CH-1-5 Entrepreneurship: Evolutionary Development-Revolutionary Impact – Entrepreneurship: Theory, Process, and Practice: Chapter Notes

This Document Contains Chapters 1 to 5 CHAPTER 1 ENTREPRENEURSHIP: EVOLUTIONARY DEVELOPMENT - REVOLUTIONARY IMPACT CHAPTER OUTLINE I. Entrepreneurs—Breakthrough Innovators II. Entrepreneurs versus Small-Business Owners: A Distinction III. Entrepreneurship: A Mind-Set IV. The Evolution of Entrepreneurship V. Avoiding Folklore: The Myths of Entrepreneurship A. Myth 1: Entrepreneurs Are Doers, Not Thinkers B. Myth 2: Entrepreneurs Are Born, Not Made C. Myth 3: Entrepreneurs Are Always Inventors D. Myth 4: Entrepreneurs Are Academic and Social Misfits E. Myth 5: Entrepreneurs Must Fit the Profile F. Myth 6: All Entrepreneurs Need Is Money G. Myth 7: All Entrepreneurs Need Is Luck H. Myth 8: Entrepreneurship Is Unstructured and Chaotic I. Myth 9: Most Entrepreneurial Initiatives Fail J. Myth 10: Entrepreneurs Are Extreme Risk Takers VI. Approaches to Entrepreneurship A. Schools-of-Thought Approaches to Entrepreneurship 1. THE MACRO VIEW a. The Environmental School of Thought b. The Financial/Capital School of Thought c. The Displacement School of Thought 2. THE MICRO VIEW a. The Entrepreneurial Trait School of Thought b. The Venture Opportunity School of Thought c. The Strategic Formulation School of Thought 3. SCHOOLS OF ENTREPRENEURIAL THOUGHT: A SUMMARY B. Process Approaches to Entrepreneurship 1. AN INTEGRATIVE APPROACH 2. DYNAMIC STATES APPROACH 3. A FRAMEWORK OF FRAMEWORKS APPROACH VII. The Entrepreneurial Revolution: A Global Phenomenon A. The Impact of Entrepreneurial Ventures in the United States B. The Impact of Gazelles 1. GAZELLES AND INNOVATION 2. GAZELLES AND GROWTH 3. GAZELLES AND SURVIVAL C. Legacy of Entrepreneurial Firms VIII. Twenty-First-Century Trends in Entrepreneurship Research IX. Key Entrepreneurship Concepts A. Entrepreneurship B. Entrepreneur C. Entrepreneurial Discipline D. Entrepreneurial Leadership FEATURED CONTENT The Entrepreneurial Process: The E-Myth The Entrepreneurial Process: The Best Business Schools for Entrepreneurship LEARNING OBJECTIVES 1 To examine the historical development of entrepreneurship 2 To explore and debunk the myths of entrepreneurship 3 To define and explore the major schools of entrepreneurial thought 4 To explain the process approaches to the study of entrepreneurship 5 To set forth a comprehensive definition of entrepreneurship 6 To examine the entrepreneurial revolution taking place today 7 To illustrate today’s entrepreneurial environment CHAPTER SUMMARY This opening chapter attempts to provide a broad perspective of the entrepreneurial evolution occurring throughout the United States and the world. Beginning with a discussion of entrepreneurs who have been compared to Olympic athletes, symphony orchestra conductors, and top-gun pilots, the chapter presents the perspective of entrepreneurship as an aggressive catalyst for change within the marketplace. Entrepreneurship is a mind-set that anyone can develop regardless of the setting. Entrepreneurship: Theory, Process, Practice concentrates on entrepreneurs and entrepreneurial ventures where the entrepreneur’s principal objectives are innovation, profitability, and growth, not on small businesses, which, although they are independently owned and operated, are not dominant in their fields and usually do not engage in many new or innovative practices. As Entrepreneurship defines it, entrepreneurship is a dynamic process of vision, change, and creation. It requires an application of energy and passion toward the creation and implementation of new ideas and creative solutions. Essential ingredients include the willingness to take calculated risks—in terms of time, equity, or career; the ability to formulate an effective venture team; the creative skill to marshal needed resources; the fundamental skill of building a solid business plan; and, finally, the vision to recognize opportunity where others see chaos, contradiction, and confusion. To underscore its approach to entrepreneurship, Entrepreneurship examines 10 myths about the topic that, once safely sidestepped, allows for a foundation of research and contemporary theory to be built. The myths are presented to debunk misconceptions about entrepreneurship and educate the reader of the true nature of entrepreneurship. The chapter then provides an overview of entrepreneurial theory and contemporary research to broaden the horizon for studying entrepreneurship and to better focus on the what, how, and why behind the discipline. This chapter next provides a perspective on the Entrepreneurial Revolution that is occurring throughout the United States and the world, discussing important statistics that support the entrepreneurial economy. For example, the U.S. Small Business Administration has reported that, during the past ten years, new business start-ups numbered nearly 600,000 per year. Approximately one new firm with employees is established every year for every 300 adults in the United States. Because the typical new firm has at least two owners/managers, 1 of every 150 adults participates in the founding of a new firm each year. Substantially more—1 in 12—are involved in trying to launch a new firm. And, during the “Great Recession” (as some have called our lengthy recessionary period), more Americans have become entrepreneurs than at any time in the past 20 years. The net result, then, is that the United States has a very robust level of firm creation. Among the 6 million establishments (single- and multisite firms) with employees, approximately 600,000 to 800,000 are added each year. That translates into an annual birthrate of 14 to 16 per 100 existing establishments. A description of gazelles—business establishments with at least 20 percent sales growth every year, starting from a base of $100,000—and their impact on the economy is included, along with the challenges associated fast growth. Eight trends in entrepreneurship in the twenty-first century are also itemized and the chapter ends with a review of three key concepts: entrepreneurship, entrepreneur, and entrepreneurial management. To be a successful entrepreneur, an individual must be an independent thinker who is willing to take risks and to dare to be different. Personal initiative, ability to consolidate resources, management skills, and risk taking are just a few of the important qualities needed to be a successful entrepreneur. LECTURE NOTES I. Entrepreneurs—Breakthrough Innovators Individuals recognize opportunities where others see chaos or confusion. They are compared to Olympic athletes, symphony conductors, and top-gun pilots. II. Entrepreneurs versus Small-Business Owners: A Distinction The terms entrepreneur and small business owner are used interchangeably, but there are differences. Small business owners are not dominant in their field and are not innovative. The objectives of entrepreneurial ventures are innovation, profitability, and growth. III. Entrepreneurship: A Mind-Set Entrepreneurship is more than the mere creation of business. A special perspective permeates entrepreneurs: seeking opportunities, taking risks beyond security, and having the tenacity to push an idea through to reality. It is a mind-set that has revolutionized the way business is conducted at every level and in every country: inside or outside an organization, in for-profit or not-for-profit enterprises, and in business or nonbusiness activities. IV. The Evolution of Entrepreneurship Entrepreneurship is from the French “entreprendre,” meaning “to undertake.” An entrepreneur is an innovator or developer who recognizes and seizes opportunities; converts those opportunities into workable/marketable ideas; adds value through time, effort, money, or skills; assumes the risks of the competitive marketplace to implement these ideas; and realizes the rewards from these efforts. Characteristics of entrepreneurs: •Personal initiative •The ability to consolidate resources •Management skills •A desire for autonomy •Risk taking •Aggressiveness •Competitiveness •Goal-oriented behavior •Confidence •Opportunistic behavior •Intuitiveness •Reality-based action •The ability to learn from mistakes •The ability to employ human relations skills Historical developments in entrepreneurship: •No single definition of entrepreneur exists. •Recognition of entrepreneurs dates back to eighteenth-century France. •Until 1950, the majority of definitions and references came from economists. •Over the decade, writers have continued to modify the definition. •Robert C. Ronstadt said, “Entrepreneurship is the dynamic process of creating incremental wealth.” •In the twentieth century, the word entrepreneur became closely linked with free enterprise and capitalism. •Entrepreneurs serve as agents for change, provide creative, innovative ideas for business enterprise and help businesses grow and become profitable. •In the twenty-first century, entrepreneurs are considered heroes of free enterprise. •Many people now regard entrepreneurship as “pioneership” on the frontier of business. An integrated definition of entrepreneurship recognizes entrepreneurship as a dynamic process of vision, change, and creation. V. Avoiding Folklore: The Myths of Entrepreneurship Myth 1: Entrepreneurs Are Doers, Not Thinkers Entrepreneurs have a tendency toward action, but they are also thinkers. Emphasis today is on the creation of clear and complete business plans. Myth 2: Entrepreneurs Are Born, Not Made Traits include aggressiveness, initiative, drive, a willingness to take risks, analytical ability, and skill in human relations. Entrepreneurship has models, processes, and case studies that allow traits to be acquired. Myth 3: Entrepreneurs Are Always Inventors This idea is a result of misunderstanding and tunnel vision. Many inventors or innovators are also entrepreneurs. Numerous entrepreneurs encompass all sorts of innovative activities. Myth 4: Entrepreneurs Are Academic and Social Misfits This myth results from people who have started successful enterprises after dropping out of school or quitting a job. Historically, education and social organizations