This Document Contains Chapters 1 to 4 Chapter 1 Entrepreneurship: Evolutionary Development—Revolutionary Impact SUGGESTED ANSWERS FOR DISCUSSION QUESTIONS (END-OF-CHAPTER) 1. Briefly describe the evolution of the term entrepreneurship. The word “entrepreneur” is derived from the French entreprendre, meaning “to undertake.” No single definition of the word exists at present. The recognition of entrepreneurs dates back to eighteenth-century France when economist Richard Cantillon associated the “risk bearing” activity in the economy with the entrepreneur. In England during the same period, the Industrial Revolution was evolving, with the entrepreneur playing a visible role in risk taking and the transformation of resources. Until the 1950s, the majority of definitions and references to entrepreneurship had come from economists. In the twentieth century, the word became synonymous or at least closely linked with free enterprise and capitalism. In the twenty-first century, entrepreneurs are now considered the heroes of free enterprise. 2. What are the 10 myths associated with entrepreneurship? Debunk each. Entrepreneurs are doers, not thinkers. They are often very methodical people who plan their moves carefully. Today the emphasis is on the creation of clear, complete business plans. Entrepreneurs are born, not made. The recognition of entrepreneurship as a discipline has helped to dispel this myth. Like all disciplines, entrepreneurship has models, processes, and case studies that allow the topic to be studied and the traits acquired. Entrepreneurs are always inventors. There are numerous entrepreneurs who encompass all sorts of profit-seeking activity. For example, Ray Kroc did not invent the fast-food franchise, but his innovative ideas made McDonald’s the largest fast-food enterprise in the world. Entrepreneurs are academic and social misfits. Today the entrepreneur is considered a hero—socially, economically, and academically. No longer a misfit, the entrepreneur is now viewed as a professional. Entrepreneurs must fit the “profile.” Many books and articles have presented checklists of characteristics of the successful entrepreneur. These lists were neither validated nor complete. Today we realize that a standard entrepreneurial profile is hard to compile. The environment, the venture itself, and the entrepreneur have interactive effects, which result in many different types of profiles. All entrepreneurs need is money. Having money is not a bulwark against failure. Failure due to a lack of proper financing is often an indicator of other problems. All entrepreneurs need is luck. “Luck happens when preparation meets opportunity” is an equally appropriate adage. Prepared entrepreneurs who seize the opportunity when it arises often appear to be lucky. Entrepreneurship is unstructured and chaotic. There is a tendency to think of entrepreneurs as gunslingers—as people who shoot from the hip and ask questions later. They are assumed to be disorganized and unstructured. The reality is that they are typically well-organized, in order to get done all the duties and responsibilities inherent in building and running a business. Most entrepreneurial initiatives fail. It is true that many entrepreneurs suffer a number of failures before they are successful. They follow the adage “If at first you don’t succeed, try, try again.” In fact, failure can teach many lessons to those willing to learn and often leads to future successes. Entrepreneurs are extreme risk takers. The concept of risk is a major element in the entrepreneurship process. However, public’s perception of the risk assumed by most entrepreneurs is distorted. While it may appear that an entrepreneur is gambling on a wild chance, the fact is that the entrepreneur is usually working on a moderate or “calculated” risk. 3. What is the macro view of entrepreneurship? The macro view of entrepreneurship presents a broad array of factors that relate to success or failure in contemporary entrepreneurial ventures. This array includes external processes that are sometimes beyond the individual’s control. 4. What are the schools of thought that use the macro view of entrepreneurship? The environment school of thought, the financial/capital school of thought, and the displacement school of thought. 5. What is the micro view of entrepreneurship? The micro view of entrepreneurship examines the factors that are specific to entrepreneurship and part of the “internal” locus of control. 6. What are the schools of thought that use the micro view of entrepreneurship? The entrepreneurial trait school of thought, the venture opportunity school of thought, and the strategic formulation school of thought. 7. What are the three specific types of displacement? Political displacement, cultural displacement, and economic displacement. 8. In the strategy formulation school of thought, what are the four types of strategies involved with unique elements? Give an example of each. Unique markets—example: College campus businesses would tend to market products that college people want and need. Unique people—example: If you were going to open a car repair shop, you need to know how to repair cars. Unique products—example: Coke differs from Pepsi. Unique resources—example: Middle-easterners have the ability to produce more oil products. 9. What is the process approach to entrepreneurship? In your answer, describe the dynamic states approach? The process approach to entrepreneurship is a way to examine the activities involved in entrepreneurship by using either a “dynamics states” approach or a “multidimensional approach.” Both of these methods attempt to describe the entrepreneurial process as a consolidation of diverse factors. The dynamic states approach focuses on the dependences of ventures on their environment for survival. The model incorporates an array of individual, organizational, and environmental elements and suggests that smaller and newer firms have more flexibility in making ongoing changes to satisfy current and anticipated demands of their market. 10. Describe the “framework of frameworks” approach to entrepreneurship.
The theories based on combinations similar to the “multiple lens” approach which characterizes general management, the theories based on combinations that can delve into some of the particular aspects of entrepreneurship.
11. Describe the predominance of new ventures in the economy. During the past ten years nearly 600,000 new businesses were incorporated per year. Newer entrepreneurial companies—some of which did not exist 20 years ago—have collectively created millions of new jobs during the past decade. Among many notable examples, consider Facebook, Twitter, Google, BlackBerry, and YouTube. Of approximately 27 million businesses in the United States (based on IRS tax returns), only 17,000 qualify as “large” businesses. In 2015, demographers estimate that 35 million firms will exist in the United States, up significantly from the 27.5 million firms that existed in 2010. 12. Define a gazelle and discuss its importance. A gazelle is a fast growing firm with at least 20 percent sales growth every year for 5 years, starting with a base of $100,000. In contrast to the continual downsizing of major corporations, gazelles provided 5 million new jobs and brought the net employment growth to 42 million jobs. ADDITIONAL ACTIVITIES Short Case GAZELLE … OR TURTLE? Summit Software, Inc., recently celebrated its fifth year of business. Jim Mueller, the proprietor, started the software manufacturing and distribution company when he was still working as a professor at the local college, but now he enjoys being in the fast-paced technology industry. Growth and expansion were easy for Jim, thanks to his knowledge, his contacts, and the pool of readily available workers from which to choose. The company that originated in his den now occupies a nice space close to downtown. Going into the sixth year, Jim continues to serve the same target market with customer support and lengthy projects. He acknowledges that technological advancements and new clientele are in the immediate future. All of the current and forecasted work leaves Jim and his three employees with little time to spend on administrative duties—let alone new accounts. Jim also realizes that the company needs its own upgrades to continue its rate of success and to stay competitive. Looking at Summit’s financials and the amount of work necessary to maintain the business, he’s not sure where to go from here. Following is a snapshot of Jim’s annual sales since inception: Year 1 $112,000 Year 2 $195,000 Year 3 $250,000 Year 4 $335,000 Year 5 $487,000 QUESTIONS 1. Is Summit Software a gazelle? Support your answer. Yes, Summit Software can be considered a gazelle. A "gazelle" refers to a high-growth company, typically defined as one with annual revenue growth of at least 20% over a period of four years, starting from a base of $100,000 in revenue. Summit Software's revenue growth from Year 1 ($112,000) to Year 5 ($487,000) demonstrates an annual growth rate exceeding 20%, making it fit the criteria for a gazelle. 2. What problems may Jim face by owning such a fast-growing business? Jim may face several challenges, including: • Operational Overload: As the company grows, Jim and his team may struggle to manage day-to-day operations, client projects, and administrative tasks due to limited manpower. • Financial Strain: Rapid growth may lead to cash flow issues if they don’t secure sufficient resources to manage expansions, technology upgrades, and new hires. • Management Challenges: As the company grows, Jim might face difficulties in transitioning from a small business mindset to managing a larger, more complex organization. • Market Competition: Staying competitive in the fast-paced technology industry requires constant innovation, which can be time-consuming and expensive. • Employee Burnout: With only three employees handling increasing workloads, there’s a risk of burnout. 