REQUIREMENTS RESEARCH PROJECTNow its time to begin (two) major .docx

REQUIREMENTS RESEARCH PROJECT
Now it's time to begin (two) major writing assignments: 1) the
Focused Annotated Bibliography and 2) the Research Paper
assignments. The Focused Annotated Bibliography is the
research for the final research paper; therefore, you need to
provide a "focus," a purpose statement that will become your
thesis for the paper. Make sure you use correct MLA style for
both papers. Directions for both assignments are in the course
content; I suggest that you read all directions, example, etc.
before beginning the bibliography assignment. Also read "How
to Write about Literature" and "How to do Research" in the
course content.
Requirements Specific directions, guides and examples are in
Unit One: “Course Resources & Writing Assignments” in the
Content. Read Unit One before beginning this assignment. Due
Date: check the course calendar in the Syllabus and Start Items
in the course content
Clear focus or thesis that is supported with examples, quotes
and paraphrases from both primary and secondary sources.
6-8 pages in length, not counting the Works Cited page
MLA documentation style
Typed and double-spaced, 12 point font such as Times New
Roman
Written in Standard English, free of grammatical and spelling
errors
Use at least five scholarly sources; the best databases are:
JSTOR, MLA, and Literary Reference Center. If an article isn’t
available in our library, use interlibrary loan. You can order
interlibrary loan articles online on the library’s website.
Articles will be delivered to your email address.
Please note that you may or may not use all the sources cited
in your Annotated Bibliography, which is part of your
preliminary research. Whether you use a source depends on your

thesis or purpose.
A word of caution: do not use non-scholarly sources or any
online sources, especially Wikipedia or Sparknotes. If you rely
on these sources, you will fail the assignment.
If you plagiarize, you will receive a zero for the assignment
and may fail the class.
I will only accept Word files; do not use PDF.
Do not use online bibliography help, services that supposedly
put your citations in correct MLA style – these sources are not
accurate or reliable. You are responsible for understanding and
implementing correct MLA style in your citations and in your
papers.
INSTRUCTIONS FOR RESEARCH PAPER (PART TWO)
READ & EXTRACTED From UNIT 1
The Research Paper Assignment What is a Research Paper? In
this class, the research paper is defined as a literary analysis,
(see my handout on how to write a literary analysis in this
module), a paper that explains and interprets a specific idea
about one of the texts assigned in the course. Remember that
you are using the primary source, the text, to support a specific
reading – to do this process, you must do a close reading of
your text. This involves finding evidence from the primary text
to support your argument, your claim or thesis. You are also
required to use scholarly evidence, quotes/ paraphrases from
critics, to support your claims. But the paper is primarily your
own work; therefore, avoid using long quotes from either the
primary or secondary sources. General Description of the
Assignment: The Final Researched Essay is a literary analysis,
an in-depth paper, that interprets a specific idea about one of
the texts assigned in the course. The goal of this assignment is
to argue a particular point of view that will broaden and deepen
an understanding of your selected text. Therefore, your
objective is to support a thesis, a focused argument, with
evidence. Therefore, you are performing what some call a

“close reading” of your primary text. This interpretation or
close reading addresses meaning in the work itself, but the
research paper must be developed and supported with evidence
from the text you have selected, the primary source, and also
from secondary sources, scholarly articles and books. Structure
of the Essay: Your overall argument or thesis must be presented
and fully explained in your introduction, but you do not have to
“cram” your thesis into one sentence. You may need a
paragraph or more to fully explain your purpose to the reader.
The introduction should also identify the primary text’s title
and the author and define any relevant terms. I also recommend
providing a brief overview of the primary source’s plot before
getting into your thesis; this way, your ideas will be in context
for the reader. The body of the essay will support the thesis in
an organized, cohesive present that follows a logical
progression. Do not put anything in the essay that does not
relate to your purpose, including background information on the
author. You conclusion may be used to sum up your argument,
but make sure your conclusion does not simply repeat the
introduction. Required Research: You are required to use
scholarly research, but most of your research will have been
completed with the Annotated Bibliography Assignment.
Although you do not have to use all the sources cited in your
bibliography, you may want to add new sources, depending on
your paper’s final focus. OBJECTIVES At completion of this
assignment, you will be able to
Create a debatable focused thesis, an argument based on one or
more of the assigned readings in the course.
Develop the focused thesis in an organized essay that flows in
a logical presentation.
Support the focused thesis with both the primary source(s) and
secondary scholarly sources.
Utilize the scholarly research, completed for the annotated
bibliography assignment, to support the focused thesis.
Incorporate and cite scholarly sources using MLA format.
Create a researched essay focused on a one of the course’s

assigned texts. Requirements for the Assignment
Your essay will propose a central idea (thesis) that is
supported and developed with several body paragraphs that
grow systematically out of the central idea. Everything in the
essay must be directly related to the central idea and must
contribute to the reader’s understanding of that central idea.
Both the primary source, the selected text, and secondary
sources are required to support the thesis.
Five to six secondary, scholarly sources are required. Do not
use unreliable online sources, such as Wikipedia or Sparknotes.
Only scholarly sources are accepted. Your primary source is not
one of the sources used in this assignment.
The final paper will be six to eight pages in length, not
counting the Works Cited page.
Everything in the paper, including citation and the Works
Cited page, must follow current MLA guidelines. For specific
information on how to use MLA format, please see The MLA
Handbook for Writers of Research Papers and the MLA Style
Manual and Guide to Scholarly Publishing. The OWL at Purdue,
the online writing lab, is another excellent source:
https://owl.english.purdue.edu/owl/resource/747/01/
The final paper will be typed and double-spaced with one inch
margins. Use a 12 point font, such as Times New Roman, and
black ink.
Submit your paper as a Word document; do not put your paper
in an adobe PDF file. The final paper will be well organized,
cohesive, and grammatically/ mechanically correct.
Give your paper a title. The final essay will be graded using
the Essay Grading Rubric.
The final essay must be submitted through the course’s
dropbox tool. Do not submit a PDF file.
The final essay must be the student’s original work; if you
plagiarize, you will receive a zero for this assignment. Check
the Originality Report in the dropbox. Checklist for Writing an
Effective Research Paper
Is the topic you have chosen to write about manageable for the

