’s at the pole position in that sector. Look at the Internet: Yahoo! [co-founded by a Canadian], eBay [co-founded by a Canadian], Flickr, InnerSell, Ice.com, Askmen.com. Look at wireless: Research in Motion, Sierra Wireless. Look at software: Akamai, Red Hat, Crystal Decisions. They’re not just

names that people say, “Oh yeah, I’ve heard about them.” They’re real players. What evidence do you have that Canadians are highly entrepreneurial? There’s a ton of data. We have twice the percentage of people self-employed as the U.S. does: 20% vs. 10%. That is an important facet for Canadians to accept, that we are double the [relative] size of the entrepreneurial community south of the border. Look at The World Competitiveness Yearbook ranking Canada as the fifth-most-competitive economy in the world, and The Economist rating us as the most competitive economy globally between now and 2009. We are second in the world in quality of management practices, according to The World Competitiveness Yearbook. Canadian VCs always bellyache about how we’re not good managers, but the WCY sees that differently. What’s driving the creation of these new companies? One of the factors is that a family of first-generation entrepreneur success stories are now breeding alumni who are starting their own companies. Look at what’s happened in Vancouver with Electronic Arts, the world’s biggest video-game developer. A huge videogame cluster has developed as all these former EA employees have set up great companies. And because of RIM, you’ve got great companies coming out of Waterloo, such as Descartes and Sandvine. What are typical Canadian strengths as entrepreneurs? First, we have an innovation fabric. Our geography forced us into technology and R&D right away. Very few countries have the roots of their nationhood tied inextricably to technology, innovation and entrepreneurship. At almost every step in our history, Canadians were early adopters. We were always at the height of the adoption curve for satellite, cable, radio, television, broadband. Whenever the nation needed to use technology to unite itself, we did it. Second, there’s respect. One of the big issues in business is trust. When you walk into a room and say you’re a Canadian, that brand means something. It means you’re trustworthy, it means you’re reliable, it means you have sustainability. And those things are critical for entrepreneurs when they’re building companies. Another factor is the ability to see the third period. Americans tend to focus very much on the first period, whereas Canadians, while understanding the first period, are well-trained to understand sustainability. They want to understand, “Where’s this going to be in 15 years? What’s the road going to look like in 15 years?”

So Canadians design companies that are built to last? That’s exactly right. You can see that in the much lower rates of bankruptcy here than in the U.S. for early-stage companies. In the dot-com era, for instance, not as many Canadians were burned because of that view of the long game. And that goes back to how we were raised. We grew up with very sustainable models of business. Every market had a longstanding telco, every market had a cable company, a couple of banks; we have The Bay. Where do we need to improve? We need to overcome our risk aversion. Canadians are not yet of the school of thought that failure is a badge of honour, not of shame. Entrepreneurs do not become great until they fail. Rupert Murdoch went bankrupt seven times. Failure is something we need to embrace. If we don’t start accepting the importance of failure as a lesson rather than a badge of shame, we are going to lose out on opportunities. Second, we need to work on our marketing prowess. We are not good marketers. We need to get better. The very fact that we need to have a conversation about whether Canadians are good entrepreneurs says something—we wouldn’t need to have that in the U.S. Finally, we need to become more venturesome. Canadians need to get out of this “lord of the middle kingdom” mentality. We need to start taking some serious swings for the fences. If we match that with a greater tolerance for risk and our ability to look at that third period and sustainability, we’ll have a great mix for future growth for this country.

Discussion After reading the article, are you surprised by some of the findings and statements made by Brody? Do you think Canadians see themselves as “excellent entrepreneurs”? Why or why not? Why do you think Brody contends that Canadians are not good marketers? Could this be related to Canadian culture? While the article contends we are a nation of entrepreneurs, many Canadians cannot identify leading Canadian entrepreneurs. Does the media and education system do enough to promote entrepreneurship in this country?

Source: Reprinted with permission of Rogers Media, “Canadian Entrepreneurs Kick Ass,” by Jim McElgunn, August 25, 2005, PROFIT magazine: www.PROFITguide.com. 11

12


entrepreneurial decision process Deciding to become an entrepreneur by leaving present activity

THE ENTREPRENEURIAL DECISION PROCESS Though many individuals have creative new ideas, few can bring their ideas to the market and create a new venture. Yet entrepreneurship and the actual entrepreneurial decisions have resulted in several million new businesses being started throughout the world. Although no one knows the exact number, in Canada, estimates indicate that in recent years around 1 million new companies have been formed each year. Indeed, millions of ventures are formed despite recession, inflation, high interest rates, lack of infrastructure, economic uncertainty, and the high probability of failure. Each of these ventures is formed through a very personal human process that, although unique, has some characteristics common to all. While some ventures result from specific circumstances many entrepreneurs follow the entrepreneurial decision process, which entails a movement from something to something—a movement from a present lifestyle to forming a new enterprise, as indicated in Table 1.2.

Change from Present Lifestyle The decision to leave a career or lifestyle is not an easy one. It takes a great deal of energy and courage to change and do something new and different. Although individuals tend to start businesses in areas that are familiar, two work environments have been particularly good for spawning new enterprises: research and development and marketing. While working in technology (research and development), individuals develop new product ideas or processes and often leave to form their own companies when these new ideas are not accepted by their present employers. Similarly, individuals in marketing have become familiar with the market and customers’ unfilled wants and needs, and they frequently leave to start new enterprises to fill these needs.

TABLE 1.2

Decisions for a Potential Entrepreneur

Change from present lifestyle Work environment Disruption

Form new enterprise Desirable 1. Cultural 2. Subcultural 3. Family 4. Teachers 5. Peers Possible 1. Government 2. Background 3. Marketing 4. Financing 5. Role models

Source: Adapted from Robert D. Hisrich, “Entrepreneurship and Intrapreneurship: Methods for Creating New Companies That Have an Impact on the Economic Renaissance of an Area.” In Entrepreneurship, Intrapreneurship, and Venture Capital, ed. Robert D. Hisrich (Lexington, MA: Lexington Books, 1986), p. 90.


13

AS SEEN IN ENTREPRENEUR MAGAZINE CHANGES IN THE ENVIRONMENT This year promises to be a big one for anniversaries . . . spelling challenges and opportunities for entrepreneurs: 1. DVD becomes ubiquitous: DVD players crossed a threshold in 2002: They’re now in 33 percent of U.S. homes. That’s caused several movie studios to stop distributing films on VHS tape. But most DVD players lack VHS’ prime benefit: recording. DVD recordables are still $800-plus products, says Tara Dunion, director of the Consumer Electronics Association. That means there’s a short-term opportunity providing a service to convert treasured tapes to DVD format (think wedding and baby videos). Whenever a new device gains a wide following, says Dunion, an aftermarket is sure to follow. That can mean everything from DVD carrying cases (say, one with a licensed SpongeBob Squarepants design on the cover for the kids’ minivan movies) to cigarette-lighter chargers for portable DVD players. Already run a video store? Time to accelerate your DVD transition, and think about renting DVD players to accommodate VHS clients who desire DVDonly releases. 2. HIPAA regulations take effect: On April 14, the federal government institutes new health-care privacy regulations based on the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Entrepreneurial firms such as NaviMedix Inc. will profit from the deadline. NaviMedix provides a Web-based repository of medical offices’ information. In addition to making it possible to check patients’ eligibility under their health plans, the company also acts as a vault for records, customizing features to adhere to the privacy procedures of individual medical practices. There’s non-tech opportunity as well. “A lot of offices are still fairly paperbased,” says Lynne Dunbrack, NaviMedix’s director of HIPAA compliance. That means each practice’s “gatekeeper” needs training in what information can be given to whom, and

procedures such as verifying identities when accessing paper files. The same training will go on at insurance companies and their partners, including software providers like NaviMedix itself. But doctors’ offices are a golden opportunity because turnover is high, and regulations require existing staff to take refresher courses. 3. Video on demand becomes reality: Video-ondemand has been heralded as the next big thing for more than a decade. This time it’s for real. Really. By midyear, cable companies will be running large-scale trials. Still dubious? “The industry itself was skeptical,” says Steve Fredrick of Novak Biddle Venture Partners. “There were a lot of things that needed to come together, but by all measures, we’ve met critical mass.” (Translation: The cable companies have spent so much money that it has to succeed.) Other than the cable, says Fredrick, almost every component in the video food chain is wide open. Among the areas ripe for activity: technologies to distribute multiple video streams over digital cable, new content providers, and new advertising models. One reason for optimism is the rocket-like takeoff of video recorders like TiVo. “Video-on-demand deploys that functionality, but the hardware is in the network,” says Fredrick. “It will do for video and movies what the Web did for static text.” 4. Fuel-cell technology takes off: The media have fawned over fuel cells for years, but usually for cars. (Fuel cells convert fuel to electricity with minimal pollution.) But the initial consumer application of the technology may come in a smaller format: handheld computers. MTI MicroFuel Cells Inc. of Albany, New York, completed three technology prototypes last year. This year, the company is launching product prototypes with an eye toward a 2004 rollout. Competitors are trying to beat it to the punch. Fuel cells outlast lithium ion batteries, today’s portable power champ. “Electronics are going to a 24/7 continued

14


CHANGES IN THE ENVIRONMENT (continued) mode of operation,” says Bill Acker, MicroFuel’s president and CEO. Fuel cell PDAs and mobile phones won’t conk out before your day ends. The extra juice is also enabling such combinations as digital cameras that link to mobile phones. Applying fuel cells to other devices will also open new opportunities. Think of wireless speakers. Rather than substituting a dangling power cord for dangling speaker wire, build a fuel cell and wireless connection into the speakers—and, suddenly, they can be anywhere in a living room.

