Chapter 1

The Nature and Importance

of Entrepreneurship

McGraw-Hill/Irwin
Entrepreneurship, 7/e Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved. 1-2
 Development of Entrepreneurship (1 of 2)
Earliest Period
Entrepreneurs would sign contracts with a money
person.
Example: Marco Polo
Middle Ages
Entrepreneurs were actors and people who managed
large production projects.
17th Century
Entrepreneurs entered into contractual arrangements
with the government.
Example: Mississippi Company

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 Development of Entrepreneurship (2 of 2)
18th Century
With global industrialization taking place, entrepreneurs
were distinguished from capital providers.
Inventions developed during this time were reactions to
the changing world.
Example: Edison & Whitney
19th and 20th Centuries
Entrepreneurs were not distinguished from managers.
They were viewed mostly from an economic perspective.
Concept of innovation and newness was an integral part.
Example: Andrew Carnegie

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 Definition of Entrepreneurs Today
Entrepreneurship is the process of creating something
new and assuming the risks and rewards.

Four aspects of being an entrepreneur today:

Involves creation process.
Requires devotion of time and effort.
Involves rewards of being an entrepreneur.
Requires assumption of necessary risks.

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 Entrepreneurs Versus Inventors
Inventor: Creates something for the first time; highly
driven and motivated by his or her own work and
personal ideas.
Differentiating characteristics of an inventor:
Education.
Level of experience.
Problem-solving skills.
Level of self-confidence.
Willingness to take risks.
Ability to tolerate ambiguity and uncertainty.
View of monetary benefits in measuring success.

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 The Entrepreneurial Process
Four distinct phases:
Identify and evaluate the opportunity.
Window of opportunity.
Develop a business plan.
Determine the resource requirement.
Manage the resulting enterprise.

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Aspects of the Entrepreneurial Process

<<Insert Table 1.1>>

Table 1.1

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 Types of Start-Ups
Lifestyle firm
Privately held; usually achieves only modest growth.
Foundation company
Created from research and development.
Lays the foundation for a new business area.
High-potential venture
Receives the greatest investment interest and publicity.
Starts out like a foundation company, but attains rapid
growth.
Also called gazelles, is integral to the economic
development of an area.

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 Role of Entrepreneurship in
Economic Development
Innovation is depicted as a key to economic
development.
Product-evolution process: Process through which
innovation is developed and commercialized.
Iterative synthesis: Critical point in the product-evolution
process.

Three types of innovation:

Ordinary
Technological
Breakthrough

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 Product Evolution

Need Recognition Industrial

Initiate Innovation Development

Press to Invent

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 Government as an Innovator
One channel for commercializing the results of the
synthesis of social need and technology.
Frequently called technology transfer.

Relatively few innovations reach commercial markets.

Lacks business skills necessary for successful
commercialization.
Government bureaucracy and red tape act as inhibitors.

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 Corporate Entrepreneurship
Strengths of an existing business:
Financial resources.
Business skills.
Marketing and distribution systems.
Factors that inhibit successful commercialization:
Bureaucratic structure.
Emphasis on short-term profits.
A highly structured organization.

In the current era of hypercompetition, strategic

business units (SBUs) are emerging.
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 Independent Entrepreneurship
Factors that inhibit commercialization:

Managerial skills.
Marketing capabilities.
Financial resources.
Unrealistic inventions.
Lack of awareness on interfacing with necessary entities
(banks, suppliers, customers, venture capitalists,
distributors, and advertising agencies).

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 Ethics and Social Responsibility
Entrepreneurs usually develop an internal ethical code.

Personal value systems tend to be influenced by:

Peer pressure.
General social norms in the community.
Pressures from their competitors.

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 Future
Entrepreneurship has gained mileage through a
number of ways:

Entrepreneurial education.
Increase in academic research.
Societal support (media coverage).
Corporate entrepreneurship.

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 Entrepreneurial Universities
Activities Structures
Seminars Business Assistance Centers
Consulting Incubators
Research Innovation Centers
Industrial Parks
Case Development
Enterprise Development
Technology Development & Centers
Transfer
Venture Capital Exchanges
Joint Ventures & Strategic
Inputs
Alliances
Guest Lectures
Board of Advisors/Trustees
Internships
Student Projects
Source of Funds
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