length of the paper you are writing? Is your focus too broad?
Does your first paragraph introduce your topic, name the
writer and the work, and explain your purpose or thesis?
Is your thesis clear? Does it state the central idea of your
essay? Do you thoroughly explain your purpose and define all
your terms?
Have you used terms, including literary terminology,
correctly? Have you defined all the important terms?
Is your paper organized in a way that your reader will be able
to follow your argument?
Are your developmental paragraphs unified (everything in the
paragraph relates to the topic of the paragraph) and coherent
(everything in the paragraph is arranged in a logical order)?
Does your paper flow? Have you used transitional words
where necessary within each paragraph? Are there transitions
linking all the paragraphs of your essay?
Have you used adequate support for your points, including
brief summary, paraphrase, specific details, and direct
quotations? Have you explained why you are using them and
how they support your central idea?
Do you have enough scholarly sources?
Have you integrated quotations effectively into your paper?
Make sure you introduce the quote properly and put it in
context. After you put in the quote, explain it to your reader.
Have you used correct grammar and mechanics? Do you have
run-ons or fragments? Too many short, choppy sentences? Do
you have ambiguous pronouns?
Do you use MLA format properly? Do you have a Works Cited
page? Failure to use MLA correctly will result in a low grade.
Have you given your paper an appropriate title? Does your
title describe your approach?
Have you used all the correct literary conventions? Did you
avoid the use of first person? Did you use present tense?

Custom Create Edition
LAUREATE
EDUCATION INC
166 t Entrepreneurship
-~-~· -·· ~"'""" --·--·----·-------
PROTECTING THE IDEA AND OTHER
LEGAL ISSUES FOR THE ENTREPRENEUR
1
To identify and distinguish intellectual property assets of a new
venture includ ing
software and Web sites.
2
To understand the nature of patents, the rights they provide, and
the filing process.
3
To understand the purpose of a trademark and the procedure for
filing.
4
To learn the purpose of a copyright and how to file for one.
5
To identify procedures that can protect a venture's trade secrets.
6
To understand the value of licensing to either expand a business
or start a new venture.

7
To recognize the implications of new legislation that affects the
board of directors and
internal auditing processes for public companies.
8
To illustrate important issues related to contracts, insurance,
and product safety and liability.
167
OPENING PROFILE
STEVE LIPSCOMB
One of the hottest media concepts today is television poker. As
this market continues
to gain popularity and spin dozens of new innovations for
entrepreneurs, it repre-
sents one of the most difficult business models for which to
provide any intellectual
property protection. Steve Lipscomb has emerged as one of the
most aggressive and
innovative entrepreneurs among those trying to
compete in this media market. His World Poker
Tour, broadcast on the cable television Travel

Channel, became an instant hit show in 2003, as
evidenced by its audience size or television rating points. With
this success, however,
new competitors evolved, making the strategy of protecting his
investment even more
challenging.
Steve Lipscomb grew up in Nashville, Tennessee, and came
from a long line of
Baptist ministers. His first entrepreneurial effort, after
becoming an attorney, was to
launch an attorney referral venture. However, even after early
entrepreneurial suc-
cess, his career made some dramatic changes, primarily because
of discrimination
issues experienced by his mother after she had chosen to enter
the Baptist Church
seminary. His anger over this experience led him to make a
documentary film so that
the world would be made more aware of some of these
discriminatory issues. He
then sold his attorney referral business, taught himself
filmmaking, and proceeded
to make Battle of the Minds, which won acclaim and numerous

awards after ap-
pearing on PBS television. This success resulted in a friendship
with producer Norman
Lear and a film project to provide audiences with an inside look
at the World Series
of Poker.
Although poker was not a foreign concept to Lipscomb, having
once entered a
$100 satellite tournament, he felt that ESPN's televising of the
World Series of Poker
was poorly presented. After his film project, Lipscomb had the
strong vision that not
only could poker be made to be more interesting but that it
would be possible to cre-
ate a major league of poker that would allow for entrepreneurial
expansion into
merchandise, foreign licensing, Internet competition, and other
business opportuni -
ties. With the help of two friends with television and licensing
experience, Lipscomb
established a league of poker players who could enter
tournaments as they pleased
159

168 I '""'"""'"""'" -~---------l----~------------·- ____ ., ___ -------
----------------------- ------------------------ ---
160 PART 2 FROM IDEA TO THE OPPORTUNITY
for prize money raised from sponsors. His business model was
to establish a leag~-
of poker players similar to golf's PGA Tour. Thus, anyone with
$10,000 could ente
one of the World Poker Tour events with a chance to win a large
prize of $1 mi ll io-
or more.
Lipscomb's strategy was to produce a show before getting
television to buy it. W rt'"
the support of Lakes Entertainment, a developer of casino
gaming, and an investme .. .
of $3.5 million, the World Poker Tour and WPT Enterprises
were born, including a list-
ing on the NASDAQ (WPTE). With this investment Lipscomb
subsequently had to give
up 70 percent control of his business, but he was able to retain
16.5 percent for himself.
Armed with this infusion of venture capital Lipscomb hit the
road to try to persuade t he

many popular casinos to support these poker tournaments. His
format included two
unique concepts to make the televising of poker more
interesting to the viewer. One
of these was a small camera under the table that allowed the
viewers to see the two
cards that were dealt face down. Viewers could then play along
with the tournament
players. In addition, he added unique graphics that presented
on-screen icons of each
player's cards. Odds of winning were included at each stage of
the betting process,
making this programming unique and more interesting to the
television audience.
Lipscomb regarded these unique additions as intellectual
property, but this has
created controversy with some of the competition. ESPN has
duplicated Lipscomb's
camera and graphics in its presentation of another league, the
World Series of Poker
Circuit. Lipscomb argues that the camera and graphics are
proprietary with applica-
tions for patents pending. Without any resolution to the
intellectual property issue,