3. Does an analysis of trends like this provide ideas about possible entrepreneurial opportunities or is it like trying to drive a car by looking in the rearview mirror? 4. What advice would you give an entrepreneur who says “I want to create a company and enter the fuel cell industry not because I think there is a lot of money to be made there, but I want to do some good, I want to help the environment”?

ADVICE TO AN ENTREPRENEUR 1. What is it about these “anniversaries” that provides entrepreneurs opportunities? 2. Which “anniversary” above do you believe provides the greatest opportunity for you to form a management team and enter the industry?

Source: Reprinted with permission of Entrepreneur Media, Inc., “Remember When: These Are the Milestones You’ll Remember 2003 By. Hope You Take Advantage,” By Chris Sundlund, January 2003, Entrepreneur magazine: www.entrepreneur.com. Please contact Jeremy at Scoop Reprint Source to assist you with your reprint needs: (800) 767-3263, ext. 307.

Perhaps an even stronger incentive to overcome the inertia and leave a present lifestyle to create something new comes from a negative force—disruption. A significant number of companies are formed by people who have retired, who are relocated due to a move by the other member in a dual-career family, or who have been fired. There is probably no greater force than personal dislocation to galvanize a person’s will to act. One study indicates that the number of new listings in the Yellow Pages increases by 12 percent during a layoff period.

WHEN LIFE GIVES YOU LEMONS . . . As mentioned in the text, disruption in your life, such as losing a job or an opportunity, can often lead to someone starting his or her own business. This is exactly what happened to Marcia Kilgore, who ventured from her home in tiny Outlook, Saskatchewan, to New York City to pursue her university education at Columbia University. Upon arrival, the funding she had secured for her tuition fell through and she was almost broke, “I had $300 plus pocket change and no return ticket.” Rather than return to Canada, Marcia became determined to stay in the city and started working as a personal trainer. During this time she became interested in skin care due to her own struggles with acne and eventually enrolled in a cosmetic chemistry course. Soon afterward, at the age of 23, she invested all her savings into Let’s Face It, a small spa and skin care company. The company was so

successful that she expanded three years later into a 520-square-metre spa and changed the company name to Bliss. From there, Marcia went into rapid expansion, opening another location, a mail order catalogue, and an online store. The company became so popular that it was not uncommon to wait six months to book an appointment, causing Julie Roberts to complain to People magazine that even she couldn’t get in. Eventually, one of the largest luxury product companies in the world, LVMH noticed the success of Bliss and purchased 70 percent of the company for $30 million. Source: Leonard Brody and David Raffa, Everything I Needed to Know about Business…I Learned from a Canadian (Toronto: John Wiley & Sons Canada Ltd., 2005), p. 40; and Karen Blackman, “Fast Talk: Marcia Kilgore,” Travel+Leisure, February 2002, http://travelandleisure.com/invoke.cfm?ObjectID=A66C2638-09F311D6-82A00002B3309983.


15

Another cause of disruption that can result in company formation is someone’s completion of an educational degree. For example, a student who is not promoted after receiving an MBA degree may become frustrated and decide to leave and start a new company. What causes this personal disruption to result in a new company being formed? The decision to start a new company occurs when an individual perceives that forming a new enterprise is both desirable and possible. desirability of new venture formation Aspects of a situation that make it desirable to start a new company

Desirability of New Venture Formation The perception that starting a new company is desirable results from an individual’s culture, subculture, family, teachers, and peers. A culture that values an individual who successfully creates a new business will spawn more venture formations than one that does not. The Canadian culture places a high value on being one’s own boss, having individual opportunities, being a success, and making money—all aspects of entrepreneurship. Therefore, it is not surprising to find a high rate of company formation in Canada. On the other hand, in some countries successfully establishing a new business and making money are not as highly valued, and failure may be a disgrace. Countries with cultures that more closely emulate this attitude do not have as high a business formation rate. It will be interesting to watch which of the once-controlled economies will develop a strong pro-entrepreneur culture. No culture is totally for or against entrepreneurship. Many subcultures that shape value systems operate within a cultural framework. There are pockets of entrepreneurial subcultures in Canada. Although the more widely recognized ones include Ottawa River Valley, Toronto, and Calgary, some less-known but equally important entrepreneurial centres include Halifax, Vancouver, Montreal, and Edmonton. These subcultures support and even promote entrepreneurship—the forming of a new company—as one of the best occupations. No wonder more individuals actively plan new enterprises in these supportive environments. There are also variations within these subcultures caused by family traits. Studies of companies in a variety of industries throughout the world indicate that a very high percentage of the founders of companies had fathers and/or mothers who valued independence. The independence achieved by company owners, professionals, artists, professors, or farmers permeates their entire family life, giving encouragement and value to their children’s company-formation activities. Encouragement to form a company is further stimulated by teachers, who can significantly influence individuals to regard entrepreneurship as a desirable and viable career path. Schools with exciting courses in entrepreneurship and innovation tend to develop entrepreneurs and can actually drive the entrepreneurial environment in an economic area. The number of entrepreneurship courses a person takes increases the probability of starting a venture. In Ontario, Brock University and Ryerson University facilitate the entrepreneurial environment; the University of Calgary offers unique entrepreneurial courses and programs to potential entrepreneurs in Alberta; McGill offers students in Montreal a wide variety of entrepreneurship courses; and Acadia University, Memorial University, Saint Mary’s, Dalhousie, and Mount Saint Vincent University offer students numerous entrepreneurial courses and extracurricular activities in Atlantic Canada. A strong university education base is an important factor for entrepreneurial activity and company formation in an area. Finally, peers are very important in the decision to form a company. An area with an entrepreneurial pool and a meeting place where entrepreneurs and potential entrepreneurs can discuss ideas, problems, and solutions spawns more new companies than an area where these are not available.

16


possibility of new venture formation Factors making it possible to create a new venture

POSSIBILITY OF NEW VENTURE FORMATION Although the desire derived from the individual’s culture, subculture, family, teachers, and peers needs to be present before forming a new venture is considered, the second feature necessary centres around this question: “What makes it possible to form a new company?” Several factors—government, background, marketing, role models, and finances—contribute to the creation of a new venture (see Table 1.2). The government contributes by providing the infrastructure to help and support a new venture. It is no wonder that more companies are formed in Canada—given the roads, communication and transportation systems, utilities, and economic stability—than in many other countries. Even the Canadian tax rate for companies and individuals is better than in countries such as England or Switzerland. Countries that have a repressive tax rate on businesses or individuals can suppress company formation, since companies will not have the money to start and grow and monetary gain cannot be achieved. Since the social, psychological, and financial risks are still present, the entrepreneur must also have the necessary background. Formal education and previous business experience give a potential entrepreneur the skills needed to form and manage a new enterprise. Although educational systems are important in providing the needed business knowledge, individuals will tend to be more successful in forming businesses in fields in which they have worked. Entrepreneurs are not born: They develop. An understanding of marketing also plays a critical role in forming a new company. In addition to the presence of a market of sufficient size, there must also be a level of marketing know-how to put together the best total package of product, price, distribution, and promotion needed for successful product launching. A company is more easily formed when the driving force is more from market demand than a technology push. An example of a company that was built to fill a need in the market is Montreal-based coffee company, Servomax. Company founder Arie Koifman noticed in 1996 that people in Montreal were starting to embrace the high-quality coffee culture that was sweeping across North America and spending much of their leisure time visiting and purchasing products from numerous high-end coffee stores in the area. While the coffee craze was making inroads in the city, Koifman found that many businesses still offered its employees and visitors lowquality coffee made with low-quality equipment. Koifman recalls, “The coffee in the office was horrible 10 years ago.” Koifman decided that the market demanded superior products and he would fill this demand. He ventured to trade shows, purchased the highest quality equipment, and started offering his equipment and service to the business community. Since that time, he has added espresso machines, vending services, and water coolers to his product line, but premium coffee and brewing equipment has remained the main product. By 2004, Koifman’s business had grown to $2.1 million in revenue and he was proud to state that this had been accomplished by improving the quality of coffee in business environments, “Your office can have the same quality [coffee] as in Second Cup. There is no difference.”9 A role model can be one of the most powerful influences in making company formation seem possible. To see someone else succeed makes it easier to picture yourself engaged in a similar activity—of course, more successfully. A frequent comment of entrepreneurs when queried about their motivations for starting their new venture is, “If that person could do it, so can I!” Finally, financial resources must be readily available. Although most of the start-up money for any new company comes from personal savings, credit, friends, and relatives, there is often a need for additional risk capital. Risk-capital availability plays an essential role in the development and growth of entrepreneurial activity. More new companies form when risk capital is readily available.


