19.8: Glossary

Key Terms:

corporate entrepreneurship

The creation of new products, processes, and ventures within large organizations.

entrepreneurs

Individuals who recognize and pursue opportunities, take on risk, and convert these opportunities into value-added ventures that can survive in a competitive marketplace.

established business owners

Individuals who are still active in a business that is more than three and a half years old.

family entrepreneurship

A business is owned and managed by multiple family members, usually for more than one generation.

high-technology entrepreneurship

Ventures in the information, communication, and technology space; typically have high growth expectations.

lifestyle entrepreneurship

Creating a venture to suit a personal lifestyle and not for the sole purpose of making profits.

nascent entrepreneurs

Individuals who have set up a business they will own or co-own that is less than three months old and has not yet generated wages or salaries for the owners.

new business owners

Former nascent entrepreneurs who are actively involved in a business for more than three months but less than three and a half years.

potential entrepreneurs

Individuals who believe that they possess the capacity and knowledge to start a business.

serial or habitual entrepreneurship

Individuals who start several businesses, simultaneously or one after another.

social entrepreneurship

Creating innovative solutions to immediate social and/or environment problems and mobilizing resources to achieve social transformation.

business model

Rationale of how an organization creates, delivers, and captures value.

business model canvas

A tool to describe and assess a business model, encompassing nine components: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure.

first mover

Introducing a new product or service category first can potentially define an innovation’s characteristics in the minds of buyers, gaining valuable name recognition and brand loyalty.

second movers

Second-to-market organization that can learn from and improve on the first mover’s efforts.

angel investors

Individual investors or groups of experienced investors who provide venture financing from their own funds.

crowdfunding

Process of raising new venture funds from a large “crowd” audience, typically virtually from the Internet.

debt capital

Borrowed money that must be repaid at some agreed-upon future date.

equity capital

Owner’s investment in the company; does not have a specific date for repayment.

venture capital

Financing obtained from venture capitalists, investment firms that specialize in financing small, high-growth companies and receive an ownership interest and a voice in management in return for their investment.

design thinking

Processes used by designers and entrepreneurs to find the solution to complex issues, navigate new or uncertain environments, and create a new product for the world.

Summary of Learning Outcomes

19.1 Overview of Entrepreneurship

1. What are some different types of entrepreneurship?

Entrepreneurship is the creation of something valuable. Social entrepreneurship involves creating innovative solutions to immediate social and/or environmental problems and mobilizing resources to achieve social transformation. Corporate entrepreneurship involves the creation of new products, processes, and ventures within existing large organizations. Family entrepreneurship involves a business that is owned and managed by multiple family members, usually for more than one generation. Serial or habitual entrepreneurship refers to individuals who start several businesses, simultaneously or one after another. Lifestyle entrepreneurship involves a venture to suit a personal lifestyle and not for the sole purpose of making profit. High-technology entrepreneurship involves ventures in the information, communication, and technology space.

19.2 Characteristics of Successful Entrepreneurs

2. What characteristics lead individuals to become entrepreneurs?

Most entrepreneurs are ambitious, independent, self-confident, risk-taking, visionary, creative, energetic, passionate, and committed. Entrepreneurial individuals are often competitive, with a need to achieve, and are self-starters who prefer to lead. Compared to the average population, entrepreneurs are more decisive and confident in their abilities, and they choose moderate risk where they can affect outcomes. Entrepreneurs spot and act on trends, often producing innovative product designs, marketing strategies, and managerial solutions. Entrepreneurs are able and willing to work hard, and are attached to the work and the outcomes, so much that they are willing to make personal sacrifices to achieve their goals.

19.3 Business Model Canvas

3. How can the business model canvas help us to describe and assess a business model?

A business model provides an explanation of how an organization creates, delivers, and captures value. The business model canvas achieves this goal by describing four main areas of any venture—customers, offering, infrastructure, and financial viability—through nine building blocks that describe and assess a business model. Customer segments are categories of customers that have common characteristics. The value proposition is the reason that customers choose one option over another when deciding what to buy. Channels bring the value proposition to the customers through communication, distribution, and sales. Companies need to maintain relationships with their customers to acquire and retain customers and boost sales. There are two general types of revenue stream: revenues from one-time customers and revenues from ongoing payments. Any business needs resources—physical, financial, intellectual, and/or human—to function and provide their products or services to their customers. Key activities are the critical tasks that a company does to succeed and operate successfully. Companies build partnerships to optimize their business, reduce risk, or gain resources. All businesses incur costs through operation, whether fixed or variable.