Lipscomb has embarked on an aggressive strategy to build the
image of WPTE. More
tournaments, more casinos, new products, higher stakes,
international growth and
syndication, and the recent contract with Fox Sports Network
(FSN) are all intended
to increase visibility and profitability to the company. Fox
Sports Network is a much
better fit for WPT than the Travel Channel or Game Show
Network. Audiences will be
higher, exposure will be greater, and FSN plans to include WPT
in the Monday sports
block of programming. In addition to the new network, WPTE
now owns and operates
WPT China, a multimedia company based in Beijing
specializing in television produc-
tion of the WPT China National Traktor Poker Tour. Traktor
Poker is a national card
game in China, and this 10-year exclusive deal is expected to
add substantial income
not only from the tour but also from licensing and other
partnerships with Chinese
firms.
~ow 'ff'l 'Its -s~vel'l'trl -sea-son, t'f'le tompany tont'rnues 'to

s'trugg'1e fmanc·Ja'fly w'1th 'losses ot
about $9.7 million in 2007 compared to positive profits of $7.8
million in 2006. Sales in
2007 compared to the previous year were also down from $29.3
million to $21.7 million.
Higher costs and less exposure with the existing network were
major contributing
factors to this decline. Lipscomb is confident that the business
outlook is favorable
now that the new network is in place and other international
deals are complete. Even
though the intellectual property issues previously discussed may
not be resolved very
soon, if at all, Lipscomb will continue to explore new
opportunities through innovation
and creativity that will enhance sales and profitability. 1
ellectual property
Any patents, trademarks,
yrights, or trade
s:crets held by the
= preneur
I

Entrepreneurship, Eighth Edition I 169 --·------------ -~--- -------
------+--- --
CHAPTER 6 PROTECTING THE IDEA AND OTHER LEGAL
ISSUES FOR THE ENTREPRENEUR 161
WHAT IS INTELLECTUAL PROPERTY?
Intellectual property-which includes patents, trademarks,
copyrights, and trade secrets-
represents important assets to the entrepreneur and should be
understood even before
engaging the services of an attorney. Too often entrepreneurs,
because of their lack of
understanding of intellectual property, ignore important steps
that they should have taken
to protect these assets. This chapter will describe all the
important types of intellectual
property, including software and Web sites, which have become
unique problems to the
Patent and Trademark Office. 2
NEED FOR A LAWYER
Since all business is regulated by law, the entrepreneur needs to
be aware of any regulations
that may affect his or her new venture. At different stages of the
start-up, the entrepreneur
will need legal advice. It is also likely that the legal expertise
required will vary based on
such factors as whether the new venture is a franchise, an
independent start-up, or a buy-
out; whether it produces a consumer versus an industrial
product; whether it is nonprofit;
and whether it involves some aspect of computer software,
exporting, or importing.
We begin with a discussion of how to select a lawyer. Since

most lawyers have devel-
oped special expertise, the entrepreneur should carefully
evaluate his or her needs before
hiring one. By being aware of when and what legal advice is
required, the entrepreneur can
save much time and money. Many of the areas in which the
entrepreneur will need legal
assistance are discussed in this chapter.
HOW TO SELECT A LAWYER
Lawyers, like many other professionals, are specialists not just
in the law but in specific
areas of the law. The entrepreneur does not usually have the
expertise or know-how to han-
dle possible risks associated with the many difficult laws and
regulations. A competent
attorney is in a better position to understand all possible
circumstances and outcomes related
to any legal action.
In today's environment, lawyers are much more up-front about
their fees. In fact, in
some cases these fees, if for standard services, may even be
advertised. In general, the
lawyer may work on a retainer basis (stated amount per month
or year) by which he or she
provides office and consulting time. This does not include court
time or other legal fees
related to the action. This gives the entrepreneur the
opportunity to call an attorney as the
need arises without incurring high hourly visit fees.
In some instances the lawyer may be hired for a one-time fee.
For example, a patent at-
torney may be hired as a specialist to help the entrepreneur
obtain a patent. Once the patent

is obtained, this lawyer would not be needed, except perhaps if
there was any litigation re-
garding the patent. Other specialists for setting up the
organization or for purchase of real
estate may also be paid on a service-performed basis. Whatever
the fee basis, the entrepre-
neur should confront the cost issue initially so that no questions
arise in the future.
Choosing a lawyer is like hiring an employee. The lawyer with
whom you work should
be someone you can relate to personally. In a large law firm, it
is possible that an associate
or junior partner would be assigned to the new venture. The
entrepreneur should ask to
meet with this person to ensure that there is compatibility.
A good working relationship with a lawyer will ease some of
the risk in starting a new
business and will give the entrepreneur necessary confidence.
When resources are very lim-
ited, the entrepreneur may consider offering the lawyer stock in
exchange for his or her
110 I '"'"'"""""'' --- -- · ----- ~---- --- •-+•-· . ··--··· ·· ·-----
AS SEEN IN ENTREPRENEUR MAGAZINE
PROVIDE ADVICE TO AN ENTREPRENEUR ABO UT
INTELLECTUAL
PROPERTY PROTECTION
Locked doors and a security system protect your
equipment, inventory, and payroll. But what protects