have not recognized the entrepreneur. The entrepreneur, no longer a misfit, is now viewed as a professional. Myth 5: Entrepreneurs Must Fit the Profile Many books and articles have presented checklists of characteristics of the successful entrepreneur. The environment, the venture itself, and the entrepreneur have interactive effects, which result in many different types of profiles. Myth 6: All Entrepreneurs Need Is Money That a venture needs capital to survive is true. A large number of business failures occur because of lack of adequate financing. Failure due to lack of financing indicates other problems: •Managerial incompetence •Lack of financial understanding •Poor investments •Poor planning Myth 7: All Entrepreneurs Need Is Luck Being in the right place at the right time is always an advantage. “Luck” happens when preparation meets opportunity. What appears to be luck could really be several factors: •Preparation •Determination •Desire •Knowledge •Innovativeness Myth 8: Entrepreneurship Is Unstructured and Chaotic Entrepreneurs sometimes thought of as gunslingers who are assumed to be disorganized and unstructured, leaving it to others to keep things on track. Heavily involved in all facets of their ventures, they tend to have a system to keep things straight and maintain priorities, which may seem strange to casual observers but works for them. Myth 9: Most Entrepreneurial Initiatives Fail Many entrepreneurs suffer a number of failures before they are successful. Failure can teach many lessons to those willing to learn and often leads to future success. The corridor principle states that with every venture launched, new and unintended opportunities often arise. The “high failure rate” is misleading, according to researcher Bruce Kirchoff. Myth 10: Entrepreneurs Are Extreme Risk Takers The concept of risk is a major element in the entrepreneurial process. The public’s perception of the risk most entrepreneurs assume is distorted. Appearance may be that an entrepreneur is “gambling” on a wild chance but entrepreneur is usually working on a moderate or “calculated” risk. VI. Approaches to Entrepreneurship Schools-of-Thought Approaches to Entrepreneurship THE MACRO VIEW Presents a broad array of factors that relate to success or failure in contemporary entrepreneurial ventures. Exhibits a strong external locus of control point of view. Three schools of entrepreneurial thought take the macro view. The Environmental School of Thought Deals with the external factors that affect a potential entrepreneur’s lifestyle. Focuses on institutions, values, and morals. Recognizes that friends and family can influence the desire to become an entrepreneur. The Financial/Capital School of Thought Deals with the search for seed capital and growth capital. Views the entire entrepreneurial venture from a financial management standpoint. The Displacement School of Thought Holds that the group hinders a person from advancing or eliminates certain factors needed to advance; consequently, the individual is projected into entrepreneurship in order to succeed. Frustrated individuals propelled into entrepreneurial pursuits. Three major types of displacement include: •Political displacement: Deals with government’s policies and regulations •Cultural displacement: Deals with social groups precluded from professional fields •Economic displacement: Deals with economic variations of recession and depression THE MICRO VIEW Exhibits an internal locus of control point of view. Three schools of entrepreneurial thought take the micro view. The Entrepreneurial Trait School of Thought Studies successful entrepreneurs who tend to exhibit similar characteristics. Four factors usually exhibited by successful entrepreneurs include: •Achievement •Creativity •Determination •Technological knowledge Deals with the family development idea that focuses on the nurturing and support that exists within the home atmosphere. The Venture Opportunity School of Thought Emphasizes the search for sources of ideas, the development of concepts, and the implementation of venture opportunities. Views creativity and market awareness as essentials. Deals with the ability to recognize new ideas and opportunities and to implement the necessary steps of action. Preparation meeting opportunity equals “luck.” The Strategic Formulation School of Thought Emphasizes the planning process in successful venture development. Four major factors in considering the strategic formulation include: •Unique markets •Unique people •Unique products •Unique resources SCHOOLS OF ENTREPRENEURIAL THOUGHT: A SUMMARY Knowledge and research available is in its embryonic stage. The field of entrepreneurship uses a number of theories in its growth and development. Process Approaches to Entrepreneurship AN INTEGRATIVE APPROACH Focuses on and includes three factors: inputs, outputs, and entrepreneurial intensity. Built around the concepts of inputs to the entrepreneurial process and outcomes from the entrepreneurial process. Inputs include environmental opportunities, the individual entrepreneur, the business concept, the organizational context, and financial and nonfinancial resources. Outputs include ventures, value creation, new products and processes, new technologies, profit, jobs, and economic growth. Entrepreneurial intensity is the number of entrepreneurial events and how entrepreneurial the events are. DYNAMIC STATES APPROACH Network of relationships (the dynamic state) convert opportunity tension into value, generating new resources that maintain the dynamic state. A FRAMEWORK OF FRAMEWORKS APPROACH Theories or frameworks based on combinations offer a more dynamic view of the phenomenon of entrepreneurship. Similar to the “multiple lens” approach that characterizes general management, the theories based on combinations can delve into some of the particular aspects of entrepreneurship with greater granularity. A sizeable body of research has developed that supports the individual frameworks through the schools of thought or through process models but the integration of previously disparate aspects of entrepreneurship may be particularly valuable to advancing the field of entrepreneurship. VII. The Entrepreneurial Revolution: A Global Phenomenon According to GEM (Global Entrepreneurship Monitor) data: •110 million people between 18 and 64 years old were actively engaged in starting a business. •140 million were running new businesses they started less than 3½ years earlier. •250 million people were involved in early stage entrepreneurial activity. The Impact of Entrepreneurial Ventures in the United States •During the last ten years, over 400,000 new business incorporations per year •One of every 150 adults participates in the founding of a new firm each year. •One in 12 adults is involved in trying to launch a new firm. •The annual birthrate of new firms is 14 to 16 per 100 existing establishments. •During this “Great Recession” (as some have called our lengthy recessionary period), more Americans have become entrepreneurs than at any time in the past 20 years. •The United States has a culture that supports risk taking and seeking opportunities. •Americans are relatively alert to unexploited economic opportunity and have a relatively low fear of failure. •The United States is a leader in entrepreneurship education at both undergraduate and graduate levels. •The United States is home to a high percentage of individuals with professional, technological, or business degrees, a group that registers at the highest entrepreneurial activity rate. The Impact of Gazelles New and smaller firms create the most jobs in the U.S. economy. Fastest growing firms are those with at least 20 percent sales growth every year (for five years), starting with a base of at least $100,000. GAZELLES AND INNOVATION New and smaller firms have been responsible for 55 percent of the innovations in 362 different industries and for 95 percent of all radical innovations. Gazelles produce twice as many product innovations per employee as do larger firms. New and smaller firms obtain more patents per sales dollar than do larger firms. GAZELLES AND GROWTH During the last 10 years business start-ups have approached nearly 600,000 per year. GAZELLES AND SURVIVAL About half of all start-ups last between five and seven years, depending on economic conditions. Legacy of Entrepreneurial Firms Fostering and promoting entrepreneurial activity has been, and will continue to be, an economic solution for recessions, downturns, and challenges. While large existing companies have been transforming themselves, having learned to become more entrepreneurial, new entrepreneurial companies have been blossoming Many entrepreneurial firms have been founded by women, minorities, and immigrants with footholds in every sector of the economy and in every part of the country. Entrepreneurial firms make two indispensable contributions to the U.S. economy. First, they are an integral part of the renewal process that pervades and defines market economies. Second, entrepreneurial firms are the essential mechanism by which millions enter the economic and social mainstream of American society. VIII. Twenty-First-Century Trends in Entrepreneurship Research The major themes that characterize recent research about entrepreneurs and new-venture creation: •Venture financing—venture capital, angel investors, and innovative financing techniques •Corporate entrepreneurship—entrepreneurial actions within large organizations •Social entrepreneurship •Entrepreneurial cognition—the psychological aspects of the entrepreneurial process •Women and minority entrepreneurs—have emerged in greater numbers •The global entrepreneurial movement •Family businesses •Entrepreneurial education—the number of schools teaching a course in entrepreneurship has grown from two dozen 30 years ago to more than 3,000 at this time IX. Key Entrepreneurship Concepts Entrepreneurship—a dynamic process of vision, change, and creation requiring an application of energy and passion toward the creation of and implementation of new ideas and creative solutions Entrepreneur—an innovator or developer who recognizes and seizes opportunities; converts those opportunities into workable/marketable ideas; adds value through time, effort, money, or skills; and assumes the risks of the competitive marketplace to implement these ideas Entrepreneurial Discipline—an entrepreneur demonstrates discipline and the techniques and principles will continue to drive the entrepreneurial economy in the twenty-first century. Entrepreneurial Leadership—an entrepreneur who represents the ultimate source of economic dynamism and empowerment and is transformative at the societal, organizational and individual levels. CHAPTER 2 The Entrepreneurial Mind-Set in Individuals: Cognition and Ethics CHAPTER OUTLINE I. The Entrepreneurial Mind-Set II. Entrepreneurial Cognition A. Metacognitive Perspective B. Who Are Entrepreneurs? C. Characteristics Associated with Entrepreneurial Mind-Set 1. DETERMINATION AND PERSEVERANCE 2. DRIVE TO ACHIEVE 3. OPPORTUNITY ORIENTATION 4. PERSISTENT PROBLEM SOLVING 5. SEEKING FEEDBACK 6. INTERNAL LOCUS OF CONTROL 7. TOLERANCE FOR AMBIGUITY 8. CALCULATED RISK TAKING 9. HIGH ENERGY LEVEL 10. CREATIVITY AND INNOVATIVENESS 11. VISION 12. PASSION 13. TEAM BUILDING III. Dealing with Failure A. The Grief Recovery Process IV. The Entrepreneurial Experience V. The Dark Side of Entrepreneurship A. The Entrepreneur’s Confrontation with Risk 1. FINANCIAL RISK 2. CAREER RISK 3. FAMILY AND SOCIAL RISK 4. PSYCHIC RISK B. Stress and the Entrepreneur 1. WHAT IS ENTREPRENEURIAL STRESS? 