3. Are gazelles more important to the economy than traditional growth businesses? Why or why not? Gazelles are often considered highly important to the economy because: • Job Creation: They contribute disproportionately to new job creation, even more than larger, slower-growing firms. • Innovation: Gazelles tend to be at the forefront of innovation, driving new technologies and solutions that stimulate broader economic growth. • Productivity: Their rapid growth often reflects high productivity, which contributes to overall economic development. However, traditional businesses also play a crucial role by providing stability, long-term employment, and sustained contributions to the economy. While gazelles spur fast growth, traditional businesses offer economic resilience and balance. Therefore, both types are important for a healthy, diversified economy. Reflection Exercise: MOBILE ENTREPRENEURIAL OPPORTUNITIES Examine the following category of entrepreneurial opportunities that promise to be strong in the coming years. Which one would you consider pursuing and why? M-Commerce—Embracing “m-commerce” in huge numbers, there are already more than 73 million users of the mobile Web. This means if you sell stuff, whether online or in a physical location, your website must be mobile-ready. Eighty-one percent of smartphone owners search from their phones at home, 80 percent shop from their phones, 68 percent visited a business in person or went to its website after searching from their phones, and over half actually buy something. By 2018, online shopping will be a $279 billion business. Apps—Another opportunity born from mobility is the hundreds of thousands of apps that have been created for mobile devices such as the iPhone and the iPad. There have been forecasts that app creators will earn $8 billion in 2015. In many cases, those apps are produced by entrepreneurial developers for smartphones and tablet computers. Gamification—“Gamification” first took off in 2007, and it has proved to be recession-proof. Research predicts that 70 percent of leading global companies will have at least one gamified app by 2018. Gamification’s goals are to increase customer engagement, change behaviors and stimulate innovation by employing game mechanics in nongame environments. Some research believes that gamification could become as important as Facebook, eBay, or Amazon. The opportunities for businesses are great—from having more engaged customers, to crowdsourcing innovation or improving employee performance. Chapter 2 The Entrepreneurial Mind-Set in Individuals: Cognition and Ethics SUGGESTED ANSWERS FOR DISCUSSION QUESTIONS (END-OF-CHAPTER) 1. What is “entrepreneurial cognition” and how does it impact the mind-set of entrepreneurs? How does “metacognition” come into play here? In attempting better to understand the driving forces within entrepreneurs, we can gain a more complete perspective if we take a psychological look at entrepreneurs and consider the entrepreneurial mind-set. Part of that mind-set includes the package of mental processes that entrepreneurs possess, which include attention, remembering, producing and understanding language, solving problems, and making decisions. Entrepreneurial cognition refers to the knowledge structures that people use to make assessments, judgments, or decisions involving opportunity evaluation, venture creation, and growth. The metacognitive perspective calls attention to cognitive adaptability, which can be defined as the ability to be dynamic, flexible, and self-regulating in one’s cognitions given dynamic and uncertain task environments. Before an entrepreneur is prepared to evaluate alternative strategies, the entrepreneur must first formulate a strategy to frame how he or she will “think” about this task. This process is metacognitive. The process responsible for ultimately selecting a response (i.e. a particular venture strategy) is cognitive—the process responsible for ultimately selecting how the entrepreneur will frame the entrepreneurial task is metacognitive. 2. Entrepreneurs have a tolerance for ambiguity, are calculated risk takers, and exude passion. What do these characteristics mean for any potential entrepreneur? Entrepreneurs face uncertainty compounded by constant changes that introduce ambiguity and stress into every aspect of the enterprise. A tolerance for ambiguity exists when the entrepreneur can deal with the various setbacks and changes that constantly confront him or her. Successful entrepreneurs are not gamblers—they are calculated risk takers. They do everything possible to get the odds in their favor, and they often avoid taking unnecessary risks. These strategies include getting others to share inherent financial and business risks with them—for example, by persuading partners and investors to put up money, creditors to offer special terms, and suppliers to advance merchandise. Entrepreneurial passion is a fundamental emotional experience for entrepreneurs. It is a discrete emotion that is quite intense being described as an underlying force that fuels our strongest emotions, or the intensity felt when engaging in activities that are of deep interest, or the energy that enables entrepreneurs to achieve peak performance. 3. Is it true that most successful entrepreneurs have failed at some point in their business careers? Explain. The most effective entrepreneurs are realistic enough to expect difficulties and failures. Entrepreneurs use failure as a learning experience; hence, they have a tolerance for failure. 4. How should failure be dealt with by entrepreneurs? How does “grief” play a role in this process? As noted above, the most effective entrepreneurs are realistic enough to expect difficulties and failures. If they can deal effectively with any grief that emanates from the failure then they will not become disappointed, discouraged, or depressed by a setback or failure. In adverse and difficult times, they will continue to look for opportunity. In this way entrepreneurs will believe that they learn more from their early failures to form the foundation of later successes. Research shows that an entrepreneur recovers more quickly from a failure if he or she oscillates between a loss and a restoration orientation. This oscillation means that the entrepreneur can gain the benefits of both orientations while minimize the costs of maintaining either for an extended period. 5. Entrepreneurship has a “dark side.” What is meant by this statement? Be complete in your answer. The dark side of entrepreneurship is a destructive course that exists within the energetic drive of a successful entrepreneur. There are three major traits that are associated with the dark side of entrepreneurship: risk, stress, and the entrepreneurial ego. All potential entrepreneurs need to be aware that the dark side of entrepreneurship exists. 6. What are the four specific areas of risk that entrepreneurs face? Describe each. The four specific areas of risk are as follows: 1. Financial risk—In most new ventures the individual puts a significant portion of his savings or other resources at stake. 2. Career risk—A question frequently raised by would-be entrepreneurs is whether they will be able to find a job or go back to their old jobs if their venture should fail. 3. Family and social risk—Entrepreneurs expose their families to the risk of an incomplete family experience and the possibility of permanent scars. 4. Psychic risk—The greatest risk may be to the well-being of the entrepreneur. 7. What are the four causes of stress among entrepreneurs? How can an entrepreneur deal with each of them? There are four causes of stress: loneliness, immersion in business, people problems, and need to achieve. To reduce stress, entrepreneurs must define the cause of the stress. After clarifying the cause of stress, the entrepreneur can combat excessive stress by acknowledging its existence, developing coping mechanisms, and probing personal unacknowledged needs. 8. Describe factors associated with the entrepreneurial ego. The factors associated with the entrepreneurial ego include: an overbearing need for control; a sense of distrust; an overriding desire for success; and unrealistic optimism. 9. Ethics must be based more on a process than on a static code. What does this statement mean? Do you agree? Why or why not? The statement means ethics must be based on society’s differing norms, a process of change. Yes, I agree, because we live in an ever-changing environment where each day is different and each decision has differing alternatives and circumstances. 10. A small pharmaceutical firm has just received permission from the Food and Drug Administration (FDA) to market its new anticholesterol drug. Although the product has been tested for five years, management believes that serious side effects may still result from its use, and a warning to this effect is being printed on the label. If the company markets this FDA-approved drug, how would you describe its actions from an ethical and legal standpoint? Use Figure 2.2 to help you. There is nothing illegal about marketing the product, because all necessary actions were taken to get the drug approved by the FDA and the benefits must have outweighed the side effects. On the other side, however, marketing the product may not be unethical, because the company is providing information concerning the side effects on the product for the consumer, and therefore, the consumer must make the choice. Management may continue to put more money into the research and development of the product. 11. Explain the four distinct roles managers may take in rationalizing morally questionable acts “against the firm” or “on behalf of the firm.” Be complete in your answer. The four distinct roles are non-role, role failure, role distortion, and role assertion. There are two roles that apply to questionable acts “against the firm.” Non-role examples would include: embezzlement and stealing supplies. Role failure includes superficial performance appraisals and not confronting expense account cheating by employees. There are two distinct roles that apply “on behalf of the firm.” Role distortion includes bribery or price fixing. Role assertion refers to socially questionable acts such as not withdrawing a product in the face of product safety allegations. 12. Why do complex decisions often raise ethical considerations for the entrepreneur? The reasons why business decisions of entrepreneurs are so complex are as follows: (l) ethical decisions have extended consequences, (2) business decisions involving ethical questions have multiple alternatives, (3) ethical business decisions often have mixed outcomes, (4) most business decisions have uncertain ethical consequences, and (5) there are personal implications in most ethical business decisions. 