your business's most valuable possessions? Intellec-
tual property laws can protect your trade secrets,
trademarks, and product design, provided you take
the proper steps. Chicago attorney Kara E. F. Cenar of
Welsh & Katz, an intellectual property firm, contends
that businesses should start thinking about these is-
sues earlier than most do. "Small businesses tend to
delay securing intellectual property protection be-
cause of the expense," Cenar says. "They tend not to
see the value of intellectual property until a competi-
tor infringes." But a business that hasn't applied for
copyrights or patents and actively defended them
will likely have trouble making its case in court.
One reason many business owners don't protect
their intellectual property is that they don't recog-
nize the value of the intangibles they own. Cenar ad-
vises business owners to take their business plans to
an experienced intellectual property attorney and
discuss how to deal with these issues. Spending
money up front for legal help can save a great deal
later by giving you strong copyright or trademark
rights, which can deter competitors from infringing
and avoid litigation late r.
Once you've figured out what's worth protecting,
you have to decide how to protect it. That isn't al-
ways obvious. Traditionally, patents prohibit others
from copying new devices and processes, while copy-
rights do the same for creative endeavors such as
books, music, and software. In many cases, though,
the categories overlap. Likewise, trademark law now
extends to such distinctive elements as a product's
color and shape. Trade dress law concerns how the
product is packaged and advertised. You might be
able to choose what kind of protection to seek.

For instance, one of Welsh & Katz's clients is Ty Inc.,
maker of plush toys. Before launching the Beanie
Baby line, Cenar explains, the owners brought in busi-
ness and marketing plans to discuss intellectual prop-
erty issues. The plan was for a limited number of toys
in a variety of styles, and no advertising except word-
of-mouth. Getting a patent on a plush toy might have
been impossible and would have taken several years,
too long for easily copied toys. Trademark and trade
162
dress protection wouldn't help much, because t he
company planned a variety of styles. But copyrig hts
are available for sculptural art, and they're inexpen-
sive and easy to obtain. The company chose to reg is-
ter copyr ights and defend them vigorously. Cena r's
firm has fended off numerous knockoffs.
That's the next step: monitoring the marketplace
for knockoffs and trademark infringement, and ta k-
ing increasingly firm steps to enforce your rights.
Efforts typically begin with a letter of warning an d
could end with a court-ordered cease-and-desist order
or even an award of damages. "If you don't take the
time to enforce [your trademark], it becomes a ve ry
weak mark," Cenar says. "But a strong mark deters in-
fringement, wins lawsuits and gets people to settle
early." Sleep on your rights, and you'll lose them. Be
proactive, and you'll protect them-and save money
in the long run.
ADVI CE TO AN ENTREPRENEUR
An inventor with a newly invented technology comes
to you for advice on the following matters:

1. In running this new venture, I need to invest all
available resources in producing the products and
attracting customers. How important is it for me
to divert money from those efforts to protect my
intellectual property?
2. I have sufficient resources to obtain intellectual
property protection, but how effective is that
protection without a large stock of resources to
invest in going after those who infringe on my
rights? If I do not have the resources to defend a
patent, is it worth obtaining one in the first
place?
3. Are there circumstances when it is better for
me not to be an innovator but rather produce
"knockoffs" of others' innovations? What do I
need to watch out for when imitating the prod-
ucts of others?
Source: Reprinted with permission of Entrepreneur Media, Inc.
"You
Have to Get Tough with Transgressors If You Want to Protect
Your
Intellectual Property," by Steven C. Bahls and Jane Easter
Bahls,
January 2003, Entrepreneur magazine : www.entrepreneur.com.
nt Grants holder
tion from others
=:ring, using, or selling

sbrilar idea
Entrepreneurship, Eighth Edition
services. The lawyer then will have a vested interest in the
business and will likely provide
more personalized services. However, in making such a major
decision, the entrepreneur
must consider any possible loss of control of the business.
LEGAL ISSUES IN SETTING UP THE ORGANIZATION
The form of organization as well as franchise agreements are
discussed in Chapters 9 and
14 and will not be addressed in detail here. Since there are
many options that an entrepre-
neur can choose in setting up an organization (see Chapter 9), it
will be necessary to under-
stand all the advantages and disadvantages of each regarding
such issues as liability, taxes,
continuity, transferability of interest, costs of setting up, and
attractiveness for raising capital.
Legal advice for these agreements is necessary to ensure that
the most appropriate decisions
have been made.
PATENTS
A patent is a contract between the government and an inventor.
In exchange for disclosure
of the invention, the government grants the inventor exclusivity
regarding the invention for
a specified amount of time. At the end of this time, the
government publishes the invention
and it becomes part of the public domain. As part of the public

domain, however, there is
the assumption that the disclosure will stimulate ideas and
perhaps even the development
of an even better product that could replace the original.
Basically, the patent gives the owners a negative right because
it prevents anyone else
from making, using, or selling the defined invention. Moreover,
even if an inventor has
been granted a patent, in the process of producing or marketing
the invention he or she may
find that it infringes on the patent rights of others. The inventor
should recognize the dis-
tinction between utility and design patents and some of the
differences in international
patents that are discussed later in this chapter.
• Utility patents. When speaking about patents, most people are
referring to utility
patents. A utility patent has a term of 20 years, beginning on the
date of filing with the
Patent and Trademark Office (PTO). Any invention requiring
FDA approval has also
been amended to extend the term of the patent by the amount of
time it takes the FDA
to review the invention. Initial filing fees for a utility patent for
a small entity can vary
from $82 online to $165 by mail. Additional fees exist
depending on the number of
claims made in the patent application.
A utility patent basically grants the owner protection from
anyone else making, using,
and/or selling the identified invention and generally reflects
protection of new, useful,
and unobvious processes such as film developing, machines

such as photocopiers, com-
positions of matter such as chemical compounds or mixtures of
ingredients, and articles
of manufacture such as the toothpaste pump.
• Design patents. Covering new, original, ornamental, and
unobvious designs for articles
of manufacture, a design patent reflects the appearance of an
object. These patents are
granted for a 14-year term and, like the utility patent, provide
the inventor with a
negative right excluding others from making, using, or selling
an article having the
ornamental appearance given in the drawings included in the
patent. The initial filing
fee for each design application for a small entity is $110. There
are also issuance fees,
depending on the size of the item. These fees are much lower
than for a utility patent.
Traditionally, design patents were thought to be useless because
it was so easy to
design around the patent. However, there is renewed interest in
these patents. Examples
172 -l Entrepreneursh ip
provisional patent
application The initial
application to the U.S.