17

AS SEEN IN ENTREPRENEUR MAGAZINE PROVIDE ADVICE TO AN ENTREPRENEUR ABOUT FIRM AND SOCIETAL BENEFITS If you have ever wondered whether you have an entrepreneurial gene in your body, you may soon find out. J. Craig Venter is a scientist—and an entrepreneur. He started Celera Genomics Group in 1998 with one main mission: to map the human genome. Now he is working out of a nonprofit organization he founded in Rockville, Maryland: The Center for the Advancement of Genomics. His goal is to massproduce CDs with everybody’s personal genetic maps, and sell them for $1,000 each. Who cares? Presumably people who want to see what lifethreatening genes are lurking in their bodies. Venter’s organization will work on producing a gene CD for you now—if you have half a million dollars lying around. Some critics have sniffed that science shouldn’t be so commercialized. We caught up with Venter to get his reaction. I read an article stating everybody’s personal genome code should be available for free. What’s wrong with that thinking? J. Craig Venter: That’s one of the silliest things I’ve ever heard. I would like everything in life to be free. I would like gasoline to be free. In fact, I’d like people to just deliver it right to my house; it’s a pain to go to the gas station. I don’t even understand that [logic]. If somebody can determine their own genetic code—that only happens because of scientific breakthroughs. All these things cost huge amounts of money. Somebody has to pay for it. OK, so assuming business is good for science, how can entrepreneurs be more involved? Venter: The reason scientists are able to make breakthroughs is because of people who have made money in their businesses and want to use that to help society. And the intentions of the people involved don’t really matter. You can have pure, altruistic intentions in just wanting to help society by creating new treatments for disease, or you can be motivated by pure financial greed. But the investment cycle in the U.S. encourages people to participate regardless of their background or what they’re bringing to the table.

And when do business and science not work well together? Venter: They collide when people let the pursuit of money overrule their ethical decisions. And it doesn’t just happen with science and business. I’ve seen more greed in the academic community than in the business community. It depends on people’s individual ethics. There have been cases of [unethical behavior] with clinical trials of drugs, for example, or scientists diverting their government-funding research lab into private companies. And, of course, we’ve seen businessmen having their companies buy them airplanes and large homes. I’ve seen people in business acting with better altruistic motives than many scientists, and I’ve seen many in academia who pursue things out of financial greed. The motives don’t go with one category or the other.

ADVICE TO AN ENTREPRENEUR An entrepreneur, who has invented a new drug that substantially eases the pain associated with tuberculosis, has read the above article and comes to you for advice. I have spent a lot of my money and seven years of my life into developing this drug. The investors have injected a lot of capital and taken a substantial risk. They deserve a good return on their money. If I license the drug exclusively to a drug company then I will receive a big “pay day.” I think the article suggests that I am entitled to maximize the profit from my invention. But the article also seems to suggest that I should do the ethical thing and that would involve a series of nonexclusive licenses which allows the drug to be sold at cost in third and fourth world countries. Should I maximize return and use that money to start a new research and development program that could lead to another new drug or should I maximize the societal benefit of this drug? Source: Reprinted with permission of Entrepreneur Media, Inc., “I Dream of Genes. Meet a Man with the Courage to See Human Genetics as the Business Opportunity It Is,” by Geoff Williams, February 2003, Entrepreneur magazine: www.entrepreneur.com. Please contact Jeremy at Scoop Reprint Source to assist you with your reprint needs: (800) 767-3263, ext. 307.

18


ADVANTAGES AND DISADVANTAGES OF ENTREPRENEURSHIP While each start-up offers entrepreneurs different advantages and disadvantages, they all share common characteristics. Entrepreneurs are usually motivated by some of these advantages, but they also take into consideration some of the disadvantages prior to engaging in a new venture.

Advantages Independence Statistics Canada has indicated that the number-one reason entrepreneurs start their own business is independence. Entrepreneurship offers people the chance to be their own boss, make meaningful decisions, and answer to no one but themselves. One young entrepreneur, Jerome Turner, started HubbaTubba, a hot tub leasing company. He sums up this sentiment in a few words, “I was tired of making others rich, tired of asking permission, and tired of saying, ‘Yes sir.’ I started my own business because I have the freedom to do what I want, when I want. I am responsible to one person—me—and I love it!” Financial Rewards There is an old saying that says, “Nobody ever becomes rich working for somebody else.” This sums up one of the most common reasons given by business owners when asked why they left traditional employment for entrepreneurship. Entrepreneurs are often motivated by the possibility of earning a higher salary than the one they would traditionally earn as an employee. Enjoyment Entrepreneurs seem to thrive on the enjoyment of being in business for themselves. In countless interviews with both successful and unsuccessful entrepreneurs, the vast majority state they love being a business owner. In Canada, over 90 percent of Canadian entrepreneurs say that they would start their own business again.10

Challenge Many business owners love dealing with the various challenges associated with entrepreneurship. Entrepreneurs are almost never complacent as they are constantly pushing their skill set in new and different directions. Sharon Beasley of Mrs. Beasley’s Cookies says that one of the biggest reasons she started her own business was to challenge herself and see how far her own abilities could take her: “I started my company because I wanted to know that I could. I wanted to push my abilities into areas that my traditional employer would not allow.” Many young entrepreneurs start a business because they are unsatisfied with the limited responsibility they receive upon graduation due to their age and lack of experience.

Disadvantages Risk Entrepreneurship is considered much riskier than traditional employment for good reason. As an employee, the worst case scenario is losing a job. For many entrepreneurs, the worst case scenario often involves losing one’s life savings. This risk is compounded when one considers that the majority of new ventures fail within the first three years of operation. Stress Business owners often experience a high degree of anxiety and stress. Many entrepreneurs have problems dealing with the self-reliance aspect of owning a business and have difficulty separating their business from their family life, thus causing stress and


19

hardship. For example, at a recent entrepreneurship conference, over 55 percent of entrepreneurs stated that running their own business seriously hurt personal or family relations at one time or another in the preceding five years.

Working Hours Many entrepreneurs are attracted to business ownership because they want to set their own schedules and believe they will work fewer hours when compared to paid employment. This has not proven to be the case, as indicated in a recent study completed by Industry Canada, which found that entrepreneurs work on average 40.8 hours per week compared to 35.5 hours for employees, and 33 percent of entrepreneurs worked over 50 hours per week compared to only 5 percent of employees.11 Lack of Skills Many entrepreneurs start a business based on a belief that they have the skills necessary to run their own business. This is often not the case. Entrepreneurs often quickly realize that they need to develop different competencies or hire people to complement their skill set. Sharon Beasley expressed this when recalling problems with starting her company: “I started a cookie company because I loved to bake and felt my cookies were unique. I assumed that the majority of my time would be spent baking cookies with a small amount of time allocated to running the company. Was I ever wrong! The majority of my time was spent making presentations, contacting current and potential customers, and managing my cash flow. I spent less time baking in the first three years of business then I could ever imagine and had to develop skills I didn’t even know I had.”

Financial Rewards A vast number of entrepreneurs start their business dreaming about financial independence. Unfortunately this is not always the case. Most businesses struggle during the start-up phase. Industry Canada has found that entrepreneurs are paid 91.4 percent of what they would normally earn if they were being employed by others.12

TYPES OF START-UPS cottage company A small venture that generally employs fewer than 10 people and has revenues of less than $1 million

lifestyle firm A small venture that supports the owners and usually does not grow

What types of start-ups result from the entrepreneurial decision process? One very useful classification system divides start-ups into four categories: cottage company, lifestyle firms, foundation companies, and high-potential ventures. A cottage company (or microenterprise) is a privately held business that generally employs fewer than 10 people and has revenues of less than $1 million. This type of firm often supplements traditional employment or other income, has only one employee (usually the owner), may or may not be operated as a home business, and often experiences very little growth. Cottage companies are growing in popularity as many baby boomers are retiring and starting up small companies to supplement their retirement income. It is important to note that while many cottage companies are owner-operated, they still employ more that 50 percent of working Canadians. In addition, many of Canada’s large businesses started as cottage companies and grew over time. For example, in 2005, 27 of Canada’s 100 fastest-growing companies as reported by PROFIT magazine had fewer than five employees in 1999. Glacier Ventures International Corp., a Vancouver company that publishes agricultural newspapers and community weekly papers, has grown from just three employees in 1999 to 355 in 2005.13 A lifestyle firm is privately held and usually achieves only modest growth due to the nature of the business, the objectives of the entrepreneur, and the limited money devoted to research and development. This type of firm may grow after several years to 30 or 40 employees and have annual revenues of about $2 million. A lifestyle firm exists primarily to support the owners and usually has little opportunity for significant growth and expansion.