13. Cal Whiting believes entrepreneurs need to address the importance of ethics in their organizations. However, he is unsure of where to begin in his own company because the entire area is unclear to him. What would you suggest? Where can he begin? What should he do? Be as practical as you can in your suggestions. Cal Whiting needs to carefully examine his organization in order to determine actions that might be considered morally questionable. From there he can develop a code of conduct that would represent the ethical positions expected of all employees. Finally, he can follow the four principles for ethical management involved in the holistic approach. These include: (1) Hire the right people. (2) Set standards more than rules. (3) Don’t let yourself get isolated. (4) Let your ethical example be absolutely impeccable at all times 14. What is the concept of entrepreneurial motivation and how has it been depicted? Examining why people start businesses and how they differ from those who do not (or those who start unsuccessful businesses) may be useful in understanding the “motivation” that entrepreneurs exhibit during startup as a link to sustaining behavior exhibited later. Because motivation plays an important part in the creation of new organizations, theories of organization creation that fail to address this notion are incomplete. Thus, while research on the psychological characteristics of entrepreneurs has not provided an agreed upon “profile” of an entrepreneur, it is still important to recognize the contribution of psychological factors to the entrepreneurial process. In fact, the quest for new venture creation as well as the willingness to sustain that venture is directly related to an entrepreneur’s motivation. Therefore, one research approach is the motivational process that an entrepreneur experiences. 15. Explain the concept of entrepreneurial persistence and how it is being examined. Entrepreneurs are not intimidated by difficult situations. Although entrepreneurs are extremely persistent, they are realistic in recognizing what they can and cannot do and where they can get help to solve difficult but unavoidable tasks. Experience and persistence teaches lessons to entrepreneurs that are used to vault them into future successes. A line of new research examines how and why entrepreneurs persist with a venture, defining entrepreneurial persistence as an entrepreneur’s choice to continue with an entrepreneurial opportunity regardless of counterinfluences or other enticing alternatives. The decision to persist is influenced by personal characteristics of the entrepreneur as well as by feedback from the environment. ADDITIONAL ACTIVITIES Short Cases JANE’S EVALUATION Paul Medwick is a commercial banker. In the past month, he has received loan applications from three entrepreneurs. All three have fledgling businesses with strong potential. However, Paul believes it is important to look at more than just the business itself; the individual also needs close scrutiny. The three entrepreneurs are (1) Robin Wood, owner of a small delicatessen located in the heart of a thriving business district; (2) Richard Trumpe, owner of a ten-minute oilchange-and-lube operation; and (3) Phil Hartack, owner of a bookstore that specializes in best sellers and cookbooks. Paul has had the bank’s outside consultant, Professor Jane Jackson, interview each of the three entrepreneurs. Jane has done a lot of work with entrepreneurs and—after a couple hours of discussion—usually can evaluate a person’s entrepreneurial qualities. In the past, Jane has recommended 87 people for loans, and only two of these ventures have failed. This success rate is much higher than that for commercial loans in general. Following is Jane’s evaluation of the three people she interviewed. QUESTIONS 1. Which of the three applicants do you think comes closest to having the mind-set of an ideal entrepreneur? Why? Richard Trumpe comes closest to having the mind-set of an ideal entrepreneur. He scores high in several critical entrepreneurial traits: perseverance, drive to achieve, initiative, creativity and innovativeness, self-confidence, and independence. These qualities suggest that Richard is driven, proactive, and willing to take risks, which are essential for entrepreneurial success. His medium scores in persistent problem-solving and tolerance for ambiguity show room for growth, but overall, he possesses a well-rounded entrepreneurial profile. 2. To which applicant would you recommend that the bank lend money? (Assume that each has asked for a loan of $150,000.) Defend your answer. Based on the evaluations, the bank should lend money to Richard Trumpe. He demonstrates high levels of perseverance, initiative, and drive to achieve, which are key factors for pushing a business forward and overcoming challenges. His creativity and innovativeness also make him likely to find new ways to differentiate his oil-change-and-lube operation in a competitive market. Additionally, his high self-confidence and independence suggest that he is capable of handling the responsibilities that come with running a business. While Robin and Phil have strong attributes, Richard’s profile is the most balanced for success. 3. Can these three entrepreneurs do anything to improve their entrepreneurial profile and their chances for success? Be specific in your answer. Yes, each entrepreneur can improve their profile: • Robin Wood: Robin can work on improving his tolerance for ambiguity, which is crucial in the unpredictable business world. He could also develop more drive to achieve and initiative to push his deli to greater heights. Focusing on creativity and problem-solving skills will also help him innovate and stay competitive. • Richard Trumpe: Richard can improve his integrity and reliability, which is essential for building trust with customers and stakeholders. Strengthening his problem-solving abilities and tolerance for ambiguity will help him handle challenges and uncertainties more effectively. • Phil Hartack: Phil should focus on developing perseverance and drive to achieve, which are essential for scaling his bookstore and overcoming business obstacles. Increasing his initiative and creativity will allow him to find new opportunities in the market, especially in a competitive niche like best sellers and cookbooks. A FRIEND FOR LIFE The Glades Company is a small manufacturer. It has produced and marketed a number of different toys and appliances that have done very well in the marketplace. Late last year, the product designer at the company, Tom Berringer, told the president, Paula Glades, that he had invented a small, cuddly, talking bear that might have a great deal of appeal. The bear is made of fluffy brown material that simulates fur, and it has a tape inside that contains 50 messages. The Glades Company decided to find out exactly how much market appeal the bear would have. Fifty of the bears were produced and placed in kindergartens and nurseries around town. The results were better than the firm had hoped. One of the nurseries reported: “The bear was so popular that most of the children wanted to take it home for an evening.” Another said the bear was the most popular toy in the school. Based on these data, the company decided to manufacture and market 1,000 of the bears. At the same time, a catchy marketing slogan was formulated: “A Friend for Life.” The bear was marketed as a product a child could play with for years and years. The first batch of 1,000 bears sold out within a week. The company then scheduled another production run, this time for 25,000 bears. Last week, in the middle of the production run, a problem was uncovered. The process of making the bear fur was much more expensive than anticipated. The company is now faced with two options: It can absorb the extra cost and have the simulated fur produced, or it can use a substitute fur that will not last as long. Specifically, the original simulated fur will last for up to seven years of normal use; the less-expensive simulated fur will last for only eight months. Some of the managers at Glades believe that most children are not interested in playing with the same toy for more than eight months; therefore, substituting the less-expensive simulated fur for the more-expensive fur should be no problem. Others believe that the company will damage its reputation if it opts for the substitute fur. “We are going to have complaints within eight months, and we are going to rue the day we agreed to a cheaper substitute,” the production manager argues. The sales manager disagrees, contending that “the market is ready for this product, and we ought to provide it.” In the middle of this crisis, the accounting department issued its cost analysis of the venture. If the company goes with the more-expensive simulated fur, it will lose $5.75 per bear. If it chooses the less-expensive simulated fur, it will make a profit of $14.98 per bear. The final decision on the matter rests with Paula Glades. People on both sides of the issue have given her their opinion. One of the last to speak was the vice president of manufacturing, who said, “If you opt for the less-expensive fur, think of what this is going to do to your marketing campaign of ‘A Friend for Life.’ Are you going to change this slogan to ‘A Friend for Eight Months’?” But the marketing vice president urged a different course of action: “We have a fortune tied up in this bear. If you stop production now or go to the more-expensive substitute, we’ll lose our shirts. We aren’t doing anything illegal by substituting the fur. The bear looks the same. Who’s to know?” QUESTIONS 1. Is the recommendation of the marketing vice president legal? Is it ethical? Why or why not? The recommendation of the marketing vice president to use the less-expensive fur is legal, as the company is not violating any laws by substituting the material. However, from an ethical perspective, it is questionable. The slogan “A Friend for Life” implies durability and longevity, which the cheaper fur does not provide. By marketing the bear as long-lasting while knowing that it will only last for eight months, the company could be misleading customers. This lack of transparency is deceptive and could damage customer trust, making it unethical. 