Patent and Trademark
Office providing evidence
of first to market
are shoe companies such as Reebok and Nike that have become
more interested in
obtaining design patents as a means of protecting their
ornamental designs. These types
of patents are also valuable for businesses that need to protect
molded plastic parts,
extrusions, and product and container configurations.
• Plant patents. These are issued under the same provisions as
utility patents and are fo r
new varieties of plants . These patents represent a limited area
of interest, and thus very
few of these types of patents are issued.
Patents are issued by the PTO . In addition to patents, this
office administers other pro-
grams and many online services for the entrepreneur, such as
software for filing patents and
forms for trademarks and copyrights, discussed later in this
chapter. Although the Disclo-
sure Document Program ended in 2007, it has been replaced by
the Provisional Patent
Application Program.
A patent reform bill was introduced to Congress in 2007, but
with changes made inde-
pendently by both the House and Senate there has not been any
compromise. President
Obama has indicated a desire to move on patent reform, and

there will likely be changes in
the near future . The most important part of the reform bill is
the "first to file" system used
in most other countries. What this means is that regardless of
the date of the invention, it is
the first one to file who will be granted the patent. 3
International Patents
With the World Trade Organization (WTO) and its predecessor,
the General Agreement on
Tariffs and Trade (GATT), more global free trade has been
encouraged. However, although
international trade has increased at the rate of about 6 percent
per year since GATT was
created in 1948, until recently there still was a need for an
international patent law to pro-
tect firms from imitations and knockoffs. Another mechanism
also was needed to provide
firms some protection in global markets. 4
In response, the Patent Cooperation Treaty (PCT)-with over 100
participants-was
established to facilitate patent filings in multiple countries in
one office rather than filing in
each separate country. Administered by the World Intellectual
Property Organization (WIPO)
in Geneva, Switzerland, it provides a preliminary search that
assesses whether the filing fum
will face any possible infringements in any country. 5 The
company can then decide whether
to proceed with the required filing of the patent in each country.
It has a 30-month time frame
to file for these in-country patents. Even though the PCT allows
for simultaneous filing of a
patent in all member countries, there may be significant
differences in patent laws in each of

these countries. For example, patent laws in the United States
allow computer software to re-
ceive both patent and copyright protection. On the other hand,
in the European Union, patent
protection is not always extended to software, although recent
court judgments in the U.K.
may change this as well. 6
The Provisional Application
It is recommended that the entrepreneur first file a provisional
patent application to es -
tablish a date of conception of the invention. This provisional
application replaces the
disclosure document that was previously accepted by the PTO.
The disclosure document
was more loosely defined in its requirements and often led to
issues when more than one
person claimed the patent rights. In addition, the new
provisional application is consis-
tent with European procedures and can be critical when there is
a foreign company
Eot"P""'""h;p, E;gh>hE<Htioo I ·--------------~----- --------------
------ ·--------- --·--1 173
involved in the patent application. Basically, this application
gives the entrepreneur who
files the rights to the patent based on the simple concept of first
to file. As stated previ-
ously the requirements of the provisional application are
somewhat more complete than

the prior disclosure document since the entrepreneur must
prepare a clear and concise de-
scription of the invention. In addition to the written material,
drawings may be included,
if deemed necessary to understand the invention. Upon receipt
of the information, the
PTO will file the application on behalf of the inventor. The
actual filing of the patent in
its final form must occur no later than 12 months after the
provisional disclosure docu-
ment is filed.
Before actually applying for the patent it is advisable to retain a
patent attorney to con-
duct a patent search. After the attorney completes the search, a
decision can be made as to
the patentability of the invention.
The Patent Application
The patent application must contain a complete history and
description of the invention as
well as claims for its usefulness. The actual form can be
downloaded from the Patent and
Trademark Office Web site. In general, the application will be
divided into the following
sections:
• Introduction. This section should contain the background and
advantages of the
invention and the nature of problems that it overcomes . It
should clearly state how
the invention differs from existing offerings.
• Description of invention. Next the application should contain
a brief description of
the drawings that accompany it. These drawings must comply

with PTO requirements.
Following this would be a detailed description of the invention,
which may include
engineering specifications, materials, components, and so on,
that are vital to the
actual making of the invention.
• Claims. This is probably the most difficult section of the
application to prepare since
claims are the criteria by which any infringements will be
determined. They serve to
specify what the entrepreneur is trying to patent. Essential parts
of the invention should
be described in broad terms so as to prevent others from getting
around the patent. At the
same time, the claims must not be so general that they hide the
invention's uniqueness
and advantages. This balance is difficult and should be
discussed and debated with the
patent attorney.
In addition to the preceding sections, the application should
contain a declaration
or oath that is signed by the inventor or inventors. Your
attorney will supply this form. The
completed application is then ready to be sent to the PTO, at
which time the status of the
invention becomes patent pending. This status is important to
the entrepreneur because it
now provides complete confidential protection until the
application is approved. At that
time, the patent is published and thus becomes accessible to the
public for review.
A carefully written patent should provide protection and prevent
competitors from

