Lecture Entrepreneurship: Chapter 2 - The entrepreneurial process. Chapter 2 is an overview of the factors critical for starting a new enterprise and building it into a successful business.
THE ENTREPRENEURI AL PROCESS Chapt e r Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, 2014 © The Entrepreneurial Process PERSONAL Achievement Locus of control Ambiguity tolerance Risk taking Personal values Education Experience Opportunity recognition PERSONAL Risk taking Job dissatisfaction Job loss Education Age Gender Commitment Resources SOCIOLOGICAL Networks Teams Parents Family Role models Advisors PERSONAL Entrepreneur Leader Manager Commitment Vision INNOVATION TRIGGERING EVENT IMPLEMENTATION ENVIRONMENTA L Opportunities Role models Creativity ENVIRONMENTA L Economy Competition Resources Incubator Government policy Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2014 © 2017© ORGANIZATIONAL Team Strategy Structure Culture Products GROWTH ENVIRONMENTAL Competitors Customers Suppliers Investors Bankers Lawyers Resources Governmental Policy Economy Entrepreneurship Defined Entrepreneur: someone who perceives an opportunity and creates an organization to pursue that opportunity Entrepreneurship involves all the functions, activities, and actions associated with perceiving opportunities and creating organizations to pursue them These include: • Market and customer research • Service and product innovation • Team building • Finding & managing resources • Leadership Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2014 © 2017© Factors Influencing an Entrepreneur Personal Attributes Higher internal locus of control • Desire for financial success • Desire to achieve self-realization • Desire for recognition • Joy of innovation • Environmental Factors • Local, regional, or national attitudes • Social and cultural pressures for or against risk taking • Access to entrepreneurial role models • Responsibilities to family and community Risk tolerance • Remember: No single type of person is best suited for entrepreneurship Entrepreneurs come from all walks of life! Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2014 © 2017© Ten D’s of Entrepreneurship Dream Devotion Decisiveness Details Doers Destiny Determination Dollars Dedication 10 Distribute Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2014 © 2017© Before Committing, Entrepreneurs Must Assess their own financial reality • Live with little or no salary? • What external financial commitments are there? Identify key contacts in their networks • Take an inventory of the resources in one’s network Reach out to sources of free advice and feedback • Who can help or advise? Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2014 © 2017© 3 Crucial Components of Success Uncertainty Entrepreneur Opportunity Uncertainty Fits & Gaps Business planning Uncertainty Resources The Timmons Model Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2014 © 2017© Tenets of the Timmons Model The Opportunity • Is there a clear customer need? • Is the timing right: team ready, market ready? • Combine these factors with the execution of the business plan to make an idea an opportunity The Lead Entrepreneur and Management Team • Experience within the proposed industry? • Investors prefer to see a track record of driving growth and profits • An ‘A’ team with a ‘B’ idea is almost always better than the opposite The Resources • Capital, technology, equipment, and most importantly – people Low overhead, high productivity, and controlling, but not owning • & Corbett, Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave Entrepreneurship, New York: Wiley, 2014 © 2017© Key Forms of Start Up Capital Debt No transfer of company ownership Potentially higher risk for the entrepreneur Requires repayment, and therefore careful cash flow planning Equity • Investors gain an ownership stake • Investor takes most risk, which explains the costs and expected returns • No repayment, but requires careful capital planning and investment Remember: Most companies will never take on outside investors, and many will never use debt financing for growth Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2014 © 2017© A Sample Financing Path Personal Savings & Sweat Equity Angel Investment Bank & SBA Loans Initial Public Offering Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2014 © 2017© Venture Capital 10 Happiness is a Positive Cash Flow! Understand the difference between profits and cash flow: • Profitable companies can have negative cash flows and risk running out of money • Unprofitable companies can have positive cash flows and be on healthy trajectories Profit is measured as a gain or loss on the income statement, but… • Doesn’t accurately reflect the cash inflows and outflows of the company • Some cash dealings impact cash flow but not profits Example: loan repayments Cash flow measures the flow of cash during a given timeframe • It’s comprised of three elements: operations, investing and financing Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2014 © 2017© 11 Nine F’s for Entrepreneurial Success Founders Forever-innovating Focused Flat Fast Frugal Flexible Friendly Fun Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2014 © 2017© 12 ... Incubator Government policy Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 20 14 © 20 17© ORGANIZATIONAL Team Strategy ... resources • Leadership Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 20 14 © 20 17© Factors Influencing an Entrepreneur... all walks of life! Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley, Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 20 14 © 20 17© Ten D’s of Entrepreneurship