2. Would it be ethical if the firm used the less-expensive simulated fur but did not change its slogan of “A Friend for Life” and did not tell the buyer about the change in the production process? Why or why not? No, it would not be ethical. Keeping the slogan "A Friend for Life" while using the less-expensive fur without informing customers would be a form of false advertising. The slogan sets an expectation that the bear will last for years, but the cheaper fur only lasts eight months. This failure to disclose important information about the product’s quality is deceptive and undermines consumer trust. Misleading customers, even if unintentionally, can harm the company's reputation and violate the principles of transparency and honesty. 3. If you were advising Paula, what would you recommend? I would recommend that Paula: • Stick with the original simulated fur despite the financial loss because the company has already marketed the bear as “A Friend for Life.” Changing the material without disclosing this would harm the company's credibility and may lead to customer complaints or worse, long-term brand damage. • If the company absolutely must reduce costs, transparency is essential. Paula could explore offering a new, lower-cost version of the bear with the less-expensive fur, clearly labeled as such, while maintaining the original bear with the durable fur for customers who value longevity. • Alternatively, adjust the pricing of the original bear to mitigate the losses associated with the higher-cost fur, while maintaining the integrity of the product’s promise. This way, Glades Company can continue to build customer trust, protect its reputation, and keep the original product quality intact. Reflection Exercise: EXUDING PASSION IN YOUR VENTURE People are drawn to passion, so emphasizing the passion you have for your business is an effective method for getting people’s attention. By being self-confident and articulating the value your business provides your clients, people will in turn share your enthusiasm and grow more comfortable maintaining their business relationship with you. Your customers will not believe in someone who does not believe in him- or herself, so be confident and outspoken about what you have to offer. The following steps will get you started: 1. Be genuine in your excitement. Do not put up a façade in an attempt to win customers. Keeping customers happy is hard enough without having to maintain a false image. People are more inclined to buy from businesses they trust, and the entrepreneurs associated with those businesses are instrumental in building their confidence. To start a business requires a tremendous amount of enthusiasm and energy; do not be afraid to let it show when you talk with potential customers. If people are excited about you, they are more willing to compromise when it comes time to do business. 2. Redefine rejection as learning. You can please some of the people all of the time and all of the people some of the time, but you cannot please all of the people all of the time. Remembering this truism is important when trying to win customers. Embracing rejection is a trait that all successful entrepreneurs eventually develop: You will learn much more from your failures than you will from your successes. When people are not receptive to what you have to say, tweak your message or find another group of people. Even the best ideas will have their naysayers, so listen to both positive and negative feedback, improve your message, and start again. 3. Convey personal successes. Do not hide your accomplishments. Starting a business is hard work—when your dedication pays off, let it be known. People like to believe that they are backing a winner, so talking about your victories is a sure way to get people to see you in that light. Also, remember that lessons learned are milestones; relaying your experiences and what you have gained from them demonstrates that you are wise enough to learn and grow so that you will not make the same mistakes twice. 4. Empathize with others. Empathizing with your customers lets them know that you understand their position and, more importantly, you are interested in helping them. Regardless of whether you are speaking with the CEO or her assistant, showing that you care about the other person’s problems helps to build a rapport. Once your listeners grow comfortable, they will be more willing to share information that you could use to better cater to your industry’s needs. Being creative and willing to customize your product to fit the needs of an organization will show the people involved how much their business means to you. Source: Adapted from Romanus Wolter, “Let It Shine,” Entrepreneur (February 2008): 130–31. Examine these steps and reflect on your own passions. Are you ashamed to be proud of your accomplishments and what you have to offer? Do you think that if people believe in you, they will believe in your business, and if they believe in your business, they will most likely become a customer? Explain your thinking here. Reflection Exercise: HOW ETHICAL ARE YOU?? Directions: Please read the following business situations and write the number in the blank that shows the degree to which you personally feel they are ethically acceptable. 1. An executive earning $50,000 per year padded his expense account by almost $1,500 per year. ____ 2. In order to increase profits, a general manager used a production process that exceeded legal limits for environmental pollution. ____ 3. Because of pressure from his brokerage firm, a stockbroker recommended a type of bond that he did not consider to be a good investment. ____ 4. A small business received one-fourth of its gross revenue in the form of cash. The owner reported only one-half of the cash receipts for income tax purposes. ____ 5. A company paid a $350,000 “consulting” fee to an official of a foreign country. In return, the official promised assistance in obtaining a contract that should produce a $10 million profit for the contracting company. ____ 6. A company president found out that a competitor had made an important scientific discovery that would sharply reduce the profits of his own company. He then hired a key employee of the competitor’s in an attempt to learn the details of the discovery. ____ 7. A highway building contractor deplored the chaotic bidding situation and cutthroat competition. He reached an understanding with other major contractors to permit bidding that would provide a reasonable profit. ____ 8. A company president recognized that sending expensive Christmas gifts to purchasing agents might compromise their positions. However, he continued the policy because it was common practice and changing it might result in loss of business. ____ 9. A corporate director learned that his company intended to announce a stock split and increase its dividend. On the basis of this information, he bought additional shares and sold them at a gain following the announcement. ____ 10. A corporate executive promoted a loyal friend and competent manager to the position of divisional vice president in preference to a better-qualified manager with whom he had no close ties. ____ 11. An engineer discovered what he perceived to be a product design flaw that constituted a safety hazard. His company declined to correct the flaw. The engineer decided to keep quiet rather than take his complaint outside the company. ____ 12. A comptroller selected a legal method of financial reporting that concealed some embarrassing financial facts that would otherwise have become public knowledge. ____ 13. An employer received applications for a supervisor’s position from two equally qualified applicants but hired the male applicant because he thought some employees might resent being supervised by a female. ____ 14. As part of the marketing strategy for a product, the producer changed its color and marketed it as “new and improved,” even though its other characteristics were unchanged. ____ 15. A cigarette manufacturer launched a publicity campaign challenging new evidence from the Surgeon General’s office that cigarette smoking is harmful to the smoker’s health. ____ 16. An owner of a small firm obtained a free copy of a copyrighted computer software program from a business friend rather than spending $500 to obtain his own program from the software dealer. ____ Survey Results: Here is how 240 entrepreneurs responded. 1. Mean response = 2.0 2. Mean response = 1.5 3. Mean response = 1.7 4. Mean response = 2.7 5. Mean response = 3.3 6. Mean response = 3.9 7. Mean response = 3.2 8. Mean response = 3.2 9. Mean response = 2.8 10. Mean response = 3.5 11. Mean response = 2.3 12. Mean response = 4.1 13. Mean response = 3.1 14. Mean response = 3.2 15. Mean response = 3.5 16. Mean response = 3.6 Application Exercise: AVOIDING ANOTHER ENRON DISASTER After reading through the material below, discuss the “grey” areas involved with ethics. Provide some examples from your own experiences at school, work, or sports. Are there other ways that the “grey” areas can be eliminated? Be specific from your own examples. Enron, Tyco, Arthur Andersen, and Computer Associates were all guilty of unethical practices during a period of economic prosperity. Why? Historically, misconduct and bad judgment often have coincided with periods of great prosperity. When attitudes are characterized by “anything goes,” and the market is typified by expanding profits and stocks at full throttle, the economy is at peak danger—greed and prosperity blur the line between right and wrong. The greatest equivalent of today’s ethical lapses is the Roaring Twenties and the stock market crash of 1929. This period was made notorious by, among other people, Ivar Kreuger. Kreuger founded an international conglomerate in wooden matches by lending money to foreign governments in return for nationwide match monopolies—the money from such loans came from the sale of stock. Later, an audit of his books revealed that $250 million in assets never really existed. Eventually, all this activity led to the creation of the Securities and Exchange Commission (SEC). Today, the possibilities to create spectacular financial