20


ANGUS REID—ATTRACTED TO THE ADVANTAGES OF ENTREPRENEURSHIP Almost every Canadian over the past 25 years has probably heard or read the following words, “Angus Reid polling company reports that…” or “According to the latest Angus Reid poll . . .,” followed by some statistics on politics, economic development, education, or some other matter that is making news headlines that year. Angus Reid has garnered a lot of media attention and has been very accurate in predicting and forecasting the opinions of Canadians. Most Canadians have probably never thought about Angus Reid beyond the fact it was the name of a company that seemed to be constantly in the media. But there is another interesting story about Angus Reid—not the company, but the entrepreneur behind the business. Angus Reid founded the company in 1979 when he left his job as a tenured sociology professor to pursue his dream of owning a market research and polling company. Why would Reid leave a tenured university job, a rare move among professors, to start a research company in a fragmented industry? The answer can be found in many of the reasons cited

foundation company A type of company formed from research and development that usually does not go public high-potential venture A venture that has high growth potential and therefore receives great investor interest gazelles Very high growth ventures

above—he liked the work and craved the challenges and independence associated with entrepreneurship. Reid, who knew very little about business management, turned out to be a great salesman and entrepreneur, expanding the business to more than 80 countries, in 40 languages, and with over 1,200 clients. Reid says that he didn’t even know basic accounting terms when he started but persevered through hard work and determination: “I didn’t know what a balance sheet was . . . but with a lot of hard work, a bit of luck and some fortunate timing, I was able to grow this business from nearly zilch in year one to about $50 million in sales 20 years later.” In 2000, Reid decided to sell his company to Ipsos and form a new Canadian company called Ipsos-Angus Reid. Ipsos paid close to $100 million for the business, and Reid agreed to stay on as head of the company. Source: Angus Reid Consultants Web site, www.angus-reid.com, member bios; and Leonard Brody and David Raffa, Everything I Needed to Know about Business…I Learned from a Canadian (Toronto: John Wiley & Sons Canada Ltd., 2005), p. xii.

The third type of start-up—the foundation company—is created from research and development and lays the foundation for a new business area. This firm can grow in 5 to 10 years from 40 to 400 employees and from $10 million to $20 million in yearly revenues. Since this type of start-up rarely goes public, it usually draws the interest of private investors only, not the venture-capital community. The final type of start-up—the high-potential venture—is the one that receives the greatest investment interest and publicity. While the company may start out like a foundation company, its growth is far more rapid. After 5 to 10 years, the company could employ around 500 employees, with $20 million to $30 million in revenue. These firms are also called gazelles and are integral to the economic development of an area. Given that the results of the decision-making process need to be perceived as desirable and possible for an individual to change from a present lifestyle to a radically new one, it is not surprising that the type and number of new business formations vary greatly throughout the world as well as throughout Canada. Some regions in Canada have more support infrastructure and a more positive attitude toward new business creation.

ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT The role of entrepreneurship in economic development involves more than just increasing per capita output and income; it involves initiating and constituting change in the structure


product-evolution process Process for developing and commercializing an innovation

iterative synthesis The intersection of knowledge and social need that starts the product development process

ordinary innovations New products with little technological change technological innovations New products with significant technological advancement breakthrough innovations New products with some technological change government as an innovator A government active in commercializing technology technology transfer Commercializing the technology in the laboratories into new products

21

of business and society. This change is accompanied by growth and increased output, which allows more wealth to be divided by the various participants. What in an area facilitates the needed change and development? One theory of economic growth depicts innovation as the key, not only in developing new products (or services) for the market but also in stimulating investment interest in the new ventures being created. This new investment works on both the demand and the supply sides of the growth equation; the new capital created expands the capacity for growth (supply side), and the resultant new spending utilizes the new capacity and output (demand side). In spite of the importance of investment and innovation in the economic development of an area, there is still a lack of understanding of the product-evolution process. This is the process through which innovation develops and commercializes through entrepreneurial activity, which in turn stimulates economic growth. The product-evolution process, illustrated in Figure 1.1 as a cornucopia, the traditional symbol of abundance, begins with knowledge in the base technology and science—such as thermodynamics, fluid mechanics, or electronics—and ends with products or services available for purchase in the marketplace.14 The critical point in the product-evolution process is the intersection of knowledge and a recognized social need, which begins the product development phase. This point, called iterative synthesis, often fails to evolve into a marketable innovation and is where the entrepreneur needs to concentrate his or her efforts. The lack of expertise in this area—matching the technology with the appropriate market and making the needed adjustments—is an underlying problem in any technology transfer. The innovation can, of course, be of varying degrees of uniqueness. Most innovations introduced to the market are ordinary innovations, that is, with little uniqueness or technology. As expected, there are fewer technological innovations and breakthrough innovations, with the number of actual innovations decreasing as the technology involved increases. Regardless of its level of uniqueness or technology, each innovation (particularly the latter two types) evolves into and develops toward commercialization through one of three mechanisms: the government, intrapreneurship, or entrepreneurship.

Government as an Innovator The government is one conduit for commercializing the results of the synthesis of social need and technology. This is frequently called technology transfer and has been the focus of a significant amount of research effort. Despite this effort, relatively few inventions resulting from sound scientific government-sponsored research have reached (been transferred to) the commercial market. Most of the by-products of this scientific research have little application to any commercial need. The few by-products that are applicable require significant modification to have market appeal. Though the government has the financial resources to successfully transfer the technology to the marketplace, it lacks the business skills, particularly marketing and distribution, necessary for successful commercialization. In addition, government bureaucracy and red tape often inhibit the business from being formed in a timely manner.

Intrapreneurship intrapreneurship Entrepreneurship within an existing organization

Intrapreneurship (entrepreneurship within an existing business structure) can also bridge the gap between science and the marketplace. Existing businesses have the financial resources, business skills, and frequently the marketing and distribution systems to commercialize innovation successfully. Yet, too often the bureaucratic structure, the emphasis


FIGURE 1.1

Product Evolution Science

Technology Thermodynamics Fluid mechanics Electronics

III

l ling de

Industry i ng g in M arketi n g

act ur

g

M anuf

Pl a nn

M

IV o

II

Fi na nc in

22

I V

Gut feeling Knowledge Vision

I

Recognition of social need

III Iterative synthesis leading to invention (pressing toward invention)

V

Industrial phase

II Initiation of technological innovation IV Development phase

on short-term profits, and a highly structured organization inhibit creativity and prevent new products and businesses from being developed. Corporations recognizing these inhibiting factors and the need for creativity and innovation have attempted to establish an intrapreneurial spirit in their organizations. In the present era of hypercompetition, the need for new products and the intrapreneurial spirit have become so great that more and more companies are developing an intrapreneurial environment, often in the form of strategic business units (SBUs). Intrapreneurship is discussed in Chapter 2.


23

Entrepreneurship The third method for bridging the gap between science and the marketplace is via entrepreneurship. Many entrepreneurs have a difficult time bridging this gap and creating new ventures. They may lack managerial skills, marketing capability, or financial resources. Their inventions are often unrealistic, requiring significant modification to be marketable. In addition, entrepreneurs frequently do not know how to interface with all the necessary entities, such as banks, suppliers, customers, venture capitalists, distributors, and advertising agencies. Yet, in spite of all these difficulties, entrepreneurship is presently the most effective method for bridging the gap between science and the marketplace, creating new enterprises, and bringing new products and services to the market. These entrepreneurial activities significantly affect the economy of an area by building the economic base and providing jobs. In some areas, entrepreneurship accounts for the majority of new products and net new employment. Given its impact on both the overall economy and the employment of an area, it is surprising that entrepreneurship has not become even more of a focal point in economic development.

