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Entrepreneurship
Definition
According 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. According to a Psychologist; An entrepreneur is a person who is typically driven by certain forcesneed to obtain or attain something, to experiment, to accomplish , or perhaps to escape authority of others.
Entrepreneurship
Definition
According to a businessman; An entrepreneur is a person who appears as a threat; an aggressive competitor. To another businessman, an entrepreneur is an ally, a source of supply, a customer or someone who creates wealth for others as well; who finds better ways to utilize resources and reduce waste, and who produces jobs others are glad to get. Another definition; Entrepreneurship is the dynamic process of creating incremental wealth. The wealth is created by individuals who assume the major risks is terms of equity, time, and or career commitment or provide value for some product or service.
Entrepreneurship
Definition
Entrepreneurship is a process whereby an individual or a group of individuals use organized efforts to pursue opportunities to create value and grow by fulfilling wants and needs through innovation and uniqueness, no matter what resources the entrepreneur currently has.
Development of Entrepreneurship
Entrepreneurship is a French word meaning Go-between or Between-taker. The term coined by an economist Richard Cantillon in early 1700. Earlier Period. Middle Ages. Actor and person in charge of large scale production projects with the resources provided, usually by the Govt. 17Th Century. Person bearing risks of profit (loss) in a fixed-price contract with the Govt.
Development of Entrepreneurship
18th Century. Richard Cantillon- Person bearing risks is different from one supplying capital. Entrepreneur bears risks and plans, supervises, organizes and also owns factors of production. 19th Century. Jean Baptist Say, an economist- The profits of entrepreneurship were separate from profits of capital ownership. Francis walker -Distinctions made between those who supplied funds and earned Interest (venture capitalist) and those who profited from entrepreneurial (managerial) activities (entrepreneur).
Development of Entrepreneurship
0th Century. Joseph Schumpeter (economist) described entrepreneur is someone who is an inventor and someone who creatively destructs.
Peter Drucker (management author) described the entrepreneur as someone who maximizes opportunity. Albert Shapiro- Entrepreneur takes initiative, organizes some social and economic mechanisms and accepts risks of failure. Robert Hisrich defined entrepreneurship as the process of creating something different with value of devoting the necessary time and effort, assuming the accompanying financial, psychological, and social risks, and receiving the resulting rewards of monitory and personal satisfaction.
Entrepreneurial Venture
Innovative practices Goals are profitability and growth. Seeks out new opportunities. willingness to take risks.
Types of Entrepreneurs
Entrepreneur A person who initiates and actively operates an entrepreneurial venture. Types of Entrepreneurs Nascent, Novice, Habitual, Serial and Portfolio. Nascent Entrepreneur: A person who is in the process of starting a new business. Novice Entrepreneur: A person who has no prior ownership experience as a business founder, inheritor of a business or a purchaser of a business.
Types of Entrepreneurs
Habitual Entrepreneur: A person who has prior business ownership experience. The nascent entrepreneur can either be a novice or a habitual entrepreneur. Serial Entrepreneur: An individual who has sold or closed an original business, established another new business, sold or closed-that business and continues this cycle. Portfolio Entrepreneur: A person who retains an original business and builds a portfolio of additional businesses through inheriting, establishing or purchasing them.
Characteristics of Entrepreneurs
Demographic profile, personality characteristics or intentions profile. Demographic Profile Family birth order. Gender. Work experience. Education. Entrepreneurial family. Personality profile of Entrepreneurs High level of motivation. Abundance of self confidence. Ability to be involved for the long term. High Energy level.
Characteristics of Entrepreneurs
Persistent problem solver. High degree of initiative. Ability to set goals. Moderate risk taker. Resourceful. Desire and ability to be self directed. Higher need for autonomy. Use of Proactive Personality Scale: A Proactive Personality a more prone to take actions to influence his/her environment. Intentions profiles of Entrepreneurs. Decision to become entrepreneur is not accidental but represents planned intentional behavior influenced by both contextual factors (social, political, economic opportunities) and personal factors (history, personality. abilities). The Person and the processes an individual goes through.
Characteristics of Entrepreneurs
Appropriateness- Consistency- Effectiveness (ACE) Model.
It is another approach to determine entrepreneurial intentions; this model is taken from communication theory. ACE model suggests that mass media and interpersonal messages can influence an individuals perception of appropriateness, consistency and effectiveness of starting a business. These perceptions then influence an individuals intentions to become an entrepreneur. This model also recognizes the interplay of personal and contextual factors in being an entrepreneur.
Strategic Orientation:
The entrepreneurs strategic orientation is driven by perception of opportunity. Opportunities have diminishing returns accompanied by rapid changes in technology, consumer economies, social values or political rules. In managerial domain, the strategic orientations is driven by resources currently controlled. Towards use of planning systems and cycles, and measuring performance to control current resources.