2. SOURCES OF STRESS a. Loneliness b. Immersion in Business c. People Problems d. Need to Achieve 3. DEALING WITH STRESS a. Networking b. Getting Away from It All c. Communicating with Employees d. Finding Satisfaction Outside the Company e. Delegating f. Exercising Rigorously C. The Entrepreneurial Ego 1. Overbearing Need for Control 2. Sense of Distrust 3. Overriding Desire for Success 4. Unrealistic Optimism VI. Entrepreneurial Ethics VII. Ethical Dilemmas A. Ethical Rationalizations B. The Matter of Morality C. Complexity of Decisions D. Online Ethical Dilemmas in E-Commerce VIII. Establishing a Strategy for Ethical Venture A. Ethical Codes of Conduct B. Ethical Responsibility IX. Ethical Considerations of Corporate Entrepreneurs X. Ethical Leadership by Entrepreneurs XI. Entrepreneurial Motivation FEATURED CONTENT The Entrepreneurial Process: Global Breakthrough Innovators The Entrepreneurial Process: Persistence Pays Off for Entrepreneurs The Entrepreneurial Process: Entrepreneurial Fear 101 The Entrepreneurial Process: Shaping an Ethical Strategy LEARNING OBJECTIVES 1 To describe the entrepreneurial mind-set and entrepreneurial cognition 2 To identify and discuss the most commonly cited characteristics found in successful entrepreneurs 3 To discuss the “dark side” of entrepreneurship 4 To identify and describe the different types of risk entrepreneurs face as well as the major causes of stress for these individuals and the ways they can handle stress 5 To discuss the ethical dilemmas confronting entrepreneurs 6 To study ethics in a conceptual framework for a dynamic environment 7 To present strategies for establishing ethical responsibility and leadership 8 To examine entrepreneurial motivation CHAPTER SUMMARY This chapter describes the entrepreneurial perspective in individuals. It discusses topics that can be useful in becoming an entrepreneur. Most of the topics have to do with personal and psychological traits that are hard to measure but are identifiable. It describes the most common characteristics associated with successful entrepreneurs, the elements associated with the “dark side” of entrepreneurship, as well as the ethical challenges that entrepreneurs confront. In attempting to explain the entrepreneurial mind-set within individuals, this chapter presents the concepts of entrepreneurial cognition and metacognition in examining the ways in which entrepreneurs view opportunities and make decisions. Concepts from cognitive psychology are increasingly being found to be useful tools to help probe entrepreneurial-related phenomena, and, increasingly, the applicability of the cognitive sciences to the entrepreneurial experience are cited in the research literature. The entrepreneurial cognitions view offers an understanding as to how entrepreneurs think and “why” they do some of the things they do. For example, 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, are important in achieving desirable outcomes from entrepreneurial actions. The next part of the chapter discusses possible characteristics of successful entrepreneurs. This list is long and ever expanding and the characteristics are not exclusively the ones necessary to become a successful entrepreneur. Some characteristics are commitment, determination, and perseverance, which are all goal oriented. Also, the drive to achieve can be goal oriented. Other traits are correcting problems and seeking associates with feedback. These are only a few of the many that are there. Some of the traits involved in the risk area indicate that the entrepreneur must be a calculated risk taker instead of a high risk taker. Also, the entrepreneur must have a tolerance for failure; otherwise, there would be no risk. There are other traits that are personal, such as vision, self-confidence, and optimism. These traits can help with self-motivation and attitudes. An examination of failure and the grief recovery process is introduced, because failure is so often a learning experience for entrepreneurs. The next part of the chapter focuses on the dark side of entrepreneurship, which encompasses the risks confronted by entrepreneurs, including financial, career, psychic, family, and social risk. These risks can lead to many types of stress caused by loneliness, immersion in business, people problems, and the need to achieve. Possible solutions to ease stress are networking, getting away from it all, communicating with subordinates, finding satisfaction outside the company, and delegating. These, of course, are not sure bets for curing stress but they can help. The chapter then discusses the entrepreneurial ego and its negative effects. This is brought about by a false sense of security and invincibility because the business is going well. The traits used to help diagnose this problem are the need for control, sense of distrust, the desire for success, and external optimism. The chapter continues with a full-featured exploration of the ethical side of entrepreneurship. Ethics is a set of principles prescribing a behavioral code that explains right and wrong; it also may outline moral duty and obligations. Because it is so difficult to define the term, it is helpful to look at ethics more as a process than as a static code. Entrepreneurs face many ethical decisions, especially during the early stages of their new ventures. Decisions may be legal without being ethical, and vice versa. When making decisions that border on the unethical, entrepreneurs commonly rationalize their choices. These rationalizations may be based on morally questionable acts committed “against the firm” or “on behalf of the firm” by the managers involved. Within this framework are four distinct types of managerial roles: nonrole, role failure, role distortion, and role assertion. It is also important for entrepreneurs to realize that many decisions are complex and that it can be difficult to deal with all of a decision’s ethical considerations. Some of them may be overlooked, and some may be sidestepped because the economic cost is too high. In the final analysis, ethics is sometimes a judgment call, and what is unethical to one entrepreneur is viewed as ethical to another. Despite the ever-present lack of clarity and direction in ethics, however, ethics will continue to be a major issue for entrepreneurs during the new century. To establish ethical strategies, some corporations create codes of conduct. A code of conduct is a statement of ethical practices or guidelines to which an enterprise adheres. Codes are becoming more prevalent in organizations today, and they are proving to be more meaningful in their implementation. This chapter concludes with a model of entrepreneurial motivation, which depicts the important factors of expectation and outcome. It is the entrepreneur’s expectations and how well the outcomes of the venture satisfy those expectations that keep the entrepreneurial drive sustained. LECTURE NOTES I. The Entrepreneurial Mind-Set Every person has the potential and free choice to pursue a career as an entrepreneur. What motivates people to make this choice is not fully understood. II. Entrepreneurial Cognition Cognition is used to refer to the mental functions, mental processes (thoughts), and mental states of intelligent humans. Entrepreneurial cognition is about understanding how entrepreneurs use simplifying mental models to piece together previously unconnected information that helps them to identify and invent new products or services, and to assemble the necessary resources to start and grow businesses. Metacognitive Perspective Metacognitive model of the entrepreneurial mind-set integrates the combined effects of entrepreneurial motivation and context, toward the development of metacognitive strategies applied to information processing within an entrepreneurial environment. Who Are Entrepreneurs? Starting a new business requires more than just an idea; it requires a special person, an entrepreneur, who combines sound judgment and planning with risk taking to ensure the success of his or her own business. Characteristics Associated with Entrepreneurial Mind-Set DETERMINATION AND PERSEVERANCE—More than any other factor, total dedication to success as an entrepreneur can overcome obstacles and setbacks. It can also compensate for personal shortcomings. DRIVE TO ACHIEVE—Entrepreneurs are self-starters who appear to others to be internally driven by a strong desire to compete, to excel against self-imposed standards, and to pursue and attain challenging goals. OPPORTUNITY ORIENTATION—One clear pattern among successful growth-minded entrepreneurs is their focus on opportunity rather than on resources, structure, or strategy. PERSISTENT PROBLEM SOLVING—Entrepreneurs