ENTREPRENEURIAL CAREERS AND EDUCATION

risk taking Taking calculated chances in creating and running a venture

What causes an individual to take all the social, psychological, and financial risks involved in starting a new venture? At first there was limited research on this aspect of entrepreneurship, but since 1985 there has been an increased interest in entrepreneurial careers and education. This increased interest has been fostered by such factors as the recognition that small firms play a major role in job creation and innovation; an increase in media coverage of entrepreneurs; the awareness that there are more entrepreneurs than those heralded in the media, as thousands upon thousands of small cottage companies are formed; the view that most large organizational structures do not provide an environment for self-actualization; the shift in employment, as women become increasingly more active in the workforce and the number of families earning two incomes grows; and the formation of new ventures by female entrepreneurs at three times the rate of their male counterparts. In spite of this increase, many people, still, do not consider entrepreneurship as a career. A conceptual model for understanding entrepreneurial careers, indicated in Table 1.3, views the career stages as dynamic ones, with each stage reflecting and interacting with other stages and events in the individual’s life—past, present, and future. This life-cycle approach conceptualizes entrepreneurial careers in nine major categories: educational environment, the individual’s personality, childhood family environment, employment history, adult development history, adult nonwork history, current work situation, the individual’s current perspective, and the current family situation.15 Although there exists a common perception that entrepreneurs are less educated than the general population, this opinion has proved to be more myth than reality. Studies have found entrepreneurs overall, and female entrepreneurs in particular, to be far more educated than the general populace.16 However, the types and quality of the education received sometimes do not develop the specific skills needed in the venture creation and management process. For example, some female entrepreneurs are at more of a disadvantage than their male counterparts in this respect, as they frequently do not take significant business or engineering courses. Childhood influences have also been explored, particularly in terms of values and the individual’s personality. The most frequently researched personality traits are the need for achievement, focus of control, risk taking, and gender identity. Since personality traits are more thoroughly discussed in Chapter 3, it is sufficient here to indicate that few conclusions can be drawn from all the research regarding any universal personality traits of entrepreneurs.

24


TABLE 1.3

A Framework for an Entrepreneur’s Career Development

Life Space Areas Work/occupation

Childhood Education and childhood work experience

Early Adulthood

Present Adulthood

Employment history

Current work situation

IV

VII

I Individual/personal

Childhood influences on personality, values, and interests

Adult development history V

Individual’s current perspective VIII

II Nonwork/family

Childhood family environment III

Adult family/nonwork history VI

Current family/nonwork situation IX

Source: Adapted from Donald D. Bowen and Robert D. Hisrich, “The Female Entrepreneur: A Career Development Perspective,” The Academy of Management Review II (April 1986), pp. 393–407.

The research on the childhood family environment of the entrepreneur has had more definitive results. Entrepreneurs tend to have self-employed fathers, many of whom are also entrepreneurs. Many also have entrepreneurial mothers. The family, particularly the father or mother, plays an important role in establishing the desirability and credibility of entrepreneurship as a career path. As one entrepreneur said: “My father and mother always encouraged me to try new things and do everything very professionally. They wanted me to be the very best and have the freedom and independence of being my own boss.” Employment history also has an impact on entrepreneurial careers, in both a positive and a negative sense. On the positive side, entrepreneurs tend to have a higher probability of success when the venture created is in their field of work experience. This increased success rate makes the providers of risk capital particularly concerned when this work experience is not present. Negative displacement (such as dissatisfaction with various aspects of one’s job, being fired or demoted, being transferred to an undesirable location, or having one’s spouse take a new position in a new geographic area) encourages entrepreneurship and new venture formation. Although no definitive research has been done on the adult development history of entrepreneurs, it appears to also affect entrepreneurial careers. Development history has somewhat more of an impact on women, since they tend to start businesses at a later stage in life than men, usually after having experienced significantly more job frustration. There is a similar lack of data on adult family/nonwork history. Although there is some information on entrepreneurs’ marital and family situations, the available data add little to our understanding of entrepreneurial career paths. The impact of the current work situation has received considerably more research and attention. Entrepreneurs are known for their strong work values and aspirations, their long workdays, and their dominant management style. Entrepreneurs tend to fall in love with the organization and will sacrifice almost anything in order to ensure its survival. This desire is reflected in the individual entrepreneur’s current career perspective and family/nonwork situation. The new venture usually takes the highest priority in the entrepreneur’s life and is the source of the entrepreneur’s self-esteem. While in university, few students, but increasing in number, think they will pursue entrepreneurship as their major life goal. Even among those that do, relatively few individuals will start a business immediately after graduation, and even fewer will prepare for a new venture creation by working in a particular position or industry. This mandates that


25

entrepreneurs continually supplement their education through books, trade journals, seminars, or taking courses in weak areas. Generally, skills that need to be acquired through seminars or courses include creativity, financing, control, opportunity identification, venture evaluation, and deal making. Entrepreneurship education is a fast-growing area in colleges and universities in Canada and throughout the world. Many universities offer at least one course in entrepreneurship at the graduate or undergraduate level, and a few actually have a major or minor concentration in the area. In Canada, the number of universities that offer undergraduate entrepreneurship courses has increased from 53 to 70 in the last five years, while the number of courses has grown from 253 to 367. This increase in the number of courses has been fuelled by high student interest. In a recent Gallup poll, 80 percent of high school students expressed an interest in taking at least one entrepreneurial course while at university. Other studies indicate that students of all disciplines see entrepreneurship coursework as helpful to their future goals. While the courses in entrepreneurship vary by university, there is a great deal of commonality, particularly in the initial one or two courses in this field of study. These courses tend to reflect the overall objectives for a course in entrepreneurship, as indicated in Table 1.4. These tend to centre around skill identification and assessment; understanding entrepreneurial decision making and the entrepreneurial process; understanding the

TABLE 1.4

Overall Objectives for a Course in Entrepreneurship

•

Understand the role of new and smaller firms in the economy.

•

Understand the relative strengths and weaknesses of different types of enterprises.

•

Know the general characteristics of an entrepreneurial process.

•

Assess the student’s own entrepreneurial skills.

•

Understand the entrepreneurial process and the product planning and development process.

•

Know alternative methods for identifying and evaluating business opportunities and the factors that support and inhibit creativity.

•

Develop an ability to form, organize, and work in interdisciplinary teams.

•

Know the general correlates of success and failure in innovation and new venture creation.

•

Know the generic entry strategies for new venture creation.

•

Understand the aspects of creating and presenting a new venture business plan.

•

Know how to identify, evaluate, and obtain resources.

•

Know the essentials of •

Marketing planning

•

Financial planning

•

Operations planning

•

Organization planning

•

Venture launch planning

•

Know how to manage and grow a new venture.

•

Know the managerial challenges and demands of a new venture launch.

•

Understand the role of entrepreneurship in existing organizations.

Source: Robert D. Hisrich, “Toward an Organization Model for Entrepreneurial Education,” Proceedings, International Entrepreneurship Conference, Dortmund, Germany (June 1992), p. 29.

26


characteristics of entrepreneurs and their role in economic development on a domestic and, more recently, on an international basis; assessing opportunities and coming up with an idea for a new venture; writing and presenting a full-scale business plan; knowing how to obtain resources; managing and growing the enterprise; and understanding the role of entrepreneurship in an existing organization, that is, intrapreneurship. The skills required by entrepreneurs can be classified into three main areas: technical skills, business management skills, and personal entrepreneurial skills (see Table 1.5). Technical skills involve such things as writing, listening, oral presentations, organizing, coaching, being a team player, and technical know-how. Business management skills include those areas involved in starting, developing, and managing an enterprise. Skills in decision making, marketing, management, financing, accounting, production, control, and negotiation are essential in launching and growing a new venture. The final skill area involves personal entrepreneurial skills. Some of these skills differentiate an entrepreneur from a manager. Skills included in this classification are inner control (discipline), risk taking, innovativeness, persistence, visionary leadership, and being change oriented. These skills and objectives form the basis of the modular approach to an entrepreneurship curriculum. By laying out the modules, a course or sequence of courses can be developed, depending on the needs, interests, and resources of the particular university. This modular approach helps ensure that the most important areas of the field are covered in the courses offered, whether on a quarter or semester basis or involving one or a series of courses. An interesting trend in entrepreneurial education has evolved in the last five years with some entrepreneurs finding the need for and having the desire to obtain MBA degrees. Previously, for generations, entrepreneurs loathed everything about the MBA. But today’s advanced technology sophistication, telecommunication, computer usage, and hypercompetition have changed that attitude. Entrepreneurs are recognizing the need to learn some of the “science” of management in an MBA program to compete and grow their businesses effectively in today’s global environment.