19.4 New Venture Financing

4. How do entrepreneurs finance their new business ideas?

Bootstrapping is attempting to found and build a company from personal finances or from the operating revenues of the new company. Entrepreneurs can access debt capital, which is borrowed money that must be repaid by a future date, and equity capital, which is the owner’s investment in the company and does not have a specific date for repayment. Crowdfunding is the process of raising new venture funds from a large “crowd” audience, typically virtually from the Internet.

19.5 Design Thinking

5. How can entrepreneurs leverage design thinking to solve complex problems and navigate uncertain environments?

Design thinking uses core elements and skills of play, empathy, reflection, creation, and experimentation to collaborate, create, and build upon findings. Through observation, synthesis, alternatives, critical thinking, feedback, visual representation, creativity, problem-solving, and value creation, entrepreneurs can use design thinking to identify unique venture opportunities. There are three main phases of design thinking: inspiration, ideation, and implementation. The problem, or design challenge, is the inspiration. Ideation is a creative process of solving the design challenge based on observations. Ideas are turned into actions in the implementation phase. Possible solutions are tested through experiments to create the best version of the product. In all of these phases, there are two main types of thinking: convergent and divergent. Convergent thinking moves from broad thoughts to concrete understanding, while the thoughts from divergent thinking can be narrowed down to the most promising ideas and solutions. Divergent thinking uses the imagination to open the mind to new possibilities and solutions, and ultimately to become more innovative.

19.6 Optimal Support for Entrepreneurship

6. How can government support entrepreneurship?

Government can support entrepreneurship by reducing negative incentives or by increasing positive ones. In particular, government can:

• Reduce barriers to entrepreneurship erected by previous governments or in society.
• Protect intellectual property and capital through the patent system and the rule of law.
• Provide businesses with technology ready for commercialization.
• Increase incentives for entrepreneurship, which comes at a cost to other priorities.
• Provide special benefits to favored industries, businesses, or regions, although such cronyism can come at a political and economic cost by distorting markets and playing favorites.

Chapter Review Questions

1. What are the differences between classic entrepreneurs, multipreneurs (entrepreneurs with many start ups), and intrapreneurs (Entrepreneurs in traditional businesses)?
2. What differentiates an entrepreneur from a small-business owner?
3. What are some major factors that motivate entrepreneurs to start businesses?
4. How can potential business owners find new business ideas?
5. Why is it important to develop a business plan? What should such a plan include?
6. What financing options do small-business owners have? What risks do they face?
7. How do the small-business owner’s and entrepreneur’s roles change over time?
8. What are the benefits to small firms of doing business internationally, and what steps can small businesses take to explore their options?
9. Describe the financial and management assistance programs offered by the SBA.
10. What significant trends are occurring in the small-business arena?
11. How is entrepreneurial diversity impacting small business and the economy?
12. How do ethics impact decision-making with small-business owners?

Management Skills Application Exercises

1. After working in software development with a major food company for 12 years, you are becoming impatient with corporate “red tape” (regulations and routines). You have an idea for a new snack product for nutrition-conscious consumers and are thinking of starting your own company. What entrepreneurial characteristics do you need to succeed? What other factors should you consider before quitting your job? Working with a partner, choose one to be the entrepreneurial employee and one to play the role of his current boss. Develop notes for a script. The employee will focus on why this is a good idea—reasons he will succeed—and the employer will play devil’s advocate to convince him that staying on at the large company is a better idea. Then switch roles and repeat the discussion.
2. What does it really take to become an entrepreneur? Find out by interviewing a local entrepreneur or researching an entrepreneur you’ve read about in this chapter or in the business press. Get answers to the following questions, as well as any others you’d like to ask:
   • How did you research the feasibility of your idea?
   • How did you develop your vision for the company?
   • How long did it take you to prepare your business plan?
   • Where did you obtain financing for the company?
   • Where did you learn the business skills you needed to run and grow the company?
   • What are the most important entrepreneurial characteristics that helped you succeed?
   • What were the biggest challenges you had to overcome?
   • What are the most important lessons you learned by starting this company?
   • What advice do you have for would-be entrepreneurs?
3. Your class decides to participate in a local business plan competition. Divide the class into small groups, and choose one of the following ideas:
   • A new computer game based on the stock market
   • A company with an innovative design for a skateboard
   • Travel services for college and high school students

   Prepare a detailed outline for the business plan, including the objectives for the business and the types of information you would need to develop product, marketing, and financing strategies. Each group will then present its outline for the class to critique.