are not intimidated by difficult situations. Simple problems bore them, unsolvable ones do not warrant their time. SEEKING FEEDBACK—Effective entrepreneurs are often described as quick learners. INTERNAL LOCUS OF CONTROL—Successful entrepreneurs believe in themselves. They believe that their accomplishments and setbacks are within their own control and influence and that they can affect the outcome of their actions. TOLERANCE FOR AMBIGUITY Successful entrepreneurs thrive on the fluidity and excitement of such an ambiguous existence. CALCULATED RISK TAKING—Successful entrepreneurs are not gamblers. When they decide to participate in a venture, they do so in a very calculated, carefully thought out manner. HIGH ENERGY LEVEL—Many entrepreneurs fine tune their energy levels by carefully monitoring what they eat and drink, establishing exercise routines, and knowing when to get away for relaxation. CREATIVITY AND INNOVATIVENESS—An expanding school of thought thinks that creativity can be learned. VISION—Not all entrepreneurs have predetermined vision for their firm. In many cases this vision develops over time as the individual begins to learn what the firm is and what it can become. PASSION—A fundamental emotional experience for entrepreneurs characterized by a discrete emotion that is quite intense. TEAM BUILDING—The desire for independence and autonomy does not preclude the entrepreneur’s desire to build a strong entrepreneurial team. Most successful entrepreneurs have highly qualified, well-motivated teams that help handle the growth and development of the venture. III. Dealing with Failure Entrepreneurs use failure as a learning experience. They have a tolerance for failure. The most effective entrepreneurs are realistic enough to expect difficulties and failures. If entrepreneurs deal effectively with grief that emanates from failure then they will not become disappointed, discouraged, or depressed. In adverse and difficult times, they will continue to look for opportunity. The Grief Recovery Process Grief is a negative emotional response to the loss of something important triggering behavioral, psychological, and physiological symptoms. The emotions generated by failure (i.e., grief) can interfere with the learning process. A “loss orientation” towards grief recovery, which focuses on the failure, can sometimes exacerbate negative emotional reactions to failure. A “restoration orientation,” alternatively, enables entrepreneurs to distract themselves from thinking about the failure. However, avoiding negative emotions is unlikely to be successful in the long-run Research indicates that entrepreneurs may recover more quickly from a failure if they oscillates between a loss and a restoration orientation. IV. The Entrepreneurial Experience The prevalent view of entrepreneurship in the literature is that entrepreneurs create ventures. Its narrow framing, however, neglects the complete process of entrepreneurship. An experiential view of the entrepreneur moves past the static “snapshot” approach to entrepreneurship and encourages consideration of entrepreneurship as a dynamic, socially situated process that involves numerous actors and events. The creation of sustainable enterprises involves three parallel, interactive phenomena: emergence of the opportunity, emergence of the venture, and emergence of the entrepreneur. None are predetermined or fixed—they define and are defined by one another. V. The Dark Side of Entrepreneurship Certain negative factors may envelop entrepreneurs and dominate their behavior. Although each of these factors has a positive aspect, it is important for entrepreneurs to understand their potential destructive side as well. The Entrepreneur’s Confrontation with Risk Starting or buying a new business involves risk. A typology of entrepreneurial styles helps describe the risk-taking activity of entrepreneurs. In this model, financial risk is measured against the level of profit motive (the desire for monetary gain or return from the venture). FINANCIAL RISK—In most new ventures the individual puts a significant portion of his savings or other resources at stake. 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. FAMILY AND SOCIAL RISK—Entrepreneurs expose their families to the risk of an incomplete family experience and the possibility of permanent scars. PSYCHIC RISK—The greatest risk may be to the well-being of the entrepreneur. Stress and the Entrepreneur To achieve their goals, entrepreneurs are willing to tolerate the effects of stress: back problems, indigestion, insomnia, or headaches. WHAT IS ENTREPRENEURIAL STRESS? In general, stress can be viewed as a function of discrepancies between a person’s expectations and ability to meet demands. Lacking the depth of resources, entrepreneurs must bear the cost of their mistakes while playing a multitude of roles, such as salesperson, recruiter, spokesperson, and negotiator. Simultaneous demands can lead to role overload. Entrepreneurs often work alone or with a small number of employees and therefore lack the support from colleagues. A basic personality structure, common to entrepreneurs and referred to as type A personality structure, describes people who are impatient, demanding, and overstrung. SOURCES OF STRESS Researchers Boyd and Gumpert identify four causes of entrepreneurial stress. Loneliness—Entrepreneurs are isolated from persons in whom they can confide. They tend not to participate in social activities unless there is some business benefit. Immersion in Business—Most entrepreneurs are married to their business. They work long hours, leaving them with little or no time for civic recreation. People Problems—Most entrepreneurs experience frustration, disappointment, and aggravation in their experience with people. Need to Achieve—Achievement brings satisfaction. However, many entrepreneurs are never satisfied with their work no matter how well it is done. DEALING WITH STRESS If stress can be kept within constructive bounds, it can increase a person’s efficiency and improve performance. Networking—One way to relieve the loneliness of running a business is to share experiences by networking with other business owners. Getting Away from It All—The best antidote could be a well-planned vacation. Communicating with Employees—Entrepreneurs are in close contact with employees and can readily assess the concerns of their staff. Finding Satisfaction Outside the Company—Entrepreneurs need to get away from the business occasionally and become more passionate about life itself; they need to gain some new perspectives. Delegating—Entrepreneurs find delegation difficult because they think they have to be at the business all the time and be involved in all aspects of the operation. Exercising Rigorously—Research demonstrates the value of exercise regimens on relieving the stress associated with entrepreneurs. The Entrepreneurial Ego Certain characteristics that usually propel entrepreneurs into success also, if exhibited in the extreme have destructive implications for entrepreneurs. OVERBEARING NEED FOR CONTROL—Entrepreneurs are driven by a strong desire to control both their venture and their destiny. SENSE OF DISTRUST Because entrepreneurs are continually scanning the environment, it could cause them to lose sight of reality, distort reasoning and logic, and take destructive action. OVERRIDING DESIRE FOR SUCCESS This can be dangerous because there exists the chance that the individual will become more important than the venture itself. UNREALISTIC OPTIMISM—When external optimism is taken to its extreme, it could lead to a fantasy approach to the business. VI. Entrepreneurial Ethics Today’s entrepreneurs are faced with many ethical decisions. As there is no simple universal formula for solving ethical problems, entrepreneurs have to choose their own codes of conduct; the outcome of their choices makes them who they are. VII. Ethical Dilemmas Ethics provides the basic rules or parameters for conducting any activity in an “acceptable” manner. Ethics represents a set of principles prescribing a behavioral code that explains what is good and right or bad and wrong. Ethics may outline moral duty and obligations. Legality provides societal standards but not definitive answers to ethical questions. Because deciding what is good or right or bad and wrong is situational, instead of relying on a set of fixed ethical principles, entrepreneurs should an ethical process for making decisions. Ethical Rationalizations Decision makers use one of four rationalizations to justify questionable conduct: •that the activity is not “really” illegal or immoral •that it is in the individual’s or the corporation’s best interest •that it will never be found out •that, because it helps the company, the company will condone it Morally questionable acts can be classified as: nonrole, role failure, role distortion, and role assertion. The Matter of Morality Requirements of law may overlap at times but do not duplicate the moral standards of society. Some laws have no moral content whatsoever. Some laws are morally unjust. Some moral standards have no legal basis. Legal requirements tend to be negative, morality tends to be positive. Legal requirements usually lag behind the acceptable moral standards of society Complexity of Decisions Business decisions, in the context of entrepreneurial ethics are complex. Why? •Ethical decisions have extended consequences. •Ethical questions have multiple alternatives—the choices are not always “do” or “don’t do.” •Ethical business decisions often have mixed outcomes. •Most business decisions have uncertain ethical consequences. •Most ethical business decisions have personal implications. Online Ethical Dilemmas in E-Commerce •Slow demise of face-to-face interactions cause entrepreneurs to find ways to build trust. •Entrepreneurs recognize that online consumer reviews are used to inform purchasing decisions and are posted to reputation management systems (Amazon and Yelp). •Entrepreneurs find it far greater to exhibit strong ethical responsibility in their actions. VIII. Establishing a Strategy for an Ethical Enterprise Entrepreneurs need to commit to