University-Wide Entrepreneurship Education A new trend emerging in Canada is the concept of university-wide entrepreneurship where students regardless of their discipline of study have the opportunity to enrol in entrepreneurship courses. Prior to this trend, the majority of entrepreneurship and small business courses were offered in schools of business that limited access. This was done by requiring students to have a high number of prerequisites to enrol or by requiring students to be registered in their third or fourth year of a business degree. University-wide entrepreneurship courses allow non-business students to gain access to the valuable theory and skills available while earning a degree in the arts or sciences. University-wide entrepreneurship is offered through either the magnet model, where the business school offers entrepreneurship courses with no prerequisites, or through the radiant model, where students are offered entrepreneurship courses in their field of study. For example, under the magnet model, a student at Brock University may register in a first-year entrepreneurship course that is taught by a business faculty member but has no prerequisites. On the other hand, a music student attending Saint Francis Xavier University, which uses the radiant model, will take a course that is team-taught and focuses on entrepreneurship and music. Currently, 47 percent of the 70 universities that teach undergraduate entrepreneurship do so using the university-wide approach. This trend is being driven by a number of different


TABLE 1.5

27

Types of Skills Required in Entrepreneurship Technical Skills •

Writing

•

Oral communication

•

Monitoring environment

•

Technical business management

•

Technology

•

Interpersonal

•

Listening

•

Ability to organize

•

Network building

•

Management style

•

Coaching

•

Being a team player

Business Management Skills •

Planning and goal setting

•

Decision making

•

Human relations

•

Marketing

•

Finance

•

Accounting

•

Management

•

Control

•

Negotiation

•

Venture launch

•

Managing growth

Personal Entrepreneurial Skills •

Inner control/disciplined

•

Risk taker

•

Innovative

•

Change oriented

•

Persistent

•

Visionary leader

•

Ability to manage change

Source: Robert D. Hisrich, “Toward an Organization Model for Entrepreneurial Education,” Proceedings, International Entrepreneurship 1992 Conference, Dortmund, Germany (June 1992), p. 29.

factors including students and parents who see a link between entrepreneurship and career options, faculty who have identified that non-business students actually have higher venture rates than traditional business students and need entrepreneurial training, and university administration impressed by the high enrolment numbers of university-wide courses.

28


ETHICS AND SOCIAL RESPONSIBILITY OF ENTREPRENEURS

business ethics The study of behaviour and morals in a business situation

The life of the entrepreneur is not easy. An entrepreneur must take risks with his or her own capital in order to sell and deliver products and services while expending greater energy than the average businessperson in order to innovate. Faced with daily stressful situations and other difficulties, the possibility exists that the entrepreneur will establish a balance between ethical exigencies, economic expediency, and social responsibility, a balance that differs from the point where the general business manager takes his or her moral stance.17 A manager’s attitudes concerning corporate responsibility are related to the organizational climate perceived to be supportive of laws and professional codes of ethics. On the other hand, entrepreneurs with a relatively new company who have few role models usually develop an internal ethical code. Entrepreneurs tend to depend on their own personal value systems much more than other managers when determining ethically appropriate courses of action. Although drawing more on their own value system, entrepreneurs have been shown to be particularly sensitive to peer pressure and general social norms in the community, as well as pressures from their competitors. The differences between entrepreneurs in different types of communities and in different countries reflect, to some extent, the general norms and values of the communities and countries involved. This is clearly the case for metropolitan as opposed to nonmetropolitan locations within a single country. Internationally, there is evidence to this effect about managers in general. North American managers seem to have more individualistic and less communitarian values than their German and Austrian counterparts. The significant increase in the number of internationally oriented businesses has impacted the increased interest in the similarities and differences in business attitudes and practices in different countries. This area has been explored to some extent within the context of culture and is now beginning to be explored within the more individualized concept of ethics. The concepts of culture and ethics are somewhat related. Whereas ethics refers to the “study of whatever is right and good for humans,” business ethics concerns itself with the investigation of business practices in light of human values. Ethics is the broad field of study exploring the general nature of morals and the specific moral choices to be made by the individual in his relationship with others. While business ethics has emerged as an important topic within popular and academic publications in the past few decades, to date it has been treated ahistorically and with an orientation dominated by a North American perspective. Although the English word ethics is generally recognized as stemming from the Greek êthos, meaning “custom and usage,” it is more properly identified as originating from swëdhêthos, in which the concepts of individual morality and behavioural habits are related and identified as an essential quality of existence. Most Western authors credit the Greek philosophers Socrates (469–399 B.C.), Plato (427–347 B.C.), and Aristotle (384–322 B.C.) as providing the earliest writings upon which currently held ethical conceptions are based. Much earlier writings pertaining to moral codes and laws, however, can be found within both Judaism (1800 B.C.) and Hinduism (1500 B.C.). American attitudes on ethics result from three principal influences: the Judeo-Christian heritage, a belief in individualism, and opportunities based upon ability rather than social status. The United States was formed by immigrants from other countries, frequently fleeing oppression in their homelands, dedicated to creating a society where their future and fortunes were determined by their abilities and dedication to work. Research on business ethics can be broken down into four broad classifications: (1) pedagogically oriented inquiry, including both theory and empirical studies; (2) theorybuilding without empirical testing; (3) empirical research, measuring the attitudes and

ETHICS As noted in the “Opening Profile,” David Reynolds, owner of QuickSnap, is close to fulfilling his dream of manufacturing a plastic shoe fastening device. However, he is starting to have second thoughts about choosing China as a manufacturing centre. Since he would be hiring a manufacturer without ever getting to inspect the facility, he is worried about the labour practices in the country and is wondering if he is contributing to the problem by rewarding them for paying low wages and engaging in what some would describe as sweatshop practices. David readily admits he dreams about being rich some day but he never planned on being successful based on exploiting others. David’s worries are compounded by the fact that the product is only economically viable based on quotes he has been given from several Chinese man-

ufacturing facilities. Since the opening profile has been written, David’s parents, relatives and friends have sunk a great deal of time and money into the project and he needs to recoup some of their investment. David is concerned about what his parents and investors would think if he used a facility that exploited cheap labour, especially since the majority of investors to date have given David money because they believe in him and his ideals. Then again he promised them all he would pay them back with interest within three years, and they are starting to ask some tough questions about why the manufacturing process has not begun. The questions to David are pretty straightforward— whether he should manufacture his shoe clip in China, or just abandon the idea and determine at a later date how to pay back his investors?

ethical beliefs of students and academic faculty; and (4) empirical research within business environments, measuring the attitudes and ethical views, primarily of managers within large organizations. Each of these areas offers insight into the ethical dimensions of entrepreneurs and managers. Some aspects of business ethics are indicated in the Ethics box in each chapter. Ethics is not only a general topic for conversation but a deep concern of businesspeople as the survey results indicate.

THE FUTURE OF ENTREPRENEURSHIP As evidenced by the many different definitions, the term entrepreneurship means different things to different people and can be viewed from different conceptual perspectives. However, in spite of the differences, there are some common aspects: risk taking, creativity, independence, and rewards. These commonalities will continue to be the driving force behind the notion of entrepreneurship in the future. One thing is clear: The future for entrepreneurship appears to be very bright. We are living in the age of the entrepreneur, with entrepreneurship endorsed by educational institutions, governmental units, society, and corporations. Entrepreneurial education has never been so important in terms of courses and academic research. The number of universities and colleges offering at least one course in entrepreneurship increases each year. The number of faculty teaching entrepreneurship as well as the number of endowed chairs increases regularly. There are some unique entrepreneurial programs as well, such as the MBA in entrepreneurship from the University of Calgary, and the multi-disciplinary entrepreneurial skills programs offered at the Cape Breton University, Dalhousie, and Mount Saint Vincent University. Entrepreneurship education throughout the world is also growing. Many universities in Europe have recently started a program in entrepreneurship. Most universities and associations do research on entrepreneurship, followed by training courses, and then education 29

30


courses—courses for which degree credit is given. Very few universities are yet involved in the actual enterprise creation process where the university, faculty, and/or students share in the sales and profits of the new venture. This increase in course offerings has been accompanied by an increase in academic research, endowed chairs in the area, entrepreneurship concentrations and majors, and centres of entrepreneurial activity. This trend will continue, supported by an increase in Ph.D. activity, which will in turn provide the needed faculty and research effort to support the future increases in course offerings, endowed positions, centres, and other research efforts. Various governments are taking an increased interest in promoting the growth of entrepreneurship. Individuals are encouraged to form new businesses and are provided such government support as tax incentives, buildings, roads, and a communication system to facilitate this creation process. Encouragement by the federal and provincial governments should continue in the future as more lawmakers understand that new enterprises create jobs and increase economic output in the area. Some provincial governments in Canada are developing their own innovative industrial strategies for fostering entrepreneurial activity and the timely development of the technology of the area. The impact of this strategy is seen in the venture-capital industry, which is always sensitive to government regulations and policies. Society’s support of entrepreneurship will also continue. This support is critical in providing both motivation and public support. Never before have entrepreneurs been so revered by the general populace. Entrepreneurial endeavours in Canada are considered honourable and even, in many cases, prestigious pursuits. A major factor in the development of this societal approval is the media. The media has played, and will continue to play, a powerful and constructive role by reporting on the general entrepreneurial spirit in Canada and highlighting specific success cases of this spirit in operation. Major articles in such newspapers as The Globe and Mail, the National Post, and the Toronto Star have focused on the pioneer spirit of today’s entrepreneurs, describing how this spirit benefits society. General business magazines such as PROFIT, Canadian Business, Forbes, and Fortune have provided similar coverage by adding special columns on entrepreneurship and venturing. Magazines such as Black Enterprise, Entrepreneur, INC., and Journal of Business Venturing—which focus on specific issues of the entrepreneurial process, starting new ventures, and small, growing businesses—have built solid and increasing circulation rates. Television on both a national and a local level has highlighted entrepreneurship by featuring specific individuals and issues involved in the entrepreneurial process. Not only have local stations covered regional occurrences, but national shows such as Venture, MoneyTalk, and Squeeze Play have had special segments devoted to this phenomenon, and Report on Business Television (ROBTV) is a channel dedicated to business and entrepreneurship issues. This media coverage uplifts the image of the entrepreneur and growth companies and focuses on their contributions to society. Finally, large companies will continue to have an interest in their special form of entrepreneurship—intrapreneurship—in the future. These companies will be increasingly interested in capitalizing on their research and development (R&D) in today’s hypercompetitive business environment. Other companies will want to create more new businesses through intrapreneurship in the future, particularly in light of the hypercompetition and the need for globalization.