working around it. However, once granted, it is also an
invitation to sue or be sued if there
is any infringement.
The fees for filing an application will vary, depending on the
patent search and on claims
made in the application. Attorney fees are also a factor in
completing the patent application.
Applicants may also file online using the EFS Web service
provided by the PTO. This
online service enables applicants to file their application
without the need for special soft-
ware, resulting in faster application processing.
17 4 Entrepreneurship
-------- ----~ -- ----~------ -- ----------·-------------------- ~-- - ----
---- -- ------------ -----------
FIGURE 6.1 Options to Avoid Infringement
Assess whether No
patent now exists
File for patent
Yes
Is patent recent New Do expired patents
or is it nearly exist that accomplish
expired? same purpose?
No I

l Ready to Yes expire
Can product be Begin planning for
Develop product
changed slightly introduction when
without existing patent
using older designs
infringement? expires
No Yes
Seek license
Develop modified
version
Source: Adapted from H. D. Coleman and J.D. Vandenberg,
"How to Follow the Leader," Inc. (July 1988), pp. 81-82.
Patent Infringement
To this point, we have discussed the importance of and the
procedures for filing a patent. It
is also important for the entrepreneur to be sensitive about
whether he or she is infringing
on someone else's patent. The fact that someone else already has
a patent does not mean
the end of any illusions of starting a business. Many businesses,
inventions, or innovations
are the result of improvements on, or modifications of, existing
products. Copying and
-~"._~~', '::><:;:,.. ~~"._~~~ ... :<::& .. ~~~.;~_"<:;..~~ ~~
~·-:~~~~"<:;..~~~~~~~~~"1£...~~ ~"'~

business strategy. If it is impossible to copy and improve the
product to avoid patent
infringement, the entrepreneur may try to license the product
from the patent holder.
Figure 6.1 illustrates the steps that an entrepreneur should
follow as he or she considers
m'lll'¥..~1~ ~ })110~~ ~~ Th~') W..~~~ 10 '0. ~-
i..~..'S )'0.~~-...~ ~1..~l'-~~~'- '-'0."'- <;:)~
fl?~a--.n::-t:?/~.aT.?UYv-raP~d'~,-:r~d?'afira27~~~~~~~~~
process. If there is an existing patent that might involve
infringement by the entrepreneur,
licensing may be considered. If there is any doubt as to this
issue, the entrepreneur should
hire a patent attorney to ensure that there will not be any
possibility of patent infringement.
Table 6.1 provides a simple checklist that should be followed by
an entrepreneur to mini-
mize any patent risks.
BUSINESS METHOD PATENTS
With the growth of Internet use and software development has
emerged the use of business
method patents. For example, Amazon.com owns a business
method patent for the single-
clicking feature used by a buyer on its Web site to order
products. A few years ago eBay was
---------------------------------------------------------------------------
--------------·' ~
A

.:..:::.:=;:;::::...:::- :n· g word,
symbol used to
Entrepreneurship, Eighth Edition 17 5
- - - ---- ------- -- -- --- -- - --~ -------
TABLE 6.1 Checklist for Minimizing Patent Risks
• Seek a patent attorney who has expertise in your product line.
• The entrepreneur should consider a design patent to protect
the product design or
product look.
• Before making an external disclosure of an invention at a
conference or to the media, or
before setting up a beta site, the entrepreneur should seek legal
counsel since this
external disclosure may negate a subsequent patent application.
• Evaluate competitor patents to gain insight into what they may
be developing.
• If you think your product infringes on the patent of another
firm, seek legal counsel.
• Verify that all employment contracts with individuals who
may contribute new products
have clauses assigning those inventions or new products to the
venture.
• Be sure to properly mark all products granted a patent. Not
having products marked

could result in loss or damages in a patent suit.
• Consider licensing your patents. This can enhance the
investment in a patent by creating
new market opportunities and can increase long-term revenue.
sued by Tom Woolston and his company MercExchange
claiming a violation of a patent he
owned that covered many fundamental aspects of eBay's
operations, such as the buying and
selling of products through a reverse auction process.
Priceline.com claims that it holds a
patent related to its service where a buyer can submit a price
bid for a particular service.
Expedia was forced to pay royalties to Priceline.com after being
sued for patent infringement
by Priceline.com. Many firms that hold these types of patents
have used them to assault com-
petitors and subsequently provide a steady stream of income
from royalties or licensing fees?
Given the increase in the assaults and because of the growth of
digital technologies such
as the Internet, computer software, and telecommunications,
concerns have evolved regard-
ing these business method patents. Examples of the focus of
these concerns are tax strate-
gies, the determination of insurance rates, or how commodities
are purchased through a
third party. These business practice patents are now being
threatened by a recent court rul-
ing that denied a patent for a process of hedging risks in
commodity trading. The Federal
Circuit Court denied the patent because it did not meet the
machine or transformation test.
This simply means that any business method or practice must be

tied to a machine such as
a computer. Thus, a mental process of calculations for hedging
risks in commodity trading
did not include a machine or computer and therefore was not
granted a patent. 8
START -UP WITHOUT A PATENT
Not all start-ups will have a product or concept that is
patentable. In this case the entrepre-
neur should understand the competitive environment (see
Chapters 7 and 8) to ascertain any
advantages that may exist or to identify a unique positioning
strategy (see Chapter 8). With
a unique marketing plan, the entrepreneur may find that striking
early in the market pro-
vides a significant advantage over any competitors. Maintaining
this differential advantage
will be a challenge but represents an important means of
achieving long-term success.
TRADEMARKS
A trademark may be a word, symbol, design, or some
combination of such, or it could
be a slogan or even a particular sound that identifies the source
or sponsorship of certain
goods or services. Unlike the patent, a trademark can last
indefinitely, as long as the mark
176 I '"'"'""'""h;p ·~"'-------~----------------·M-0------------~--~--
-------------·-----------
AS SEEN IN BUSINESSWEEK
PROVIDE ADVICE TO AN ENTREPRENEUR INVENTOR