an established strategy for ethical enterprise. Ethical Codes of Conduct A code of content is a statement of ethical practices or guidelines to which an enterprise adheres. Ethical Responsibility A strategy for ethical responsibility should encompass three major elements: ethical consciousness, ethical process and structure, and institutionalization. IX. Ethical Considerations of Corporate Entrepreneurs Recognize the fine line between resourcefulness and rule breaking. Recognize that unethical consequences that can result in organizations where there are barriers to innovation. Recognize that companies can take action to combat unethical behavior by: •Establishing flexibility, innovation, and employee initiative and risk-taking. •Removing barriers to innovation faced by entrepreneurial middle managers. •Including an ethical component in corporate training. X. Ethical Leadership by Entrepreneurs The value system of an owner/entrepreneur is the key to establishing an ethical organization. The owner’s actions serve as a model for all other employees to follow. Caring is a feminine alternative to the more traditional and masculine ethics based on rules and regulations. by considering the interests of others and maintaining healthy relationships, caring—according to feminists—can lead to more genuinely moral climates. XI. Entrepreneurial Motivation The decision to behave entrepreneurially is the result of the interaction of several factors: •The individual’s personal characteristics •The individual’s personal environment •The relevant business environment •The individual’s personal goal set •The existence of a viable business idea •The comparison of probable outcomes with personal expectations •The relationship between entrepreneurial behavior and the expected outcomes •Entrepreneurial persistence—the choice to continue with an entrepreneurial opportunity regardless of counterinfluences or other enticing alternatives CHAPTER 3 THE ENTREPRENEURIAL MIND-SET IN ORGANIZATIONS: CORPORATE ENTREPRENEURSHIP CHAPTER OUTLINE I. The Entrepreneurial Mind-Set in Organizations II. Corporate Innovation Philosophy III. Corporate Entrepreneurship and Innovation A. Defining the Concept of Corporate Entrepreneurship and Innovation B. The Need for Corporate Entrepreneurship and Innovation C. Obstacles to Corporate Entrepreneurship and Innovation IV. Corporate Entrepreneurship Strategy A. Developing the Vision B. Encouraging Innovation C. Structuring the Work Environment 1. MANAGEMENT SUPPORT 2. AUTONOMY/WORK DISCRETION 3. REWARDS/REINFORCEMENT 4. TIME AVAILABILITY 5. ORGANIZATIONAL BOUNDARIES D. Control versus Autonomy E. Preparation for Failure F. Preparing Management G. Developing I-Teams V. Sustaining a Corporate Entrepreneurship Strategy FEATURED CONTENT The Entrepreneurial Process: FutureWorks: Procter & Gamble’s “Entrepreneurial Engine” The Entrepreneurial Process: Internal Innovators LEARNING OBJECTIVES 1 To understand the entrepreneurial mind-set in organizations 2 To illustrate the need for entrepreneurial thinking in organizations 3 To define the term corporate entrepreneurship 4 To describe obstacles that prevent innovation within corporations 5 To highlight the considerations involved in reengineering corporate thinking 6 To describe the specific elements of a corporate entrepreneurial strategy 7 To examine the methods of developing managers for corporate entrepreneurship 8 To illustrate the interactive process of corporate entrepreneurship CHAPTER SUMMARY Corporate entrepreneurship is the process of profitably creating innovation within an organizational setting. Most companies realize the need for corporate entrepreneurship as a response to (1) the rapidly growing number of new, sophisticated competitors, (2) a sense of distrust in the traditional methods of corporate management, and (3) an exodus of some of the best and brightest people from corporations to become small-business entrepreneurs. When creating the climate for in-house entrepreneurship, companies must develop four climate characteristics: (1) explicit goals, (2) a system of feedback and positive reinforcement, (3) an emphasis on individual responsibility, and (4) rewards based on results. Organizations create entrepreneurship in a number of ways. The first step is to understand the obstacles to corporate venturing. These are usually based on the adverse impact of traditional management techniques. The next step is to adopt innovative principles that include atmosphere, vision, multiple approaches, interactive learning, and Skunk Works. Specific strategies for corporate entrepreneurship entail the development of a vision as well as the development of innovation. Two types of innovation exist: radical and incremental. To facilitate the development of innovation, corporations need to focus on the key factors of top management support, time, resources, and rewards. Thus, commitment to and support of entrepreneurial activity are critical. Innovation teams are the semiautonomous units that have the collective capacity to develop new ideas. Sometimes referred to as self-managing or high-performance teams, innovation teams are emerging as the new breed of work teams formed to strengthen innovative developments. At the end of the chapter, the process of corporate entrepreneurship is discussed by examining the roles of middle managers in corporate entrepreneurial activity and the concept of sustained corporate entrepreneurship. LECTURE NOTES I. The Entrepreneurial Mind-Set in Organizations Corporate strategy has shifted to a focus on innovation with an emphasis on entrepreneurial thinking Entrepreneurship as the major force in American business has led to a desire for this type of activity inside enterprises. The infusion of entrepreneurial thinking inside large bureaucratic structures is referred to as corporate entrepreneurship, corporate innovation, or intrapreneurship. II. Corporate Innovation Philosophy To establish an entrepreneurial mindset, organizations need to provide the freedom and encouragement required for employees to develop their ideas. Top managers often find it difficult to provide this type of freedom to others in the organization. Five steps encourage new thinking: •Set explicit innovation goals •Create a system of feedback and positive reinforcement •Emphasize individual responsibility •Provide rewards for innovative ideas •Do not punish failures III. Corporate Entrepreneurship and Innovation The major thrust of corporate innovation is to develop the entrepreneurial spirit within organizational boundaries, thus allowing an atmosphere of innovation to prosper. Defining the Concept of Corporate Entrepreneurship and Innovation Definitions of corporate entrepreneurship have evolved over 30 years. Examples include: •Corporate entrepreneurship as centering on reenergizing and enhancing the firm’s ability to acquire innovative skills and capabilities. •Corporate entrepreneurship as formal or informal activities that create new businesses in established companies through product and process innovations and market developments. •Corporate entrepreneurship as corporate venturing—adding new business to the corporation o Internal Corporate Venturing o Cooperative Corporate Venturing o External Corporate Venturing •Corporate entrepreneurship as strategic entrepreneurship—transformation of organizations via large-scale or otherwise highly consequential innovations adopted in the firm’s pursuit of competitive advantage o Strategic Renewal o Sustained Regeneration o Domain Redefinition o Organizational Rejuvenation o Business Model Reconstruction The Need for Corporate Entrepreneurship and Innovation A company must always be ready and willing to accept innovations or it will quickly become obsolete. The modern corporation must develop in-house entrepreneurship or face stagnation, loss of personnel, and decline. This need for corporate entrepreneurship has arisen in response to a number of pressing problems: •rapid growth in the number of new and sophisticated competitors •a sense of distrust in the traditional methods of corporate management •an exodus of some of the best and brightest people from corporations to become small-business entrepreneurs (being an entrepreneur is becoming more of a status symbol; many companies are losing their best people, who are going out on their own; venture capital is becoming more widely available for those who wish to go out on their own, thus making entrepreneurship more attractive) •international competition •downsizing of major corporations •an overall desire to improve efficiency and productivity. Obstacles to Corporate Entrepreneurship and Innovation The obstacles to corporate entrepreneurship are usually due to ineffective traditional management techniques. The adverse effects of traditional management principles applied to new venture development must be considered and corrected. Table 3.2 (Sources of and Solutions to Obstacles in Corporate Innovation) provides a complete list of the sources and solutions to obstacles to corporate entrepreneurship and innovation. The following factors exist in large corporations that have exhibited successful innovations: •Atmosphere and vision •Orientation to the market •Small, flat organizations •Multiple approaches •Interactive learning •Skunk Works IV. Corporate Entrepreneurship Strategy A corporate entrepreneurship (CE) strategy is manifested through the presence of an entrepreneurial strategic vision, a pro-entrepreneurship organizational architecture, and entrepreneurial processes and behavior exhibited across the organizational hierarchy.