Managerial Decision Exercises

1. A small catering business in your city is for sale for $250,000. The company specializes in business luncheons and small social events. The owner has been running the business for four years from her home but is expecting her first child and wants to sell. You will need outside investors to help you purchase the business. Develop questions to ask the owner about the business and its prospects, as well as a list of documents you want to see. What other types of information would you need before making a decision to buy this company? Summarize your findings in a memo to a potential investor that explains the appeal of the business for you and how you plan to investigate the feasibility of the purchase.
2. As the owner of a small factory that makes plastic sheeting, you are constantly seeking ways to increase profits. As the new year begins, one of your goals is to find additional funds to offer annual productivity and/or merit bonuses to your loyal, hardworking employees. Then a letter from a large national manufacturer of shower curtains seems to provide an answer. As part of a new “supplier diversity” program it is putting in place, the manufacturer is offering substantial purchase contracts to minority-owned suppliers. Even though the letter clearly states that the business must be minority owned to qualify for the program, you convince yourself to apply for it based on the fact that all your employees are Latino. You justify your decision by deciding they will benefit from the increased revenue a larger contract will bring, some of which you plan to pass on to them in the form of bonuses later in the year. Using a web search tool, locate articles about this topic, and then write responses to the following question. Be sure to support your arguments and cite your sources.
   1. Is it wrong for this business owner to apply for this program even though it will end up benefiting his employees as well as his business?

Critical Thinking Case

Fostering Entrepreneurship in Unlikely Places

Vic Ahmed is no stranger to business start-ups; he’s been involved in at least 15 or 20. But his latest venture is a start-up . . . for start-ups. Ahmed founded Innovation Pavilion (IP), a business incubator in Centennial, Colorado (Denver’s tech center), in 2011. A typical business incubator provides start-up companies with workspace, mentoring, training, and sometimes a path to funding, but Innovation Pavilion goes further.

Innovation Pavilion is an 80,000-square-foot “entrepreneurial ecosystem,” housing dozens of start-ups and renting out desks, office space, and event space. But it also hosts meetups, educational workshops, and a Toastmasters group designed specifically for entrepreneurs. It contains a makerspace (a workspace providing shared tools and manufacturing equipment for prototyping products) and encourages the growth of niche entrepreneurial communities based on specific industries. For example, IP has a space for IoT (the Internet of Things), one for health care, and another for aerospace. These communities bring together people in an industry to learn from and collaborate with each other.

While IP has a traditional incubator program, with companies housed within the IP campus, it also has a semivirtual hypergrowth accelerator program for more mature firms that is open to companies around the country. It also seeks out educational partnerships, working with the Highlands Ranch STEM program, for instance, and has its own educational spin-off, Xuno Innovative Learning, designed to help companies train their staff and find new employees with the skills they need. IP operates its own streaming TV service, filming educational events and interviews with entrepreneurs. Innovation Pavilion has national expansion plans—and several signed agreements with specific cities—targeting not the giant metropolitan areas but also second-tier and “ring” cities across the country, such as Joliet, Illinois, and Olathe, Kansas, smaller cities that don’t get the attention of the larger cities yet have plenty of educated and creative people. IP is in discussions with 20 cities around the nation, with the goal of building 200,000-square-foot campuses providing incubator services, office space, makerspace, education and training, outreach to young entrepreneurs, conference centers, retail space, and even housing. Entrepreneurs will be able to live and work in a space with everything they need, providing a complete entrepreneurial ecosystem in smaller cities across the nation. Steve Case, the cofounder of America Online (AOL), shares Vic Ahmed’s vision for entrepreneurship in mid- America. His “Rise of the Rest” bus tour has traveled 8,000 miles over the last three years, investing in local start-ups in 33 cities across the country. Case hosts a pitch competition with the best start-ups in each city, and one lucky winner receives a $100,000 investment from Case. Media attention has focused on the entrepreneurial engines of America’s coastal cities, but Ahmed and Case have a more expansive entrepreneurial vision, in which smaller cities throughout the nation rise up alongside larger start-up hot spots.

Sources:

Innovation Pavilion website http://www.innovationpavilion.com/ accessed February, 13, 2018;

Tamara Chuang, Centennial incubator plans coworking office expansion to Illinois, complete with STEM school, housing,” Denver Post, August 1, 2017, https://www.denverpost.com/2017/08/0...lion-illinois- expansion/;

Jan Wondra, Innovation Pavilion Expands Base,” The Villager, November 29, 2017, villagerpublishing.com/innov...ographic-base/.