Managers Vs Entrepreneurs
Primary Motives:
Promotion and other traditional corporate rewards such as office, staff and power. Independence, opportunity to create and money.
Time Orientation:
Short Term meeting targets and budgets, weekly, monthly, quarterly and the annual planning horizon. Survival and achieving 5 to 10 years growth of business.
Activity:
Delegates and supervises more than direct involvement. Direct involvement.
Managers Vs Entrepreneurs
Risk Status:
Careful; Concerned about status symbol. Moderate risk taker, not concerned about status symbols.
Decisions:
Usually agrees with those in upper management positions. Follows dreams with decisions.
Who Serves:
Others. Self and customers.
Managers Vs Entrepreneurs
Family History:
Family members worked for large organizations. Entrepreneurial, small-business, professional or farm background.
Entrepreneurship Process
They are searching for change, responding to it and exploiting it by creating something new, something different. Exploring in entrepreneurial context by gathering information, identifying potential opportunities and assessing possible competitive advantages. Researching ventures feasibility uncovering business ideas, looking at competitors and exploring financing options. Planning the venture- developing a viable organizational vision and mission, exploring organizational cultural issues and creating a strong and effective business plan.
Entrepreneurship Process
Organizing the venture- choosing a legal form of business organization and settling other legal issues like patient and copyright and organization hierarchy. Launching the venture- setting goals and strategies, identifying technology-operations methods, marketing plans, information systems, financial-accounts systems and cash flow management system. Managing the Venture- managing processes, managing people and managing growth. Managing processes involve making decisions, establishing action plans, analysis ventures internal/ external environments measuring and evaluating performance, and stimulating and making needed changes.
Entrepreneurship Process
Managing people involve selecting and hiring, appraising and training, motivating, managing conflicts, delegating tasks, and being an effective leader. Managing Growth entails developing growth strategies, handling crises exploring ways to finance growth, determining venture's value and if need be harvest or exit the venture.
High degree of independence- freedom from constraints. Get to use a variety of skills and talents. Freedom to make decisions. Accountable to only yourself. opportunity to tackle challenges. Feeling of achievement and pride. Potential for greater financial rewards.
Must be comfortable with change and uncertainty. Must make a bewildering number of decisions. May face tough economic choices. Must be comfortable with taking risks. Need many different skills and talents. Must be comfortable with the potential of failure.
Driving forces of todays economy. Implications of these driving forces. Critical success factors.
Continual turbulence and change. Change: Any alteration in external context or internal organizational factors. Reduced need for physical assets. Buildings, factories, equipment, inventories etc. Vanishing distances. Compressed time.
Legal Factors
Legal Issues in start
Determine form of business organization. Set up record keeping for tax purposes. Conduct lease and financing negotiations. Draw up contracts. File for patents, trademarks, and copyright protections.
Legal Factors
Legal Issues in managing the ongoing business.
Human resource management laws and regulations. Safety laws and regulations (product, workplace, environment) Financial and accounting laws and regulations. Marketplace laws and regulations.
Ethics
The rules and principles that define right and wrong decisions and behaviors.
Competitive Advantage
Competitive advantage is what sets an organization apart or its competitive edge; an organization does something better than others or does something that others cant. Ways to get and maintain competitive advantage; Industrial Organization (I/O) approach:-Getting and maintaining a competitive advantage is dependent on the ability to see external trends and changes and to interpret and act on them. Resource Based view (RBV) :- Getting and keeping a competitive advantage is dependent on developing or acquiring unique organizational resources and capabilities.
Competitive Advantage
Resources: The assets of an organization to do its business like financial, physical, human, intangible, structural/ cultural etc. capabilities: The organizational procedures and processes that determine how efficiently and effectively the organization transforms its inputs (resources) into outputs (products and services). The Guerilla view: -competitive advantage, successful entrepreneurial venture must be more adept at rapidly and repeatedly disrupting the current situation and radically surpassing competitors with actions that keep them off balance -in other words acting like guerrilla unit. They will repeatedly form new competitive advantages based on different approaches and different asset combinations.
Week -4.
Different types of Businesses. i.e. proprietorship, partnership, joint stock company (public and private); advantages and disadvantages. Importance of international entrepreneurship Strategic issues in international entrepreneurship Challenges and opportunities in international entrepreneurship
Types of Businesses
Sole Proprietorship
An unincorporated business owned by one person-a simplest form of business organization. Income and losses pass though to owner and are taxed at personal rate. The business pays no income tax, and pays no salary to the owner. Advantages Easy of formation -creating a sole proprietorship require no authorization from any government. Low start up costs -require little or no investment of capital. Mostly small businesses have few, if any, financial reporting obligations. Business assets actually belong to the proprietor, and he exercises direct control over the business. The business Easy to go out of business if necessary.