CE strategy is about creating self-renewing organizations through the unleashing and focusing of entrepreneurial potential that exists throughout those organizations. The five critical steps of a corporate entrepreneurship strategy are: •developing the vision •encouraging innovation •structuring for an entrepreneurial climate •preparing individual managers for corporate innovation •developing venture teams Developing the Vision The first step in planning a strategy of corporate entrepreneurship is sharing the vision of innovation that corporate leaders wish to achieve. The vision must be clearly articulated by the organization’s leaders; however, specific objectives are developed by managers and employees. Encouraging Innovation Two distinct types of innovation exist: •Radical innovation—This type of innovation takes experimentation and determined vision, which are not necessarily managed. •Incremental innovation—This type of innovation refers to the systematic evolution of a product or service into newer markets. Both types of innovation require vision and support. There needs to be a champion who has the ability to develop and share a vision as well as top management support of the innovative activities.

3M follows a set of innovation rules that encourages employees to foster ideas, which are as follows: •Don’t kill a project. •Tolerate failure. •Keep divisions small. •Motivate the champions. •Stay close to the customer. •Share the wealth. Structuring the Work Environment Employee perception of an innovative environment is critical for stressing management’s commitment to innovative projects. Melding individual attitudes, values, and behavioral orientations with the organizational factors of structure and reward is important. Five factors critical to the internal environment of an organization seeking to have its managers pursue innovative activity: MANAGEMENT SUPPORT—the extent to which the management structure itself encourages employees to believe that innovation is, in fact, part of the role set for all organization members AUTONOMY/WORK DISCRETION—the extent to which workers are able to make decisions about performing their own work in the way they believe is most effective REWARDS/REINFORCEMENT—the extent to which rewards are contingent on performance, providing challenges, increasing responsibilities, and making the ideas of innovative people known to others in the organizational hierarchy TIME AVAILABILITY—the extent to which individuals have time to incubate ideas ORGANIZATIONAL BOUNDARIES—the extent to which people are encouraged to look at the organization from a broad perspective Control versus Autonomy The encouragement of corporate entrepreneurship can and often does result in counterproductive, rogue behavior. Deliberate design and development of organizational systems reflecting the organizational dimensions for an environment conducive to corporate innovation is critical. Preparation for Failure “Learning from failure” is an axiom in the corporate entrepreneurial community. Failure in a project may cause grief; the organization should have social support mechanisms in place to help with coping with failure. Better coping skills build self-efficacy in corporate entrepreneurs and promote continued corporate entrepreneurial behavior in the future Preparing Management Key decision makers must find ways to explain the purpose of using a corporate innovation process to those from whom entrepreneurial behaviors are expected. CE training programs can induce the changes needed in the work atmosphere to develop more entrepreneurial activity. The Corporate Entrepreneurship Assessment Instrument (CEAI) provides an instrument for measuring five key elements of an organization’s entrepreneurial climate: Developing I-Teams Innovation teams and the potential they hold for producing innovative results are recognized as a twenty-first century productivity breakthrough. An I-Team is composed of two or more people who formally create and share the ownership of a new organization. The unit has a budget plus a leader who has the authority to make decisions within broad guidelines. If the unit proves successful, it is later integrated into the larger organization. V. Sustaining a Corporate Entrepreneurship Strategy An organization’s sustained effort in corporate entrepreneurship is contingent upon individual members continuing to undertake innovative activities and upon positive perceptions of the activity by the organization’s executive management, which will in turn support the further allocation of necessary organizational antecedents. Figure 3.4 (A Model of Sustained Corporate Entrepreneurship) illustrates the importance of perceived implementation/output relationships at the organizational and individual levels for sustaining corporate entrepreneurship. CHAPTER 4 SOCIAL ENTREPRENEURSHIP AND THE GLOBAL ENVIRONMENT FOR ENTREPRENEURSHIP CHAPTER OUTLINE I. Social Entrepreneurship A. Defining the Social Entrepreneur B. Defining the Social Enterprise II. Social Enterprise and Sustainability A. Sustainable Entrepreneurship B. Ecopreneurship III. Shared Value and the Triple Bottom Line A. Bottom-Line Measures of Economic Performance B. Bottom-Line Measures of Environmental Performance C. Bottom-Line Measures of Social Performance IV. Benefit Corporations: Promoting Sustainable Enterprises V. The Global Marketplace A. Global Entrepreneurs B. Global Thinking C. Diaspora Networks D. Global Organizations and Agreements 1. THE WORLD TRADE ORGANIZATION 2. THE NORTH AMERICAN FREE TRADE AGREEMENT 3. THE EUROPEAN UNION E. Venturing Abroad 1. GRADUAL INTERNATIONALIZATION 2. INTERNATIONAL AT INCEPTION F. Methods of Going International 1. IMPORTING 2. EXPORTING 3. INTERNATIONAL ALLIANCES AND JOINT VENTURES a. Advantages of Joint Ventures b. Disadvantages of Joint Ventures 4. DIRECT FOREIGN INVESTMENT 5. LICENSING G. Researching Foreign Markets 1. INTERNATIONAL THREATS AND RISKS 2. KEY QUESTIONS AND RESOURCES FEATURED CONTENT The Entrepreneurial Process: Hot Dogs, Ex-Convicts, and Social Enterprise The Entrepreneurial Process: L3C: A New Legal Form for Social Enterprises The Entrepreneurial Process: Incentivizing Entrepreneurs in Chile LEARNING OBJECTIVES 1 To introduce the social entrepreneurship movement 2 To examine who would be a social entrepreneur 3 To delve into the concept of shared value 4 To discuss the challenges of social enterprise 5 To introduce the global opportunities and challenges for social entrepreneurs 6 To present the newest developments that have expanded the global marketplace 7 To examine the methods of entering the international arena 8 To set forth the key steps for entrepreneurs seeking global markets CHAPTER SUMARY The challenge of social enterprise has emerged in this century as a major issue for entrepreneurs. Social enterprise consists of obligations that a business has to society. The boom in social entrepreneurship and its promise of ending daunting social problems across the globe are of particular importance. Studies reveal that entrepreneurs recognize social enterprise as part of their role and that the structure of smaller firms allows entrepreneurs to influence their organizations more personally. Social entrepreneurs are change agents: they create large-scale change with pattern-breaking ideas, they address the root causes of social problems, and they possess the ambition to create systemic change. With the huge growth and interest in social entrepreneurship that we mention in the chapter comes the challenges to the boundaries of what is and what isn’t a social enterprise. Because social causes can be so different and, at times, so oddly personal, enterprises that embrace them can be very tough to decipher. It seems that the best way to end the confusion is to accept social entrepreneurship activity as a continuum, with one extreme being social entrepreneurs driven exclusively by producing social benefits, and at the other extreme, social entrepreneurs motivated primarily by profitability with social benefits being the means. Sustainable development is perhaps the most prominent topic of our time. Scholars suggest that entrepreneurial action can preserve ecosystems, counteract climate change, reduce environmental degradation and deforestation, improve agricultural practices and freshwater supply, and maintain biodiversity. Sustainable entrepreneurship includes ecopreneurship (i.e., environmental entrepreneurship), with entrepreneurial actions contributing to preserving the natural environment. The chapter includes coverage of a concept referred to as “shared value.” It is an approach to creating economic value that also creates value for society by addressing its needs and challenges. It connects company success with social progress. This concept coupled with “triple bottom line” thinking (profits, people, and the planet) will shape the transformation of organizations in the twenty-first century. Doing business globally is rapidly becoming a profitable and popular strategy for many entrepreneurial ventures. The North American Free Trade Agreement, the EU (European Union), and the World Trade Organization (WTO) are examples of the powerful economic forces creating opportunities for global entrepreneurs. LECTURE NOTES I. Social Entrepreneurship A new form of entrepreneurship that exhibits characteristics of nonprofits, government, and businesses—including applying to social problem solving traditional, private-sector entrepreneurship’s focus on innovation, risk-taking, and large scale transformation. Defining the Social Entrepreneur Social entrepreneurs are sometimes referred to as “public entrepreneurs,” “civic entrepreneurs,” or “social innovators.” Social entrepreneurs are change agents; they create large-scale change 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. These types of transformative changes can be national or global. They also can be highly localized—but no less powerful—in their impact. Defining the Social Enterprise There are challenges to the boundaries of what is and what isn’t a social enterprise. It is generally agreed that social entrepreneurs and their ventures are driven by social goals; that is, the desire to benefit society in some way. But because the social mission of social entrepreneurs is the most important criterion, not wealth creation, arguments are made any social enterprise should be in the world of not-for-profit organizations. II. Social Enterprise and Sustainability The basic challenge of social enterprise—addressing the obligations of a business to society—is the same for all types of businesses—but questions concerning the extent to which corporations should be involved in social obligations to society is open to debate. Sustainable Entrepreneurship Sustainable entrepreneurship includes: •Ecopreneurship, which refers to environmental entrepreneurship with entrepreneurial actions contributing to preserving the natural environment including the Earth, biodiversity, and ecosystem. •Social entrepreneurship, which encompasses the activities and processes undertaken to discover, define, and exploit opportunities in order to enhance social wealth. •Corporate social responsibility, which refers to actions that appear to further some social good, beyond the interests of the firm. Ecopreneurship The environment stands out as one of the major challenges of social enterprise. Entrepreneurs have an enormous challenge to build socially responsible organizations for the future. Ecovision—attention to employees, the organization, and the environment—is a possible leadership style for accomplishing this. A plan to create a sustainable future through a practical, clearly stated strategy, as defined by Hawken and McDonough: 1. Eliminate the concept of waste. 