31

IN REVIEW SUMMARY The definition of an entrepreneur has evolved over time as the world’s economic structure has changed and become more complex. Since its beginnings in the Middle Ages, when it was used in relation to specific occupations, the notion of the entrepreneur has been refined and broadened to include concepts that are related to the person rather than the occupation. Risk taking, innovation, and creation of wealth are examples of the criteria that have been developed as the study of new business creations has evolved. In this text, entrepreneurship is defined as the process of creating something new with value by devoting the necessary time and effort; assuming the accompanying financial, psychological, and social risks; and receiving the resultant rewards of monetary and personal satisfaction and independence. The decision to start an entrepreneurial venture consists of several sequential steps: (1) the decision to leave a present career or lifestyle, (2) the decision that an entrepreneurial venture is desirable, and (3) the decision that both external and internal factors make new venture creation possible. Although the decision-making process is applicable to each of the three types of start-up companies, the emphasis in each one is certainly different. Because of their differing natures, foundation companies and high-potential ventures require a more conscious effort to reach a defensible decision on these points than cottage companies and lifestyle firms. There are both pushing and pulling influences active in the decision to leave a present career: the “push” of job dissatisfaction or even a layoff, and the “pull” toward entrepreneurship of seeing an unfilled need in the marketplace. The desirability of starting one’s own company is strongly influenced by culture, subculture, family, teachers, and peers. Any of these influences can function as a source of encouragement for entrepreneurship, with support ranging from government policies that favour business to strong personal role models of family or friends. Beyond the stage of seeing entrepreneurship as a “good idea,” the potential entrepreneur must possess or acquire the necessary education, management skills, and financial resources for launching the venture. The study of entrepreneurship has relevance today, not only because it helps entrepreneurs better fulfill their personal needs but because of the economic contribution of the new ventures. More than increasing national income by creating new jobs, entrepreneurship acts as a positive force in economic growth by serving as the bridge between innovation and the marketplace. Although the government gives great support to basic and applied research, it has not had great success in translating the technological innovations to products or services. Although intrapreneurship offers the promise of a marriage of those research capabilities and business skills that one expects from a large corporation, the results so far in many companies have not been spectacular. This leaves the entrepreneur, who frequently lacks both technical and business skills, to serve as the major link in the process of innovation development, and economic growth and revitalization. The study of entrepreneurship and the education of potential entrepreneurs are essential parts of any attempt to strengthen this link so essential to a country’s economic well-being.

32


HANDS-ON ACTIVITY Students should form groups of two to three and start a small business or a miniventure that will run for a period of four to six hours. The only rules to follow are: a. The business has to be legal b. No lotteries c. Maximum investment of $1 d. Business must cease operations at day’s end After the students complete the project, they can write a reflection stating what they did, whether they made a profit, and what they learned. An alternate assignment could be to have the students present the results of the assignment to the class.

R E S E A R C H TA S K S 1. Ask five entrepreneurs what the term entrepreneurship means to them. Be prepared to present the commonalities and differences of these definitions to the class. Can differences in the definitions be explained by the “type” of entrepreneur interviewed? 2. Find five individuals who considered becoming entrepreneurs but did not do so. Ask them why they first considered becoming entrepreneurs, what steps they took toward becoming entrepreneurs, and what obstacles they felt stood in their way. 3. What impact does entrepreneurship have on your local, state (or province), and national economies? Use data to back up your arguments. 4. Research the policy statements of your local, state (or province), and national governments for their goals and objectives regarding the importance of entrepreneurship and means of encouraging it. 5. Speak to people from five different countries and ask them about how their national culture helps and/or hinders entrepreneurship.

CLASS DISCUSSION 1. List the content that you believe is necessary for an entrepreneurship course. Be prepared to justify your answer. 2. Do you believe that ethics and social responsibility should be part of an entrepreneurship course or did the textbook authors just include a section on it to be “politically correct”? 3. What is the role of government in entrepreneurship? To what extent should it help protect people from entrepreneurship or should it simply get out of the way and leave the market to reward or punish inappropriate behaviour? Given your answer to the above question, what specific steps should the government take or what steps have they taken that should be reversed? 4. What excites you about being an entrepreneur? What are your major concerns?


33

SELECTED READINGS Aldrich, Howard E.; and Martha Argelia Martinez. (Summer 2001). Many Are Called, but Few Are Chosen: An Evolutionary Perspective for the Study of Entrepreneurship. Entrepreneurial Theory and Practice, pp. 41–56. More than a decade ago, three elements indispensable to an understanding of entrepreneurial success were identified: process, context, and outcomes. Although the knowledge of entrepreneurial activities has increased dramatically, we still have much to learn about how process and context interact to shape the outcome of entrepreneurial efforts. Armstrong, Peter. (2001). Science, Enterprise and Profit: Ideology in the KnowledgeDriven Economy. Economy and Society, vol. 30, no. 4, pp. 524–52. The article argues that despite ideological pressure to demonstrate a link between entrepreneurship and risk, none of the relevant research has succeeded in doing so. Nor has risk been a prevalent feature of new venture creation in either general or science-based start-ups. Brouwer, Maria T. (2002). Weber, Schumpeter and Knight on Entrepreneurship and Economic Development. Journal of Evolutionary Economics, vol. 12, pp. 83–105. This paper interprets the discussion on entrepreneurship and economic development that was started by Weber, Schumpeter, and Knight. The paper demonstrates how these three authors influenced each other on the topics of importance of innovation and entrepreneurship, uncertainty, and perceptiveness and hidden qualities of people. Douglas, Evan J.; and Dean A. Shepherd. (Spring 2002). Self-Employment as a Career Choice: Attitudes, Entrepreneurial Intentions, and Utility Maximization. Entrepreneurial Theory and Practice, pp. 81–90. This paper investigates the relationship between career choices and people’s attitudes toward income, independence, risk, and work effort and the effect these attitudes have on the intent to start one’s own business. Significant relationships were found between the utility expected from a job and the independence, risk, and income it offered. Similarly, intention to become self-employed was related to tolerance for risk and independence. Drayton, William. (2002). The Citizen Sector: Becoming as Entrepreneurial and Competitive as Business. California Management Review, vol. 44, no. 3, pp. 120–32. This article explores the aspects that drive entrepreneurial transformation of the social half of society that took place over the last two and a half decades, identifies three management challenges made urgent by this shift, and describes its impact on the rest of the society. Formaini, Robert L. (Fourth Quarter 2001). The Engine of Capitalist Process: Entrepreneurs in Economic Theory. Economic and Financial Review, pp. 2–11. Questions about the existence of profits, causes of economic growth, and coordination of resource use by market economy have introduced a concept of the entrepreneur. The concept became relevant with the Internet’s evolution and smallbusiness growth and remains relevant because how entrepreneurs are treated depends on overall national economic performance and direction of economic activity. Gifford, Sharon. (1998). Limited Entrepreneurial Attention and Economic Development. Small Business Economics, vol. 10, no. 1, pp. 17–30. Economic development depends on the allocation of entrepreneurial resources to efforts to discover new profit opportunities. Limited entrepreneurial attention is allocated between maintaining current activities and starting new activities. The problem of allocating limited entrepreneurial attention in a variety of contexts is addressed.