ABOUT
HOW TO MAKE PATENTS PAY
The niche patent-licensing business of Acacia Research
(ACTG) is bearing fruit-and it has proved to be quite
lucrative . Titans like Apple (AAPL}, Verizon (VZ}, Sie-
mens (51}, and Dell Inc. (DELL) have opted to license
certain patents held by Acacia. For Acacia, that makes
the business all the more rewarding.
What's tiny Acacia's business strategy? It teams
up with small, little-known tech companies and takes
licenses on their patented technologies. Acacia then
goes after companies it believes have infringed those
patents. Fortunately for Acacia, it has settled quite
a number of such patent violations out of court. And
those companies that settle infringement claims usu-
ally end up paying fees.
The latest company to come to terms with Acacia
is giant computer maker Dell, which entered into a
settlement that included a licensing agreement cov-
ering a patent relating to network multifunction prin-
ter technology.
In 2008, Apple signed two tech licenses with Acacia,
and Verizon Wireless took a license on a process that
synchronizes IP addresses between wireless network
devices, says Acacia Chairman and CEO Paul Ryan. He
figures that with the more than 100 patents Acacia
now holds, many other companies are likely to end
up signing licensing deals with Acacia.
So far, Acacia has been on a rapid growth path,
according to both CEO Ryan and analysts. In 2008,
says Ryan, Acacia was No. 42 on Deloitte Technol-

ogy's list of the 500 fastest-growing tech outfits in
the U.S . He says Acacia expects revenue growth to
come from 45 patent licensing programs that have
already begun generating revenues, including those
signed in 2009.
Acacia's "growth prospects remain strong," says
analyst Sean O'Neill of Singular Research, who rates
168
Acacia a buy. Revenues in the third quarter of 2008,
he notes, increased 44.6% from a year earlier, exceed-
ing analysts' expectations. On a sequential quarter-
to-quarter basis, revenues jumped 93%, from the $7.1
million Acacia reported in the second quarter, notes
O'Neill.
O'Neill expects Acacia to become profitable in
2009, with estimated earnings of 11 ~ a share on pro-
jected revenues of $67.9 million. In 2008, Acacia is es-
timated by analysts to have posted a loss of 46~ a
share on sales of $44 million.
If, as CEO Ryan predicts, more prominent compa-
nies sign agreements to settle patent infringements,
Acacia's top and bottom lines would leap, along with
its stock price.
Acacia CEO Ryan won't say which companies he
expects will sign patent licensing agreements, but he
is confident more big tech players will end up signing
agreements this yea r. Expect some surprises.*
ADVICE TO AN ENTREPREN EUR
A friend of yours has read the above article and wants

to know if he could benefit from some of the patents
he owns, just as Acacia was able to do. How would
you advise him to proceed to learn if any of his patents
are being used by other companies? He also wants to
know if Acacia may be interested in any of his patents
and what he could do to find out.
*Source: Reprinted from February 2, 2009 issue of Business
Week by
special pennission, copyright© 2009 by The McGraw-Hill
Compa-
nies, Inc., from "Acacia Research Finds Ways to Make Patents
Pay,"
by Gene Marcial, www.businessweek.com.
Eotrepre"'""htp, Eighth""'" I 177 ---------------- --------··-------
····--------------- -------- . ----f--J----
continues to perform its indicated function. For all registrations
filed after November 16,
1989, the trademark is given an initiallO-year registration with
10-year renewable terms.
In the fifth to sixth year, the registrant is required to file an
affidavit with the PTO indicat-
ing that the mark is currently in commercial use . If no affidavit
is filed, the registration is
canceled. Between the ninth and tenth year after registration,
and every 10 years thereafter,
the owner must file an application for renewal of the trademark.
Otherwise, the registration
is canceled. (There is a six-month grace period.)

Trademark law allows the filing of a trademark solely on the
intent to use the trademark
in interstate or foreign commerce. The filing date then becomes
the first date use of the
mark. This does not imply that the entrepreneur cannot file after
the mark has already been
in use. If this is the case, the entrepreneur may file a sworn
statement that the mark is in
commercial use, listing the date of first use. A properly worded
declaration is included in
the PTO application form.
It is also possible to file for a trademark if you intend to use
this mark in the future. You
are allowed to file in good faith along with a sworn statement in
the application that there
is intent to use the trademark. Actual use of the trademark must
occur before the PTO will
register the mark. 9
The protection awarded is dependent on the character of the
mark itself. There are four
categories of trademarks: (1) coined marks denote no
relationship between the mark and
the goods or services (e.g ., Mercedes, Kodak) and afford the
possibility of expansion to a
wide range of products; (2) an arbitrary mark is one that has
another meaning in our lan-
guage (e.g., Apple) and is applied to a product or service; (3) a
suggestive mark is used to
suggest certain features, qualities , ingredients, or
characteristics of a product or service
(e.g., Halo shampoo). It differs from an arbitrary mark in that it
tends to suggest some
describable attribute of the product or service. Finally, (4) a

descriptive mark must have
become distinctive over a significant period of time and gained
consumer recognition be-
fore it can be registered. The mark then is considered to have
secondary meaning; that is, it
is descriptive of a particular product or service (e.g., Rubberoid
as applied to roofing mate-
rials that contain rubber. 10
Registering a trademark can offer significant advantages or
benefits to the entrepreneur.
Table 6.2 summarizes some of these benefits .
Registering the Trademark
As indicated earlier, the PTO is responsible for the federal
registration of trademarks. To
file an application, the entrepreneur must complete a simple
form that can be downloaded
TABLE 6.2 Benefits of a Registered Trademark
• It provides notice to everyone that you have exclusive rights
to the use of the mark
throughout the territorial limits of the United States.
• It entitles you to sue in federal court for trademark
infringement, which can result in
recovery of profits, damages, and costs.
• It establishes incontestable rights regarding the commercial
use of the mark.
• It establishes the right to deposit registration with customs to
prevent importation of
goods with a similar mark.