2. Restore accountability. 3. Make prices reflect costs. 4. Promote diversity. 5. Make conservation profitable. 6. Insist on accountability of nations. III. Shared Value and the Triple Bottom Line The triple bottom line (sometimes referred to as TBL) is an accounting framework that goes beyond the traditional measures of profit, return on investment, and shareholder value to include environmental and social dimensions. "Shared value” is an approach to creating economic value that also creates value for society by addressing its needs and challenges. Bottom-Line Measures of Economic Performance •Personal income •Cost of underemployment •Establishment sizes •Job growth •Employment distribution by sector •Percentage of firms in each sector •Revenue by sector contributing to gross state product Bottom-Line Measures of Environmental Performance •Hazardous chemical concentrations •Selected priority pollutants •Electricity consumption •Fossil fuel consumption •Solid waste management •Hazardous waste management •Change in land use/land cover Bottom-Line Measures of Social Performance •Unemployment rate •Median household income •Relative poverty •Percentage of population with a post-secondary degree or certificate •Average commute time •Violent crimes per capita •Health-adjusted life expectancy IV. Benefit Corporations: Promoting Sustainable Enterprises A benefit corporation is new form of corporation, with legal status administered by the state. •Enacted in 14 states; moving forward in several others states •Exactly the same as traditional corporations except for a few specific elements that make them more socially sustainable enterprises: purpose, accountability, and transparency •Different from a certified B corporation A certified B corporation is a certification conferred by the nonprofit B Lab, not the state. They have met a high standard of overall social and environmental performance, and, as a result, have access to the support and services of B Lab. V. The Global Marketplace Capitalism is the world’s dominant economic system. Like capitalism, entrepreneurship has expanded its reach across the globe and is now an engine for economic growth not only in America but elsewhere in the world. Global Entrepreneurs Global entrepreneurs rely on global networks for resources, design, and distribution. They rise above nationalistic differences to see the big picture of global competition without abdicating their own nationalities. They confront the learning difficulties of language barriers head-on, recognizing the barriers such ignorance can generate. Global Thinking Today’s consumers can select products, ideas, and services from many nations and cultures. One of the most exciting and promising avenues for entrepreneurs to expand their businesses is by participating in the global market. Two of the primary reasons for the opportunity of global markets are the decline in trade barriers and the emergence of major trading blocs. Diaspora Networks Diaspora networks are relationships among ethnic groups that share cultural and social norms. They represent powerful advantages to global entrepreneurs because they speed the flow of information across borders; they create bonds of trust; and they create connections that help entrepreneurs collaborate within a country and across ethnicities. Easy communications technology (Internet and Skype) and social media (Facebook, LinkedIn, Twitter, etc.), make the linking together of diaspora networks stronger than ever. Global Organizations and Agreements They contribute to significant international vehicles that have developed. THE WORLD TRADE ORGANIZATION The WTO is the umbrella organization governing the international trading system. Its job is to oversee international trade arrangements. THE NORTH AMERICAN FREE TRADE AGREEMENT The North American Free Trade Agreement (NAFTA) is an international agreement among Canada, Mexico, and the United States that eliminates trade barriers among the three nations. It created the world’s largest free trade area, with strong protection for patents, copyrights, industrial design rights, trade secret rights, and other forms of intellectual property THE EUROPEAN UNION The EU is an economic and political union of 27 member states which are located primarily in Europe. Venturing Abroad As global opportunities expand, entrepreneurs are becoming more open-minded about internationalizing. GRADUAL INTERNATIONALIZATION Internationalization can be viewed as the outcome of a sequential process of incremental adjustments to changing conditions of the firm and its environment. This process progresses step-by-step as risk and commitment increase and entrepreneurs acquire more knowledge through experience. The traditional expectation regarding internationalization is that a business must enter the international arena incrementally, becoming global only as it grows older and wiser. Each country has something that others need, thus forming the basis of an interdependent international trade system: resource-rich countries have access to extractive assets and labor; market-rich countries have purchasing power. INTERNATIONAL AT INCEPTION Some entrepreneurial businesses are born global. Successful global start ups have seven characteristics: (1) global vision from inception; (2) internationally experienced management; (3) a strong international business network; (4) preemptive technology or marketing; (5) a unique intangible asset; (6) a linked product or service; and (7) tight organizational coordination worldwide. Methods of Going International Methods of going international are importing, exporting, international alliances and joint ventures, direct foreign investment, and licensing IMPORTING Importing is buying and shipping foreign-produced goods for domestic consumption. EXPORTING Exporting is the shipping of a domestically produced good to a foreign destination for consumption. INTERNATIONAL ALLIANCES AND JOINT VENTURES Three main types of international alliances: informal international cooperative alliances; formal international cooperative alliances (ICAs); and international joint ventures. •Informal alliances are not legally binding and are limited in scope and time. •Formal alliances usually require a formal contract with specifics about what each company contributes and involve a greater commitment by each company and a transfer of proprietary information. •Joint ventures occur when firms analyze the benefits of creating a relationship, pool their resources, and create a new venture. Joint ventures imply the sharing of assets, profits, risks, and venture ownership. Advantages of Joint Ventures •Combine the strengths of the partners involved and thereby increase competitive position. •Intimate knowledge of the local conditions and government where the facility is located. •Use the resources of the other firms involved in the venture. •Strategic fit. Disadvantages of Joint Ventures •Fragmented control. DIRECT FOREIGN INVESTMENT A direct foreign investment is a domestically controlled foreign production facility. Does not imply that the firm owns a majority of the operation; can be achieved by acquiring an interest in an ongoing foreign operation, by obtaining a majority interest in a foreign company, by purchasing part of the assets of a foreign firm, or by building a facility in a foreign country. LICENSING Licensing is a business arrangement in which the manufacturer of a product (or a firm with proprietary rights over a certain trademark or technology) grants permission to some other group or individual to manufacture that product in return for specified royalties or other payments. Three basic types of licensing arrangements revolve around patents, trademarks, and technical know-how. Researching Foreign Markets Important parameters to identify and research include: •Government regulations •Political climate •Infrastructure •Distribution channels •Competition •Market size •Local customs and culture INTERNATIONAL THREATS AND RISKS Dangers of foreign markets include political, economic, and financial risks, including: •Ignorance •Uncertainty •Lack of information •Restrictions imposed by the host country •Unstable governments •Changes in tax laws •Rapid rises in costs and raw materials •Fluctuating exchange rates •Repatriation of profits and capital KEY QUESTIONS AND RESOURCES International marketing research is critical to the success of entrepreneurial businesses in overseas markets. Research should be directed at answering the following three questions: •Why is the company interested in going international? •What does the foreign-market assessment reveal about the nature and functioning of the markets under investigation? •What specific market strategy is needed to tap the potential of this market? CHAPTER 5 INNOVATION: THE CREATIVE PURSUIT OF IDEAS CHAPTER OUTLINE I. Opportunity Identification: The Search for New Ideas A. Sources of Innovative Ideas 1. TRENDS 2. UNEXPECTED OCCURRENCES 3. INCONGRUITIES 4. PROCESS NEEDS 5. INDUSTRY AND MARKET CHANGES 6. DEMOGRAPHIC CHANGES 7. PERCEPTUAL CHANGES 8. KNOWLEDGE-BASED CONCEPTS B. The Knowledge and Learning Process II. Entrepreneurial