34


Hansen, Morten T.; Henry W. Chesbrough; Nitin Nohria; and Donald N. Sull. (September–October 2000). Networked Incubators. Harvard Business Review, pp. 74–84. The article argues that organizational models that exploit entrepreneurial drive and network access while preserving the benefits of scale and scope will be the most potent models for long-term success in the new economy. Networked incubators are one such emerging form that, in addition to office space, funding, and basic services, offers powerful business connections, enabling start-ups to beat their competitors to market. Hayton, James C.; Gerard George; and Shaker A. Zahra (Summer 2002). National Culture and Entrepreneurship: A Review of Behavioral Research. Entrepreneurial Theory and Practice, pp. 33–52. The article reviews and synthesizes the findings of 21 empirical studies that examine the association between national cultural characteristics and aggregate measures of entrepreneurship, individual characteristics of entrepreneurs, and aspects of corporate entrepreneurship. Laukkanen, Mauri. (2000). Exploring Alternative Approaches in High-Level Entrepreneurship Education: Creating Micro-Mechanisms for Endogenous Regional Growth. Entrepreneurship & Regional Development, vol. 12, pp. 25–47. The paper argues that there is a downside related to conceptual and efficacy notions of entrepreneurship and education, breeding unreasonable and unpredictable expectations. This paper explores alternative strategies in university-based entrepreneurial education describing the dominant pattern of education, based on an individual-centered mind-set. Lee, Sang N.; and Suzanne J. Peterson. (2000). Culture, Entrepreneurial Orientation, and Global Competitiveness. Journal of World Business, vol. 35, no. 4, pp. 401–16. This paper presents a cultural model of entrepreneurship. It proposes that a society’s propensity to generate autonomous, risk-taking, innovative, aggressive, and proactive entrepreneurs and firms will depend on its cultural foundation. It also proposes that only countries with specific cultural tendencies will engender a strong entrepreneurial orientation, hence experiencing more entrepreneurship and global competitiveness. Mitchel, Ronald K.; Brock Smith; Kristie W. Seawright; and Eric A. Morse. (2000). CrossCultural Cognitions and the Venture Creation Decision. Academy of Management Journal, vol. 43, no. 5, pp. 974–93. Theories of social cognition, information processing, and expertise provide the foundation for a cross-cultural model of venture capital. The paper describes the findings of the research conducted in seven countries that support and extend the cognitive model and provide preliminary evidence of consistency of cognitive scripts across cultures. Office of Advocacy, U.S. Small Business Administration. (2000). The Third Millennium Small Business and Entrepreneurship in the 21st Century. This report is an update of the report published for the 1995 White House Conference on Small Business. The new edition discusses rapid changes in the small-business sector; the heterogeneity, diversity, and complexity of the small-business environment; barriers to entry and inhibitors to growth that small-business will continue to face; and the overall small-business and entrepreneurial sectors future growth. Osborne, Stephen W.; Thomas W. Falcone; and Prashanth B. Nagendra. (2000). From Unemployed to Entrepreneur: A Case Study in Intervention. Journal of Developmental Entrepreneurship, vol. 5, no. 2, pp. 115–36. A summary of the entrepreneurial potential, training, and success of a group of recently unemployed workers from a wide spectrum of previous occupations and industries.


35

Wennekers, Sander; and Roy Thurik. (1999). Linking Entrepreneurship and Economic Growth. Small Business Economics, vol. 13, no. 1, pp. 27–55. The concept of entrepreneurship is discussed, with the aim of explaining the entrepreneurship role in the process of the economic growth. By considering three levels on which entrepreneurship can be analyzed (individual, firm, and aggregate level) the relationship between entrepeneurship and economic growth is examined.

APPENDIX A: SHOULD YOU START YOUR OWN BUSINESS? Each day, thousands of individuals ask the difficult question, “Should I start my own business?” When queried, 85 percent of the populace said they would like to be in business for themselves. The driving force behind this desire to start a new venture is the desire to be one’s own boss, to be independent. Since there is no definitive measurement developed that allows an individual to determine if he or she can be a successful entrepreneur, each individual needs to carefully appraise his or her situation through several different methods and self-assessment models. One way to determine whether you have what it takes to be an entrepreneur is to fill out the questionnaire in Table A.1 and check the answers at the end of this appendix. Keep in mind that the answers develop an average profile of an entrepreneur. There are many exceptions, and there is no such person as a typical entrepreneur.

TABLE A.1

Characteristics of an Entrepreneur

1. An entrepreneur is most commonly the _____ child in the family. a. oldest c. youngest b. middle d. doesn’t matter 2. An entrepreneur is most commonly: a. married b. single 3. An entrepreneur is most typically a: a. man b. woman

c. widowed d. divorced c. either

4. An individual usually begins his or her first significant entrepreneurial business enterprise at what age? a. teens d. forties b. twenties e. fifties c. thirties 5. Usually an individual’s entrepreneurial tendency first appears evident in his or her: a. teens d. forties b. twenties e. fifties c. thirties 6. Typically, an entrepreneur has achieved the following educational attainment by the time the first significant business venture begins: a. less than high school d. master’s degree b. high school diploma e. doctor’s degree c. bachelor’s degree 7. An entrepreneur’s primary motivation for starting a business is: a. to make money d. to create job security b. to be independent e. to be powerful c. to be famous continued

36


Characteristics of an Entrepreneur (continued) 8. The primary motivation for the entrepreneur’s high ego and need for achievement is based upon a relationship with: a. spouse c. father b. mother d. children 9. To be successful in an entrepreneurial venture, you need: a. money d. a good idea b. luck e. all of the above c. hard work 10. Entrepreneurs and venture capitalists: a. get along well b. are the best of friends

c. are cordial friends d. are in conflict

11. A successful entrepreneur relies on which of the following for critical management advice? a. internal management team c. financial sources b. external management professionals d. no one 12. Entrepreneurs are best as: a. managers b. venture capitalists

c. planners d. doers

13. Entrepreneurs are: a. high risk takers (big gamblers) b. moderate risk takers (realistic gamblers)

c. small risk takers (take few chances) d. doesn’t matter

14. Entrepreneurs: a. are the life of the party b. are bores at a cocktail party

c. will never go to parties d. just fit into the crowd at a party

15. Entrepreneurs tend to “fall in love” with: a. new ideas b. new employees c. new manufacturing ideas

d. new financial plans e. all of the above

16. Entrepreneurs typically form: a. service businesses b. manufacturing companies c. financial companies

d. construction companies e. a variety of ventures

Source: From Robert D. Hisrich and Candida Brush, The Woman Entrepreneur, 1985. Reprinted with permission of Lexington Books, a member of the Rowman & Littlefield Publishing Group.

Answers to Characteristics of an Entrepreneur Quiz (Table A.1) 1. Oldest. Although, indeed, entrepreneurs come from many different birth orders, there is a slight tendency for an entrepreneur to be the oldest child in the family, thereby having had time alone with parents without other siblings. 2. Married. While there has never been any statistical validation, most entrepreneurs are married when they start their first significant venture. The spouse plays an important support role. 3. Man. Although men still outnumber women entrepreneurs in terms of actual numbers, women entrepreneurs are presently forming new ventures at two to three times the rate of men. 4. Thirties. Although ventures may be started at any age, the first significant venture is usually started in the early thirties for men and late thirties for women.


37

5. Teens. An individual’s ability to handle ambiguity, the drive for independence, and creativity (important characteristics for an entrepreneur) are evident early in life. 6. Bachelor’s degree. While the Horatio Alger story is indeed still possible, most entrepreneurs are university educated. Women entrepreneurs are even more educated, with many having a master’s degree. This education is particularly important in securing financing and starting technology-based ventures. Although not as highly educated as those in North America, entrepreneurs in foreign countries are at least as educated as the general populace. 7. To be independent. The need for independence (the inability to work for anyone else) is what drives the entrepreneur to take the risks to work all the hours necessary to create a new venture. 8. Father. Regardless of whether it is a love or hate relationship, entrepreneurs report a strong parental relationship, particularly with the father. This strong father relationship is particularly important for women entrepreneurs. 9. Luck. Hard work, money, and a good idea are necessary but not sufficient for a successful venture. The venture formation by the entrepreneur is characterized also as being “lucky”—being in the right place at the right time. 10. Are in conflict. Venture capitalists and entrepreneurs have two different goals. The venture capitalist’s goal is to make money and exit from the business within five years. The entrepreneur’s goal is independence through survival of the organization. 11. External management professionals. This use of an external professional for advice often takes the form of a mentor or at least a good network system. The use of this individual(s) helps reduce the loneliness of being an entrepreneur. 12. Doers. Entrepreneurs take pride in creating and doing. They are definitely not managers and planners—the appropriate side of the entrepreneurial continuum. Rarely are they also good venture capitalists. 13. Moderate risk takers. The myth that entrepreneurs are high risk takers is nothing more than just a myth. The calculating decision to risk everything and perhaps fail reflects moderate risk taking. 14. Just fit into a crowd. Unless you knew that an individual was an entrepreneur, there would be no way to distinguish an entrepreneur from a manager based on external physical appearance. 15. All of the above. New is an entrepreneurial magnet, as it implies creativity and venture creation, the drive of every entrepreneur. 16. Variety of ventures. Entrepreneurs create a wide variety of ventures, depending on their field of experience and backgrounds. Women entrepreneurs, however, do tend to be concentrated in the service sector.

01 Hisrich Ch 01

Recommend Documents