debacles have increased due to more complex financial vehicles that take advantage of the “gray” areas in accounting. The following list explains five ways investors are demanding more information from companies to ensure that corporate accounting is not finagling the financials. Bring hidden liabilities back onto the balance sheet. It was the disclosure of billions of dollars in offbalance-sheet debt tucked away in special purpose entities, or SPEs (entities created to hide potential losses or debt from public view), that brought Enron’s problems to the forefront. Though they are legitimate, SPEs have been controversial for nearly 30 years. Current practices allow removal of an SPE from the balance sheet if an investor is willing to contribute just 3 percent of its capital. Highlight the things that matter. Anything less than 5 or 10 percent of earnings or assets generally was considered immaterial to overall performance and allowed to be left off the statements. Now the SEC and the Financial Accounting Standards Board are evaluating the qualitative factors in addition to the quantitative factors. List the risks and assumptions built into the numbers. Corporate “guesstimations” can play a large role in corporate earnings; from future demand of a product line to discounted rates due to risk factors, investors are demanding to know the assumptions. Standardize operating income. Standard & Poor’s has made a proposal for what should be included and excluded from pro forma operating earnings. Currently, there is no uniformity to detail what companies add and subtract from the net income to generate their pro formas. Provide aid in figuring free-cash flow. Analysts currently calculate free-cash flow themselves by utilizing past results. Investors are, therefore, left to guess what information should be used. Source: Heesun Wee, “The Dirt a Bull Market Leaves Behind,” BusinessWeek Online, June 13, 2002, http://www.businessweek.com/bwdaily/dnflash/jun2002/nf20020613_1338.htm (accessed April 10, 2008); and Nanette Byrnes, “Commentary: Five Ways to Avoid More Enrons,” BusinessWeek Online, February 18, 2002, http://www.businessweek.com/magazine/content/02_07/b3770056.htm (accessed April 10, 2008). Chapter 3 The Entrepreneurial Mind-Set in Organizations: Corporate Entrepreneurship SUGGESTED ANSWERS FOR DISCUSSION QUESTIONS (END-OF-CHAPTER) 1. In your own words, what is corporate entrepreneurship? A corporate entrepreneur is a person with average to above-average intelligence who has the ability to perceive the big picture. They are not stagnated by structure and have learned how to manipulate it. They are people who like to see things happen and they like to make them happen. They are self-confident and optimistic. They are willing to work hard with an idea, not needing an authoritative figure over them. They are self-motivated. 2. What are two reasons that such a strong desire to develop corporate entrepreneurs has arisen in recent years? A highly competitive market has risen. In order for a company to survive, it must be innovative. Also, many firms that are unwilling to change are losing their best people to entrepreneurship. 3. What are some of the corporate obstacles that must be overcome to establish a corporate entrepreneurial environment? The firm needs to emphasize individual responsibility among its employees. It must have a system of rewards based on results. It must overcome traditional management practices that are too rigid. 4. What are some of the innovative principles identified by James Brian Quinn that companies need to establish? According to James Brian Quinn, a noted expert on innovation, the following principles are apparent in companies that have been successful innovators: atmosphere and vision, orientation to the market, small, flat organizations, multiple approaches, interactive learning, and Skunk Works. 5. A number of corporations today are working to reengineer corporate thinking and encourage an innovative environment. What types of steps would you recommend? Offer at least three and explain each. 1. Early identification of potential corporate entrepreneurs. If you have them, use them. Don’t let the go to waste or they will leave. 2. Top management sponsorship of corporate entrepreneurship projects. If there is no support from the top, what encouragement is that for a person? 3. Promotion of corporate entrepreneurship through experimentation. The full development of an entrepreneurial environment takes time. You must tolerate failure. 6. What are five useful rules for innovation? Encourage action. Use informal meetings whenever possible. Tolerate failure. Be persistent in getting an idea into the market. Reward innovation for innovation’s sake. 7. What are three advantages of developing a corporate entrepreneurial philosophy? Companies that promote personal growth attract the best people. An entrepreneurial environment allows employees to get the satisfaction of developing his/her idea without risk of leaving the company. The company itself will become more competitive. Higher employee satisfaction will result. 8. Identify the four key elements on which managers should concentrate to develop a corporate entrepreneurship strategy. The four key elements are: developing a vision; encouraging innovation; structuring for an entrepreneurial environment; and developing venture teams. 9. Explain the differences between radical and incremental innovation. Radical innovation represents inaugural breakthroughs that have been launched. These innovations take experimentation and vision but are not managed. Incremental innovation refers to the systematic evolution of a product or service into a new market. Innovation can be managed. 10. Identify the five specific entrepreneurial climate factors that organizations need to address in structuring their environment. Top management support; autonomy/work discretion; rewards/reinforcement; time availability; and organizational boundaries 11. Why are innovation teams emerging as part of a new strategy for many corporations? Innovation teams hold the potential for producing innovative results. The innovation team is a small group of people who operate semiautonomously to create and develop a new idea. Working together to integrate individual skills into the group, innovation teams are diffusing entrepreneurship throughout the company—this has been termed “collective entrepreneurship.” 12. What are roles of middle managers in corporate entrepreneurship? Be specific. Middle managers endorse, refine, and shepherd entrepreneurial opportunities and identify, acquire, and deploy resources needed to pursue those opportunities. The entrepreneurial actions expected of middle managers are framed around the need for this group to propose and interpret entrepreneurial opportunities that might create new business for the firm or increase the firm’s competitiveness in current business domains. 13. Describe the elements that are involved in sustaining corporate entrepreneurship. 1. A transformation trigger initiates the need for strategic adaptation or change 2. Based on the strategic direction, the individual decides to behave entrepreneurially. 3. Sustained entrepreneurial activity results from the perception of organizational antecedents: top management support, autonomy, rewards, resources, and flexible boundaries. 4. Outcomes are compared to previous expectations 5. Satisfaction with outcomes serves as a feedback mechanism for sustaining the current strategy or selecting an alternative. ADDITIONAL ACTIVITIES Short Case SOUTHWEST AIRLINES: CREATING AN ENTREPRENEURIAL CULTURE When Southwest Airlines first taxied onto the runway of Dallas’s Love Field in 1971, industry gurus predicted it would be a short trip to bankruptcy for the Texas-based airline. But the first short-haul, low-fare, high-frequency, point-to-point carrier took a unique idea and made it fly. Today, Southwest Airlines is the most profitable commercial airline in the world based on domestic passengers carried. Southwest has 37,000 employees and operates more than 3,300 flights a day with scheduled service to 97 destinations in 42 states. It took more than a wing and a prayer for Southwest to soar to such lofty altitudes—it required a maverick spirit. From the beginning, Southwest has flown against convention. Southwest’s fleet of 737s—considered by many the safest in the industry—still makes only short flights and is the largest operator of the 737 worldwide with over 550 of these aircraft in service, each operating an average of six flights per day. The airline does not give seat assignments, and the only food it serves passengers is a “snack pack.” But what Southwest may lack in amenities, it seems to more than make up for in what could be called positively outrageous service. “Fun” is the company’s mandate. Leading the way for years was the founder and former CEO, Herb Kelleher. “Herb Kelleher was definitely the zaniest CEO in the world,” Libby Sartain, vice president of Southwest Airlines’s People Department, admits. “Where else would you find a CEO who dressed up as Elvis Presley, who was on a first-name basis with over 30,000 employees, and who still has a heart as big as the state of Texas? His style fostered an atmosphere where people feel comfortable being themselves—where they can have a good time when they work.” Legendary for his love of laughter, Kelleher called his unique leadership style management by fooling around. “An important part of leadership, I think, is enjoying what you’re doing and letting it show to the people that you work with,” Kelleher reveals. “And I would much rather have a company that is bound by love, rather than bound by fear.” Kelleher’s philosophy has been enthusiastically embraced by the current executive staff and by a workforce that is 85 percent unionized. “Southwest’s culture is designed to promote high spirit and avoid complacency. We have little hierarchy here. Our employees are encouraged to be creative and innovative, to break rules when they need to in order to provide good service to our customers,” Sartain explains. “If you create the type of environment that a person really feels valued and they feel they make a difference, then they’re going to be motivated. That’s the type of environment we create here for our employees,” adds Rita