Types of Businesses
Disadvantages
Unlimited personal liability - the owner is personally liable for the debt of the business.. Personal finances at risk. Miss out on all kinds of business tax deductions. Total responsibility. May be more difficult to raise finances.
Partnership
An unincorporated business owned by two or more partners. A partnership is often referred to as a firm. A written contract agreement among the partners is made highlighting rights and responsibilities before the firm begins operations.
Types of Businesses
The assets of a partnership does not belong to the business, but belong jointly to all the partners. Partnerships have limited life - ends upon withdrawal or death of a partner. Admission of a new partner terminates previous partnership and creates a new entity. Partnerships often have provision for retirement of a Partner and admission of a new one as routine event. Types of Partnerships General Partnership, Limited Partnership and Limited liability Partnership.
Types of Businesses
General Partnership
Each partner has rights and responsibilities similar to those of a sole proprietor- withdraw cash/ any other asset at will. Mutual agency-each partner has full authority of an owner to negotiate contracts binding upon the business. Income and losses pass through to partners and are taxed at personal rate. Flexibility in profit/ loss allocations to partners. Advantages Ease of formation. Pooled talent. Pooled resources. Somewhat easies access to financing. Some tax benefits.
Types of Businesses
Disadvantages
unlimited personal liability. Divided authority and decisions. Potential for conflict. Continuity of transfer of ownership.
Limited Partnership
Consists of one or more general partners and one or more limited partners. General partners have unlimited personal liabilities for the debt and have right to make management decisions. Limited partners are passive investors sharing in profit and loss but not participating in management. Limited partners liability is limited to the amounts they have invested in the business if firm goes under.
Types of Businesses
Limited Liability Partnership
All the partners may participate in management of the firm. Income and losses Pass through to partners and are taxed at personal rate. Flexibility in profit/ loss allocation to partners. Partnership like sole proprietorship recognize no salary expense for services provided to the organization by the partners. Amount paid to the partner is recorded as partners drawing account. Liability is limited, however, one partner must retain unlimited liability Advantages Good way to acquire capital from limited partners.
Types of Businesses
Disadvantages Cost and complexity of forming can be high. Limited partners can not participate in management of business without loosing liability protection.
Corporation
A corporation is a legal entity, having an existence separate and distinct form that of its owners. The owners of a corporation are called stockholders or shareholders and their ownership is evidenced by transferable shares of Capital Stock. Being a separate legal entity, a corporation may own property on its own name; and the assets of the corporation belong to the corporation itself and not to the stockholders. A corporation has a legal status in court- It may sue and be sued as if it were a person.
Types of Businesses
As a legal entity, a corporation may enter into contracts, is responsible for its own debt and pays income taxes on its earnings. Corporations are run by salaried managers and not by stockholders. The top level management is the board of directors elected by the stockholders. The transferability of corporate ownership, together with professional management gives corporation a greeter continuity of assistance than other forms of organizations. Stockholders have no personal liability for the debt of the business. Their personal losses are limited to their amount of equity in the business incase the business goes down. Dividend income is taxed at corporate and personal shareholder levels; losses and deductions are at corporate level.
Types of Businesses
Advantages Limited liability. Transferable ownership. Continuous existence. Easier access to resources. Disadvantages Expensive to set up. Closely regulated. Double taxation. Extensive record keeping . Charter restrictions. Must meat certain requirements. May limit future financing options.
International Entrepreneurship
International entrepreneurship is a process of conducting business activities across national boundaries. It includes exporting, licensing, or opening a sales office in another country.
International Entrepreneurship
International Vs Domestic Entrepreneurship.
Both are concerned with sales, costs and profits but it is the variation in the relative importance of the factors involved in each decision. These factors are economics, political, culture and technology.
Economics.
Creating business strategy for a multicountry area involves dealing with different levels of economic development, different currency valuations, different government regulations, and different banking, marketing and distribution systems.
Stages of economic development.
The difference in development of such infrastructure as roads, electricity, communication systems, legal systems and business ethics and norms have impact on ability to engage in international business.
International Entrepreneurship
Balance of Payment. The Difference between the value of countrys imports and exports over time. With flexible exchange rates, a countrys balance of payment affects the valuation of its currency. The valuation of one countrys currency affects how businesses of that country do business in other countries. Types of Systems Different systems of governments have affect on the business. Barter system, third party arrangements, lack of knowledge of western systems regarding business plans, product promotion, marketing, profits, etc.
International Entrepreneurship
Political-legal Environment Laws governing business arrangements vary. Product decisions are affected by legal requirements on labeling; ingredients and packaging. Laws/ regulations effecting specifications of products like automobiles etc. Cultural Environment The impact of culture on entrepreneurs and strategies is significant; marketing, product design etc. Culture of bribes and corruption Vs loosing the business.