Imagination and Creativity A. The Role of Creative Thinking B. The Nature of the Creative Process 1. PHASE 1: BACKGROUND OR KNOWLEDGE ACCUMULATION 2. PHASE 2: THE INCUBATION PROCESS 3. PHASE 3: THE IDEA EXPERIENCE 4. PHASE 4: EVALUATION AND IMPLEMENTATION C. Developing Your Creativity III. A Creative Exercise (Recognizing Relationships) IV. A Creative Exercise (Developing a Functional Perspective) V. A Creative Exercise (Using Your Brains) VI. A Creative Exercise (Eliminating Muddling Mind-Sets) A. Arenas of Creativity B. The Creative Climate VII. Innovation and the Entrepreneur A. The Innovation Process B. Types of Innovation C. The Major Misconceptions of Innovation D. Principles of Innovation FEATURED CONTENT The Entrepreneurial Process: Developing Creativity The Entrepreneurial Process: Terrorism Ignites Innovation LEARNING OBJECTIVES 1 To explore the opportunity identification process 2 To define and illustrate the sources of innovative ideas for entrepreneurs 3 To examine the role of creativity and to review the major components of the creative process: knowledge accumulation, incubation process, idea experience, evaluation, and implementation 4 To present ways of developing personal creativity: recognize relationships, develop a functional perspective, use your “brains,” and eliminate muddling mind-sets 5 To introduce the four major types of innovation: invention, extension, duplication, and synthesis 6 To review some of the major myths associated with innovation and to define the ten principles of innovation CHAPTER SUMMARY This chapter examined the importance of creative thinking and innovation to the entrepreneur. Opportunity identification was discussed in relation to the knowledge and learning needed to recognize good ideas. The sources of innovative ideas were outlined and examined. The creativity process was then described, and ways of developing creativity were presented. Exercises and suggestions were included to help the reader increase the development of his or her creativity. The nature of the creative climate also was presented. The four basic types of innovation—invention, extension, duplication, and synthesis—were explained. The last part of the chapter reviewed the misconceptions commonly associated with innovation and presented the major innovation principles. LECTURE NOTES I. Opportunity Identification: The Search for New Ideas Opportunity identification is the central domain of entrepreneurship. The first step for any entrepreneur is the identification of a “good idea.” Sources of Innovative Ideas Entrepreneurs, ever alert to opportunities that inhabit the external and internal environments around them, often spot potential opportunities in all the following areas: TRENDS Trends signal shifts in the current paradigms (or thinking) of the major population. Potential entrepreneurial ideas: social trends, technology trends, economic trends, government trends UNEXPECTED OCCURRENCES Unexpected occurrences are the unexpected successes or failures that prove to be a major surprise. INCONGRUITIES Incongruities exist when there is a gap or difference between expectations and reality. PROCESS NEEDS Process needs exist whenever there is demand for the entrepreneur to innovate and answer a particular need. INDUSTRY AND MARKET CHANGES There are continual shifts in the marketplace caused by advances in technology, industry growth, etc. The entrepreneur needs to be able to take advantage of any resulting opportunity. DEMOGRAPHIC CHANGES Demographic changes arise from changes in population, age, education, occupation, geographic locations, etc. PERCEPTUAL CHANGES Perceptual changes occur in people’s interpretation of facts and concepts. KNOWLEDGE-BASED CONCEPTS Knowledge-based concepts lead to the creation or development of something new. The Knowledge and Learning Process Entrepreneurs must be able to learn from their experiences, acquiring and transforming information, knowledge, and experience into recognizable opportunities through the exercise of their cognitive abilities. II. Entrepreneurial Imagination and Creativity The key to innovation is blending imaginative and creative thinking with a systematic, logical process ability. The Role of Creative Thinking Creativity is the generation of ideas that results in the improved efficiency or effectiveness of system. Two approaches to creative problem solving: adapting or innovating. The Nature of the Creative Process Creativity is a process that can be developed and improved. It is a distinct way of looking at the world that is often illogical, involving seeing relationships among things that others have not seen. The creative process has four commonly agreed-on phases or steps, as itemized below. PHASE 1: BACKGROUND OR KNOWLEDGE ACCUMULATION Background or knowledge accumulation provides the individual with a variety of perspectives on the situation. This helps the entrepreneur develop a basic understanding of the product or venture to be undertaken. PHASE 2: THE INCUBATION PROCESS The incubation process allows the individual to subconsciously mull over the information gathered during the preparation stage. The individual “sleeps on it.” PHASE 3: THE IDEA EXPERIENCE The idea experience is the time when the idea or solution the individual is seeking is discovered. PHASE 4: EVALUATION AND IMPLEMENTATION Successful entrepreneurs must be able to identify workable ideas, which they have the skills to implement. Developing Your Creativity To improve one’s creative talents, be aware of some of the habits and mental blocks that stifle creativity and practice exercises designed to increase creative abilities III. A Creative Exercise: Recognizing Relationships Many inventions and innovations are a result of seeing new and different relationships among objects, processes, materials, technologies, and people. [A Creative Exercise]—Analyze pairs and how they complement each other (e.g., peanut butter and jelly). IV. A Creative Exercise: Developing a Functional Perspective Creative people tend to view things and people in terms of how they can satisfy his or her needs and help complete a project. [A Creative Exercise]—Think of and write down all of the functions you can imagine for an item (e.g., an old hubcap). V. A Creative Exercise: Using Your Brains The right brain hemisphere helps an individual understand analogies, imagine things, and synthesize information; the left brain hemisphere helps the person analyze, verbalize, and use rational approaches to problem solving. Both are important to problem solving
[A Creative Exercise]—Write down all of the left-hemisphere-type solutions to a problem you can think of in five minutes; then write down all of the right-hemisphere-type solutions to a problem you can think of in five minutes. VI. A Creative Exercise: Eliminating Muddling Mind-Sets Many inventions and innovations are a result of seeing new and different relationships among objects, processes, materials, technologies, and people. Mental habits, which block or impede creative thinking, include: •Either/or thinking •Security hunting •Stereotyping •Probability thinking Arenas of Creativity People are inherently creative. Some act on it while others stifle it. One way to assist people in being creative is to recognize the possible ways they can be creative. This includes: 1) thinking up a new idea or concept, 2) inventing and building a tangible object, 3) organizing people or projects in a new way, 4) being innovative in the managing of human relationships, 5) producing an event, 6) changing one’s inner self, and 7) acting in spontaneous or spur-of-the-moment ways. The Creative Climate Creativity is most likely to occur when the business climate is right. Some important characteristics of this climate include: •A trustful management •Open channels of communication •Considerable contact and communication with outsiders •A large variety of personality types •A willingness to accept change •An enjoyment in experimenting with new ideas •Little fear of negative consequences for making a mistake •Selection and promotion based on merit •Encouraging ideas •Sufficient resources for accomplishing goals VII. Innovation and the Entrepreneur Innovation is a key function of the entrepreneurship process. It is the process by which entrepreneurs convert opportunities into marketable ideas. The Innovation Process The innovation process is more than just a good idea. Innovation combines the vision to create a good idea with the perseverance to implement the concept. Types of Innovation •Invention: Creation of new product service, or process. •Extension: Expansion of a product, service, or process. •Duplication: Replication of an already existing product, service, or process adding own creative touch. •Synthesis: The combination of existing concepts and factors into new formulation The Major Misconceptions of Innovation •Misconception 1: Innovation is planned and predictable. Truth: Innovation is unpredictable and may be introduced by anyone. •Misconception 2: Technical specification should be thoroughly prepared. Truth: Quite often it is more important to use a try-test-revise approach. •Misconception 3: Innovation relies on dreams and blue-sky ideas. Truth: Innovators create from opportunities not daydreams. •Misconception 4: Big projects will develop better innovations than smaller ones. Truth: Smaller groups foster creative ideas better. •Misconception 5: Technology is the driving force of innovation success. Truth: Not the only source. Truth: Market-driven innovations have the highest probability of success Principles of Innovation •Be action-oriented; search for new ideas. •Make the product, process, or service simple and understandable. •Make the product, process, or service customer-based. •Start small; begin small, plan for proper expansion. •Aim high; seek a niche in the marketplace. •Try-test-revise; help work out flaws. •Learn from failures. •Follow a milestone schedule; have schedule in order to plan and evaluate the project. •Reward heroic activity and give it respect. •Work, work, work! Instructor Manual for Entrepreneurship: Theory, Process, and Practice Donald F. Kuratko 9781305576247