Bailey, Southwest’s director of training. Beginning with its new-employee orientation, the airline nurtures intrapreneurship by grooming a workforce of leaders. “You can do whatever it takes to keep this airline on top,” an orientation instructor tells his class of newly hired staffers. At Southwest Airlines’s University for People, future managers and supervisors attend a course titled “Leading with Integrity.” Through a series of role-playing exercises, employees learn that trust, cooperation, mutual respect, and good communication are the components of success. “An organization that has an esprit, that does things cooperatively and voluntarily rather than through coercion, is the most competitive organization you can have,” Kelleher once asserted. These guiding principles have earned Southwest Airlines the distinction of continuously being named one of the ten best companies to work for in America. Employees are valued and recognized for their achievements in many ways. Perhaps the most prestigious is Southwest’s “Heroes of the Heart” award. Each year, one outstanding department has its name tattooed on a Southwest jet. Southwest also was the first airline to offer stock options to its employees. Today, employees own approximately 10 percent of the company. In the lobby of Southwest Airlines’ corporate headquarters is a prominent tribute to the men and women of Southwest. It reads: “The people of Southwest Airlines are the creators of what we have become—and what we will be. Our people transformed an idea into a legend. That legend will continue to grow only so long as it is nourished by our people’s indomitable spirit, boundless energy, immense goodwill, and burning desire to excel. Our thanks and our love to the people of Southwest Airlines for creating a marvelous family and wondrous airline.” QUESTIONS 1. Describe some of the factors needed to reengineer corporate thinking that Southwest Airlines already exhibits. Southwest Airlines exhibits several factors that reengineer corporate thinking, including: • Employee Empowerment and Trust: Employees are given the freedom to be creative, break rules if necessary, and take the initiative to provide excellent customer service. This eliminates rigid hierarchies and allows for more dynamic decision-making, fostering an entrepreneurial mindset. • Flat Organizational Structure: Southwest minimizes hierarchy, allowing employees to feel more engaged and less constrained by traditional corporate bureaucracy. This makes the organization more adaptable and responsive to changes or customer needs. • Fun and Positive Culture: The culture at Southwest is intentionally built around enjoyment and fun, which reduces stress and boosts morale. This innovative approach promotes productivity and creativity, encouraging employees to take ownership of their roles and ideas. • Continuous Learning and Leadership Development: Through programs like Southwest’s University for People and the “Leading with Integrity” course, the company invests in developing leaders from within. This commitment to education helps maintain a fresh, innovative approach to problem-solving and decision-making. • Recognition and Employee Ownership: Recognizing employees through awards like “Heroes of the Heart” and offering stock options creates a sense of ownership and personal investment in the company’s success, motivating employees to go above and beyond. 2. What specific elements of a corporate entrepreneurial strategy are apparent within Southwest Airlines? Southwest Airlines demonstrates several key elements of a corporate entrepreneurial strategy, including: • Intrapreneurship Development: Southwest encourages its employees to act like entrepreneurs within the company. The environment is structured to foster innovation and allow employees the freedom to pursue new ideas or solutions to customer service problems without strict oversight. • Risk-Taking and Innovation: Employees are encouraged to take risks when needed to provide excellent customer service. This mindset supports continuous innovation in operational and customer-facing aspects of the business. • Reward and Recognition Systems: Programs like the “Heroes of the Heart” award and stock options incentivize employees to excel, fostering a competitive spirit that drives entrepreneurial thinking within the workforce. • Decentralized Decision-Making: By minimizing bureaucracy, Southwest allows employees to make decisions in real time, empowering them to address issues and seize opportunities as they arise. • Cultural Reinforcement of Entrepreneurial Values: The company’s culture, embodied by Herb Kelleher’s leadership style, continually reinforces the values of creativity, fun, and customer-centered service, ensuring that these principles are ingrained throughout the organization. 3. How was Herb Kelleher instrumental in structuring a climate conducive to entrepreneurial activity? Herb Kelleher was central in creating a climate that encouraged entrepreneurial activity through several actions: • Fostering a Culture of Fun and Freedom: Kelleher believed that employees should enjoy what they do, and this philosophy permeated the entire company. His informal, fun-loving style as CEO created a relaxed yet motivated atmosphere where employees felt free to innovate without fear of failure. • Building Trust and Empowerment: Kelleher trusted his employees to make decisions and take initiative. By creating an environment where employees felt valued and trusted, he encouraged them to take ownership of their roles and responsibilities, fueling an entrepreneurial mindset. • Leading by Example: Kelleher’s leadership by example, such as his informal interactions with employees and his well-known antics (like dressing up as Elvis), helped to humanize leadership and encouraged employees to express themselves. This led to a culture where creativity and individual initiative were welcomed. • Instilling Core Values of Customer Service: Kelleher’s focus on customer service as a core tenet of Southwest’s success empowered employees to find innovative solutions to customer needs. This focus on service gave employees the freedom to think entrepreneurially about how to deliver value. In summary, Kelleher’s leadership style, trust in his employees, and emphasis on fun and empowerment were crucial in developing an entrepreneurial climate at Southwest Airlines. Application Exercise: A TIMELESS LESSON: SIGNODE’S I-TEAMS READ OVER THIS TRUE STORY AND DECIDE IF SUCH AN APPROACH CAN BE FEASIBLE IN EVERY INDUSTRY. PROVIDE SUBSTANTIATION FOR YOUR ANSWER BY SEEKING OUT ARTICLES ON LINE THAT DISCUSS OTHER FIRMS ATTEMPTS AT TEAM PROJECTS. Robert F. Hettinger, a venture manager with Signode Industries, Inc., in Glenview, Illinois, smiles as he recounts the strategy initiated by Jack Campbell, director of corporate development. “He strongly believed,” Hettinger says, “that you have to kiss a lot of frogs in order to find a prince. Most ideas in raw form aren’t winners—you really have to work them out before success sets in.” Signode, a $750 million-a-year manufacturer of plastic and steel strapping for packaging and materials handling, wanted to chart new directions to become a $1 billion-plus in the next ten years. In pursuit of this goal, Signode set out to devise an aggressive strategy for growth: developing “new legs” for the company to stand on. It formed a corporate development group to pursue markets outside the company’s core businesses but within the framework of its corporate strengths. Before launching the first of its innovation teams, Signode’s top management identified the firm’s global business strengths and broad areas with potential for new product lines: warehousing/shipping; packaging; plastics for nonpackaging, fastening, and joining systems; and product identification and control systems. Each new business opportunity suggested by an innovation team was to have the potential to generate $50 million in business within five years. In addition, each opportunity had to build on one of Signode’s strengths: industrial customer base and marketing expertise, systems sales and service capabilities, containment and reinforcement technology, steel and plastic process technology, machine and design capabilities, and productivity and distribution know-how. The criteria were based on business-to-business selling only; Signode did not want to market directly to retailers or consumers. The basic technology to be employed in the new business had to already exist and had to have a strong likelihood of attaining a major market share within a niche. Finally, the initial investment in the new opportunity had to be $30 million or less. Based on these criteria, Signode began to build its “V-Team” (innovation team) approach to intrapreneurship. It took three months to select the first team members. The six initial teams had three common traits: high risk-taking ability, creativity, and the ability to deal with ambiguity. All were multidisciplinary volunteers who would work full-time on developing new consumer-product packaging businesses. The team members came from such backgrounds as design engineering, marketing, sales, and product development. They set up shop in rented office space five miles from the firm’s headquarters. “We put them off-campus in order to create an entrepreneurial environment,” Hettinger recalls. The first innovation team recommendation, complete with a business plan, was to produce plastic trays for frozen entrees that could be used in either regular or microwave ovens. The business potential for this product was estimated to be in excess of $50 million a year within five years. Signode launched a total of six teams in two years. All team volunteers passed a rigorous selection process. Typically, the employees were borrowed from operating divisions; after their team’s work was finished, they either returned to their old positions or took positions with the newly formed business unit and further championed the new ideas. According to Hettinger, the I-Team experience rekindled enthusiasm and affected morale overall. In every case, an I-Team member became a better contributor to Signode. Most important, their V-Team approach became a strategy for members to invent the future rather than waiting for things to happen. Source: Mark Frohman and Perry Pascarella, “Achieving Purpose-Driven Innovation,” Industry Week (March 19, 1990): 20–26; and personal interviews, 2015. Chapter 4 Social Entrepreneurship and the Global Environment for Entrepreneurship SUGGESTED ANSWERS FOR DISCUSSION QUESTIONS (END-OF-CHAPTER) 1. Outline a few of the current trends that illustrate the social entrepreneurship movement. Sustainable entrepreneurship is a significant trend that focuses on the preservation of nature, life support, and community. Specifically, sustainable development that preserves ecosystems, counteracts climate change, reduces environmental degradation and deforestation, improves agricultural practices and freshwater supply, and maintains biodiversity is being called for more. Ecopreneurship and green capitalism are approaches to conduct business that respect the environment. The triple bottom line is a measure to guide companies in achieving social goals as well as financial performance. The triple bottom line is a trend in business where companies also measure environmental and social performance. The “triple” comprises economic, social, and environmental. 