Technological Environment
Technology like culture varies significantly across countries and products are designed keeping in sight the available infrastructure like car designs of Europe Vs USA.
International Entrepreneurship
Strategic Issues
The allocation of responsibility between the mother country and foreign operations.
Centralized decision making De-centralize the entire international operation. Strategic decision making is retrieved back to mother country and host country operating unit given the responsibility for the tactical implementation of corporate strategy . Planning, Reporting and Control System Environmental analysis Strategic planning Organizational structure Controlling and Marketing program
International Entrepreneurship
Challenges and opportunities in international entrepreneurship Entry into International business.
Exporting Indirect exporting: Foreign buyer in local market; using export management firm. Direct exporting: Through independent distributor; companys own overseas sales office hiring own salespeople. Establishing local assembly line. Establishing local manufacturing plant.
International Entrepreneurship
Nonequity Arrangements Doing international business through an arrangement that does not involve any investment. Licensing: Allowing someone else to use something of the company like patent, trademark, technology, production process or product in return for the payment of royalty. Turn-key projects: Developing and operationalizing something in a foreign country. Management Contracts: A method for doing a specific international job. Direct Foreign Investment wholly owned, joint venture with minority or majority equity positions.
International Entrepreneurship
Minority Interest: Having less them 50% ownership position. Joint venture: two companies forming a third company. It is normally done in two conditions;
when an entrepreneur wants to purchase local knowledge and an already established marketing or manufacturing facility. when a rapid entry into a market is desired.
Synergy: Two parties having things in common. Majority Interest: Having more than 50% ownership. 100%: ownership. Mergers: Horizontal merger: combination of at-least two firms doing similar businesses at the same market level to generate economy of scale. Vertical Merger: combination of at least two firms in successive stages of production to stabilize supply and production. Product Extension Merger: combination of two firms with noncompeting products. Have related products or distribution activities.
International Entrepreneurship
Market Extensions Merger: Combination of at least two firms with similar products indifferent geographical markets. Acquiring firm can economically combine its management skills. Diversified Activity Merger: Combination of at-least two totally unrelated firms. To use cash resources of acquired firm to increase shareholder wealth.
Barriers To International Trade General Agreement on Tariffs and Trade (GATT) Increasing Protectionist Attitude. Trade Blocs and Free Trade Areas.
Week 5
Case Studies/Quiz/Sessional
Week - 6
Various sources of ideas for new ventures. Creativity and techniques for problem solving. Product planning and development process.
Research and Development Entrepreneurs own formal/ informal research and development effort.
Is introduction of this product in the market offer good opportunity to the firm?
Week - 7
Creating and Starting the Venture How to prepare business plan, its scope and value to investors, lenders, employees, suppliers, and customers. Legal issues for the entrepreneur.
The depth and detail in the business plan depend on the size and scope of the proposed new venture. The differences in the scope of the business plan may also depend on the kind of business, like service sector/ manufacturing or consumer good or industrial products. The size of the market, competition and potential growth may also effect the scope of the business plan. The business plan is important because; It helps determine the viability of the venture in a designated market. It provides guidance to the entrepreneur in organizing his/ her planning activities. It serves as an important tool in helping to obtain financing.
The process of business planning provides self-assessment by the entrepreneur. It forces the entrepreneur to bring objectivity to the idea and reflect on questions like;
Does the idea make sense? Will it work? Who is my customer? Does it satisfy customer needs? What kind of protection can I get against imitation by competitors? Can I manage such business? Whom will I compete with?
This self-evaluation is similar to role playing, requiring the entrepreneur to think through various scenarios and consider obstacles that might prevent the venture from succeeding.
Investors or venture capitalist are more interested in the character of entrepreneur as they will be investing large sum of capital and expect cashing out within five or seven year. Venture capitalist will play an important role in actual management of business hence wants to ensure the willingness of acceptance of this involvement.
Marketing Information Define the Market- The product is for Men or women?, for high income or low income people?, for rural or urban dealers?, for highly or less educated?. Project market size and subsequent market goals for the new venture.
Financial Information- Prepare a budget including list of all the expenditures in the first year and all the revenues sources including sales and external available funds-capital expenditures, direct operating expenses, revenues from sales forecast from marketing data.
Industry Analysis
The focus of industry analysis is to provide sufficient knowledge of the environment (national and local market )that can affect marketing strategy decision making. It begins with broadest based assessment of environmental and industry trends and than proceeds to more local market environmental and industry trends including competition (upside-down pyramid). The entrepreneur needs to initiate market research to secure specific information on customer needs, competitive strengths and weaknesses, price, promotions, distribution and product or service benefits.
Select segment or segments to target Develop a marketing plan integrating product, price, distribution and promotion