Fostering
Entrepreneurship
1
A key to success in
management and your
career is knowing how to
take control of your career.
2
• Define entrepreneurship and explain why it’s
important.
• Explain what entrepreneurs do in the planning process
for new ventures.
• Describe the six legal forms of organization and the
choice of appropriate
• Describe how entrepreneurs lead organizations.
• Explain how managers control organizations for
growth, downturns, and exiting the venture.
3
The Context of Entrepreneurship
• Entrepreneurship - the process of starting new businesses, generally
in response to opportunities.
• Entrepreneurial ventures - organizations that pursue opportunities,
are characterized by innovative practices, and have growth and
profitability as their main goals.
The Context of
Entrepreneurship (cont.)
• Small business - an organization that is independently owned,
operated, and financed; has fewer than 100 employees; doesn’t
necessarily engage in any new or innovative practices; and has
relatively little impact on its industry.
Why Is Entrepreneurship
Important?
• Innovation
• Engage in the creative destruction process
• Act as agents of change
• Number of New Startups
• Increasing numbers of new firms
• Job Creation
• New ventures create 60-80% of net new jobs
• Global Entrepreneurship
• Global Entrepreneurship Monitor (GEM) studies the impact of entrepreneurial
activity on economic growth in various countries. The GEM 2015/2016 report
covered 60 countries that were divided into three clusters identified by phase of
economic development: factor-driven economies, efficiency-driven economies,
and innovation-driven economies.
Exhibit 10-1: Evaluating Potential Ideas
Start-Up and Planning Issues
• Feasibility study - an analysis of the various aspects of a proposed
entrepreneurial venture designed to determine its feasibility.
• Venture capitalists - External equity financing provided by
professionally managed pools of investor money.
Appendix 10-2: Feasibility Study
Appendix 10-2: Feasibility Study (cont.)
Appendix 10-2: Feasibility Study (cont.)
Venture Feasibility—Financing
• Venture capitalists - external equity financing provided by
professionally managed pools of investor money.
• Angel investors - a private investor (or group of private investors)
who offers financial backing to an entrepreneurial venture in return
for equity in the venture.
• Initial Public Offering (IPO) - the first public registration and sale of a
company’s stock.
Appendix 10-3: Possible Financing Options
Developing a Business Plan
• Business plan - a written document that summarizes a business
opportunity and defines and articulates how the identified
opportunity is to be seized and exploited.
Elements of a Business Plan
• Executive summary
• Analysis of opportunity
• Analysis of context
• Description of the business
• Financial data and projections
• Supporting documentation
Legal Forms of Organization
• Sole proprietorship - a form of legal organization in which the owner
maintains sole and complete control over the business and is
personally liable for business debts.
• General partnership - a form of legal organization in which two or
more business owners share the management and risk of the
business.
Legal Forms of Organization
(cont.)
• Limited Liability Partnership (LLP) - a form of legal organization
consisting of general partner(s) and limited liability partner(s).
• Corporation - a legal business entity that is separate from its owners
and managers.
• Closely held corporation - a corporation owned by a limited number
of people who do not trade the stock publicly.
Legal Forms of Organization
(cont.)
• S corporation - a specialized type of corporation that has the regular
characteristics of a C corporation but is unique in that the owners are
taxed as a partnership as long as certain criteria are met.
• Limited Liability Company (LLC) - A form of legal organization that’s
a hybrid between a partnership and a corporation.
Legal Forms of Organization
(cont.)
• Operating agreement - the document that outlines the provisions
governing the way an LLC will conduct business.
Exhibit 10-4: Legal Forms of
Business Organization
Exhibit 10-4: Legal Forms of
Business Organization (cont.)
Exhibit 10-4: Legal Forms of
Business Organization (cont.)
Exhibit 10-5: Achieving a Supportive, Growth
Oriented Culture
Human Resource Management
Issues in Entrepreneurial Ventures
• Employee Recruitment Concerns
• Locating high potential employees who:
• can perform multiple roles
• are willing to “buy-in” (commitment)
• Filling critical skill gaps
• Employee Retention Issues
• Potential for damage to client/customer relationships due
to loss of employees
• Need to offer desirable benefits
• Compensation: base pay and incentives
Leading Issues
• Personality Characteristics of Entrepreneurs
• High level of motivation, abundance of self-confidence,
ability to be involved for the long term, high energy level,
persistent problem solver, high degree of initiative, ability
to set goals, and moderate risk-taker
• Proactive personality – a personality trait that
describes individuals who are more prone to take
actions to influence their environments.
Leading Issues (cont.)
• Motivating Employees Through Empowerment
• Empowerment
• Giving employees the power to make decisions and take actions on
their own to solve problems
• Benefits of Empowerment
• Improved flexibility and speed
• Stronger work motivation
• Higher morale
• Better work quality
• Higher job satisfaction
• Lower turnover
• Higher productivity
• Improved quality
Leading Issues (cont.)
• Empowering Employees
• Participative decision making
• Delegation
• Redesigning jobs
The Entrepreneur as Leader
• Leading Employee Work Teams
• Empowered teams
• Have the authority to plan and implement process improvements
• Self-directed teams
• Are nearly autonomous and responsible for many managerial activities
• Cross-functional teams
• Are composed of individuals from various specialties who work together
on various tasks
Controlling Issues (cont.)
• Managing Growth • Managing Downturns
• Planning for growth • Recognizing crisis situations—
• Organizing for growth avoiding the boiled frog
• Financing growth phenomenon
• Finding people • Dealing with downturns,
declines, and crises
• Creating a growth-oriented
culture
• Controlling for growth
Recognizing Crisis Situations
• “Boiled frog” phenomenon - a perspective on recognizing
performance declines that suggests watching out for subtly
declining situations.
Exiting the Venture
• Why Leave?
• Desiring to harvest the value of the venture
• Facing serious organizational performance problems
• Desiring to pursue other interests/opportunities
• Business Valuation Methods
• Asset valuations
• Earnings valuations
• Cash flow valuations
Exiting the Venture (cont.)
• Harvesting - exiting a venture when an
entrepreneur hopes to capitalize financially on the
investment in the venture.