2. Define a social entrepreneur. Social entrepreneurs are people who found and/or lead organizations or initiatives engaged in social entrepreneurship. That is, they are change agents that create large-scale change in local, national, or global communities using pattern-breaking ideas. They address the root causes of social problems, and they possess the ambition to create systemic change by introducing a new idea and persuading others to adopt it. 3. Describe the challenging boundaries involved with social enterprise. Many people will question the true motives of social entrepreneurs. Specifically, asking if the social entrepreneur is using the front of doing social good as a way to make money? Thus, there is often disagreement about whether a particular enterprise is truly social. The social entrepreneur must demonstrate that the enterprise is truly meeting the stated purposes of its existence. Another boundary is that they may compete against others visions of how the social problem should be addressed. There is a competition for not only sales but also vision of how best to address a social ill. 4. Social enterprise can be classified into distinct categories. List some of the categories. sustainable entrepreneurship, social entrepreneurship, corporate social responsibility, and ecopreneurship 5. How would you describe sustainable entrepreneurship? Sustainable entrepreneurship is an approach that focuses on the preservation of nature, life support, and community in the pursuit of perceived opportunities to bring into existence future products, processes, and services for gain, where gain is broadly construed to include economic and noneconomic gains to individuals, the economy, and society. 6. What is ecopreneurship and how does ecovision play a role? Outline some specific recommendations for entrepreneurs to consider that promote environmental awareness. Ecopreneurship is environmental entrepreneurship with entrepreneurial actions contributing to preserving the natural environment, including the Earth, biodiversity, and ecosytems. Ecovision is a leadership style that encourages open and flexible structures that encompass the employees, the organization, and the environment, with attention to evolving social demands. Specific recommendations include: 1) eliminating the concept of waste 2) restoring accountability 3) making prices reflect costs 4) promote diversity 5) making conservation profitable 6) insisting on accountability of nations Ecovision is leadership style for innovative organizations who are taking a new approach to everyday acts of work and life. Their goal is to create a better world. Some recommendations for entrepreneurs in promoting environmental awareness are: 1) Seek newer methods of production and recycling 2) Restore accountability 3) Incorporate a “green fee” 4) Promote diversity 5) Make conservation profitable 6) Insist on accountability of nations 7. Explain the concepts of shared vision and triple bottom line. Shared value is an approach that creates economic value while also creating value for society by addressing its needs and challenges. The triple bottom line is an accounting framework that goes beyond the traditional measures of profit, return on investment, and shareholder value to include environmental and social dimensions. 8. Describe some of the powerful economic forces that are creating global expansion of entrepreneurship. Entrepreneurs are increasingly operating with a global approach. This is being supported through the increase in diaspora networks and global organizations and agreements. Diaspora networks are relationships among ethnic groups that share cultural and social norms. The World Trade Organization, North American Free Trade Agreement, and European Union have developed to enhance global business. The WTO governs the international trading systems ensure the rules of trade are correctly applied and enforced. NAFTA is an international agreement between Canada, Mexico, and the United States that eliminates trade barriers among the three nations. The EU is an economic and political union of 27 member states, which are located primarily in Europe, and encourages development and trade in that region. 9. What are diaspora networks and why are they important for global entrepreneurs? Diaspora networks are relationships among ethnic groups that share cultural and social norms. Personal networks of kinship and language make it easier for an entrepreneur to do business across borders. They speed the flow of information across borders, they create a bond of trust, and they create connections that help entrepreneurs collaborate within a country and across ethnicities. 10. How do the following organizations impact international entrepreneurship: NAFTA; WTO; and the EU? The WTO, NAFTA, and EU facilitate the expansion of the global marketplace. They reduce barriers to trade within their blocs, especially regarding cumbersome regulations, and oversee and enforce the rules of trade to important commerce issues, such as trade negotiations and disputes; and patents, copyrights, industrial design rights, trade secret rights, and other forms of intellectual property. 11. Identify the various methods available to entrepreneurs to “go international.” importing, exporting, international alliances and joint ventures, direct foreign investment, and licensing 12. What are the forms of international alliances? informal international cooperative alliance, formal international cooperative alliance, and internal joint venture 13. How does a joint venture work? What are the advantages of this arrangement? What are the disadvantages? Two or more firms analyze the benefits of creating a relationship, pool their resources, and create a new entity to undertake productive economic activity. They then share assets, profits, risks and venture ownership. Advantages: A firm can gain an intimate knowledge of the local conditions and government where the facility is located, each participant is able to use the resources of the other firms involves in the venture, initial capital outlay and the overall risk are lower than if one went alone, and there is the potential of strategic fit between the domestic firm and the foreign firm. Disadvantages: Fragmented control due to one company blocking decisions on acquisitions, differences of opinions due to national differences, and one party controlling important assets essential to the business. 14. How does a licensing arrangement work? What are the advantages and disadvantages of such an arrangement? The manufacturer of a product (or a firm with proprietary rights over certain technology or trademarks) grants permission to some other group or individual to manufacture that product in return for specified royalties or other payments. Advantages: 1) The entrepreneur need not make an extensive capital outlay to participate in the international market, and 2) The licenser doesn’t have to be concerned with the daily production, marketing, technical, or management requirements. Disadvantages: 1) The patent process for that must be done before licensing can be expensive and complicated, 2) Because of translation issues, multiple trademarks may be needed, and 3) Technical know-how can be a difficult type of licensing to enforce. 15. When entering the international marketplace, entrepreneurs should follow what five specific steps? importing, exporting, international alliances and joint ventures, direct foreign investment, and licensing ADDITIONAL ACTIVITIES Short Cases NUTRITION WITHOUT HARMING THE ENVIRONMENT Not long ago, delicacies such as sushi and kiwis were not widely known by the average person. Today they flourish as accepted food throughout the world. With that in mind, Susan Marring is proposing a new enterprise to solve some of the environmental challenges facing our planet. “Insects for Tomorrow” is the name of her new venture idea. She plans to raise insects under hygienic conditions and sell them to restaurants as delicacies. Surprised? Sickened? Worried? While those could be the usual reactions to such a proposal, Susan is undeterred in her effort. She has done some research and found that the vast majority of the underdeveloped nations already eat insects. In addition, they are high in protein, B vitamins, and minerals. Insects are plentiful (over a thousand species are edible), easier to raise than livestock or fish, and they produce far less waste. In the Netherlands there are already companies that raise and sell insects to restaurants, but the idea has not caught on in the United States. Says Susan, “think of the incredible benefits to our environment. Insects consume less water, produce less waste, and it is far more humane to raise them for consumption than livestock.” She is convinced that this concept is viable with the potential to be highly profitable. With a feasibility study in hand, Susan is prepared to visit socially conscious investors with the goal of raising $300,000 to get the project started. “This venture is triple bottom line thinking at its best,” says Susan, “I know there will be great acceptance of my idea.” QUESTIONS 1. Is this a viable sustainable entrepreneurship concept? Why or why not? Be specific. Yes, Susan’s idea is a viable sustainable entrepreneurship concept for several reasons: • Environmental Benefits: Insects consume significantly less water, produce less waste, and generate fewer greenhouse gases compared to traditional livestock. This aligns with the sustainability aspect of entrepreneurship as it reduces the environmental impact of food production. • Nutritional Value: Insects are high in protein, vitamins, and minerals, making them a healthy alternative to conventional animal protein sources like beef, poultry, or fish. • Market Potential: Although insect consumption is not mainstream in the United States, it is already accepted in many underdeveloped nations and some European countries, such as the Netherlands. This suggests there is potential for cultural adaptation, especially with increasing awareness of environmental issues and sustainable practices. • Scalability: Insects are easier to raise and require less space than traditional livestock, making the business scalable in both urban and rural areas. The ability to produce at a lower cost could make this venture competitive. • Consumer Trends: Growing interest in alternative proteins, such as plant-based and lab-grown meats, reflects a shift in consumer behavior toward sustainable food sources. Insects could tap into this trend if marketed effectively. However, there are challenges, such as the cultural acceptance in the U.S. and regulatory hurdles regarding food safety, but with the right marketing and education, these barriers can potentially be overcome. 2. How would this venture be viewed in terms of triple bottom line thinking? The venture aligns well with triple bottom line (TBL) thinking, which focuses on three components: People, Planet, and Profit. • People: The venture promotes human health by offering a nutritious, sustainable source of protein. If scaled globally, it could address food security issues in both developing and developed countries. Additionally, insect farming is more humane compared to livestock farming, which appeals to consumers concerned with ethical food production. • Planet: Insect farming is eco-friendly. It requires fewer resources, such as water and land, produces less pollution, and results in a smaller carbon footprint compared to traditional meat farming. This aligns with environmental sustainability goals. • Profit: If accepted culturally and marketed effectively, insect farming could become a highly profitable business due to its lower production costs and increasing consumer interest in sustainable, alternative protein sources. It would also open a new market for restaurants and food producers looking to differentiate themselves. 3. What would you recommend to Susan if she came to you for an investment? If Susan came to me for an investment, I would recommend the following: • Start Small with Niche Markets: Focus initially on targeting environmentally conscious consumers and high-end restaurants that are willing to experiment with new ingredients. This could help build awareness and acceptance before attempting to scale to larger markets. • Education and Marketing Campaign: Invest in a strong marketing and educational campaign to inform consumers about the health benefits and environmental advantages of eating insects. This can help overcome cultural resistance. • Product Innovation: Consider offering insects in familiar forms, such as protein bars, snacks, or flours, to make the concept more palatable to consumers who might be hesitant to eat whole insects. • Partnerships with Eco-Friendly Brands: Form partnerships with socially responsible restaurants, food producers, or even schools to promote the benefits of insect consumption as part of a broader sustainability campaign. Based on the potential environmental and nutritional benefits and the market shift toward sustainability, I would consider investing, but with careful attention to consumer education and market testing to mitigate the risk of cultural resistance. A FOREIGN PROPOSAL Edgar Bruning left his job at a major computer manufacturing firm and started his own business five years ago, naming it Bruning IT. Since then, Edgar has secured five patents for IT-related equipment. His latest is a computer chip that can increase the speed of most personal computers by 35 percent. The cost of one of these computer chips is only $8, and the unit wholesales for $135. As a result, Bruning’s profits have mushroomed. Realizing that everything he developed can be copied by foreign competitors, Edgar entered into contractual arrangements with three European firms to market his product. These three firms have predetermined sales areas that cover all of Europe and the Middle East. Bruning ships 50 percent of its production output to these three firms, while the rest is sold to companies in the United States. Edgar recently has been thinking about increasing his production facilities. He is certain he could sell 40 percent more chips if he were able to make them. Last week Edgar had a visit from the chief executive of a Japanese firm. The company has proposed a joint venture between itself and Bruning. The venture would work this way: Bruning would ship the company as many chips as are currently sent to the three firms in Europe. These chips would be paid for on a 90-day basis. The Japanese firm would act as Bruning’s Far East sales representative during this part of the agreement. Then within 90 days, the Japanese firm would purchase manufacturing equipment that would allow it to make the chips in Japan. “This will save us both labor and shipping costs,” the Japanese executive pointed out. “And all profits will be divided on a 50/50 basis. Your only expenses will be your share of the manufacturing equipment, and we will apply your profits against those expenses. So you will have no out-of-pocket expenses.” The idea sounds very profitable to Edgar, but he is not sure he wants to give someone else the right to produce his product. “Technological secrecy is important in this business. It’s the key to success,” he noted to a colleague. On the other hand, Edgar realizes that without having someone to sell his product in the Far East, he is giving up a large potential market. Over the next 10 days, Edgar intends to make a decision about what to do. QUESTIONS 1. What type of arrangement is Edgar using in his business dealings with the European firms? Be complete in your answer. Edgar is using a distribution agreement with the three European firms. Under this type of agreement, Edgar contracts with these firms to market and sell his products in predetermined regions (Europe and the Middle East). The firms act as distributors, meaning they purchase the product from Edgar and then resell it to customers in their respective regions. This allows Edgar to access these markets without having to manage the sales and distribution directly, which reduces his risk and overhead while expanding his global reach. 2. Is the Japanese business proposal a joint venture? Why or why not? Would you recommend that Edgar accept it? Why or why not? Yes, the Japanese business proposal is structured as a joint venture because it involves both parties—Bruning IT and the Japanese firm—sharing in the ownership, risks, and profits of a new enterprise. The Japanese firm would initially distribute Bruning's chips in the Far East and then later co-manufacture the product. The profits would be split 50/50, and Edgar would share in the expenses of manufacturing equipment, making it a collaborative business arrangement. However, there are risks associated with this proposal: • Technological Secrecy: Edgar’s main concern is that by sharing production rights, he risks exposing his patented technology to potential copying. Given that his business thrives on innovation and proprietary technology, handing over production rights could jeopardize his competitive advantage. • Loss of Control: Allowing a foreign partner to handle manufacturing introduces the possibility of losing control over quality and intellectual property. • Dependency: Edgar could become dependent on the Japanese firm, especially as production shifts overseas, which might limit his future flexibility in the market. Recommendation: While the proposal seems profitable and offers access to the lucrative Far East market, I would recommend that Edgar not accept the deal as it stands. The potential loss of control over his intellectual property and the long-term risks outweigh the immediate benefits of profit-sharing. There are alternative ways to expand into the Far East without compromising technology or control. 3. If Edgar were looking for an alternative approach to doing business with the Japanese, what would you suggest? Defend your answer. An alternative approach for Edgar could be to pursue a licensing agreement or a contract manufacturing arrangement: • Licensing Agreement: Edgar could license the right to sell his chips to the Japanese firm without giving away production rights. Under this arrangement, the Japanese firm would pay royalties for every chip sold in the Far East, allowing Edgar to maintain control over manufacturing while still gaining access to the market. • Contract Manufacturing: Another option would be to maintain ownership of the intellectual property and hire the Japanese firm as a contract manufacturer. Edgar could ship the manufacturing equipment and set strict guidelines for production, ensuring quality control and protecting his proprietary technology. In this case, the Japanese firm would act as a supplier, and Edgar would retain the intellectual property and production rights. Both options allow Edgar to enter the Far East market without losing control over his technology. The licensing agreement would give Edgar access to market profits while minimizing risk, and the contract manufacturing option would allow him to reduce production costs while maintaining proprietary control over the chip’s manufacturing process. Ultimately, either of these approaches would help mitigate the risks of technological leakage and maintain Edgar’s long-term competitive advantage, while still allowing him to expand his business into new markets. Solution Manual for Entrepreneurship: Theory, Process, and Practice Donald F. Kuratko 9781305576247
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