• It entitles you to use the notice of registration (®).
• It provides a basis for filing trademark application in foreign
countries.
178 I Entrepreneurship
copyright Right given
to prevent others from
printing, copying, or
publishing any original
works of authorship
and either submitted by mail or filed electronically using the
Trademark Electronic Appli-
cation System (TEAS) available on the PTO Web site.
Filing of the trademark registration must meet four
requirements: (1) completion of the
written form, (2) a drawing of the mark, (3) five specimens
showing actual use of the mark, and
(4) the fee. Each trademark must be applied for separately.
Upon receipt of this information,
the PTO assigns a serial number to the application and sends a
filing receipt to the applicant.
The next step in the registering process is a determination by
the examining attorney at

the PTO as to whether the mark is suitable for registration.
Within about three months, an
initial determination is made as to its suitability. Any objections
by the entrepreneur must
be raised within six months, or the application is considered
abandoned. If the trademark is
refused, the entrepreneur still has the right to appeal to the
PTO.
Once accepted, the trademark is published in the Trademark
Official Gazette to allow any
party 30 days to oppose or request an extension to oppose. If no
opposition is filed, the regis-
tration is issued. This entire procedure usually takes about 13
months from the initial filing.
COPYRIGHTS
A copyright protects original works of authorship. The
protection in a copyright does not
protect the idea itself, and thus it allows someone else to use
the idea or concept in a differ-
entmanner.
The copyright law has become especially relevant because of
the tremendous growth of
the use of the Internet, especially to download music, literary
work, pictures, and videos, to
name a few. Although software was added to copyright law in
1980, the issues surrounding
access to material on the Internet have led to major legal battles
for the entertainment industry.
When Napster made its entrance in 1999, Internet users were
able to exchange music
files at will. The music industry scrambled and fought against
this use since its sales of CDs

were significantly impacted. After three years, the music
industry was able to win its battle
with Napster. In addition, the Supreme Court ruled that
StreamCast and Grokster, which
both have extensive peer-to-peer file sharing software, must
implement content filters in
their software to reduce any copyright-infringing capabilities.l 1
The Recording Industry Association of America (RIAA) has
also aggressively pursued
universities and individual students that have been found to be
illegally downloading mu-
sic. In addition to the 12 universities recently sent prelitigation
letters, the RIAA is also
pursuing individuals in what is referred to as "John Doe"
lawsuits. One lawsuit involves a
20-year-old woman from Texas who admitted to downloading
pirated music in her teens ;
she is being asked to pay $7,400 to settle the suit. 12
Copyright protection related to the Internet will continue to be a
concern and a gray area
until precedents and regulations are made clear. Although these
issues seem complicated,
the registering procedure for copyright protection is fairly
simple.
Copyrights are registered with the Library of Congress and will
not usually require an
attorney. To register a work, the applicant can send a completed
application (available on-
line at www.copyright.gov), two copies of the work, and the
required filing fees (the initial
filing fee is $35 if filed online or $45 if filed by mail, but other
fees may apply based on the
number of works included). As a general rule for works created

after January 1, 1978, the
term of the copyright is the life of the author plus 70 years.
Besides computer software, copyrights are desirable for such
things as books, scripts, ar-
ticles, poems, songs, sculptures, models, maps, blueprints,
collages, printed material on board
games, data, and music. In some instances, several forms of
protection may be available. For
example, the name of a board game may be protected by
trademark, the game itself protected
by a utility patent, the printed matter or the board protected by
a copyright, and the playing
pieces covered by a design patent.
e ETHICS
'""'P""""h;p, E;ghth Edrt;oo I 179
···----- - -· ---- -- -·- --~-----
HOW MUCH RESPONSIBILITY SHOULD OUR YOUTH
HAVE
FOR ILLEGAL DOWNLOADING?
e lines have been drawn between the file-sharing
co mpanies (P2P) that provide software for free down-
oading of music and movies and the entertainment
dustry. The Supreme Court has ruled that these
2P companies do in fact facilitate the illegal down-
oading and sharing of entertainment . However, in
s it e of the fact that there has been so much publicity

In addition to these college and university incidents,
a recent Harris Interactive poll found that kids and
teens, ranging in age from 8 to 18, continue to down-
load and share files that are copyright protected-
in spite of the fact that nearly 90 percent know it is
illegal. What is alarming in this study is the fact that
80 percent of the participants understand the mean-
ing of a copyright, yet they continue to perform ille-
gal functions. This finding illustrates a challenging
ethical dilemma that persists in our society. The par-
ticipants were more concerned with downloading
a virus or spyware than they were with getting in
trouble with the law. It is apparent from this re-
search that young people consider stealing software
a victimless crime, which would seem to underline
the need for more ethics education at home and at
school.
rrounding the legality of such initiatives, the youth
our nation continue to illegally download material
- at has been given copyright protection. This in-
~lud es college students as well, recently evidenced
th e fact that the Recording Industry Association
L A merica (RIAA) filed copyright infringement law-
it s against 405 students at 18 different colleges.
is list of colleges included Columbia, Harvard, and
:: ·nceton . According to the lawsuit, these students
, re allegedly using a new file-sharing application
"? led i2hub to download songs and movies at light-
~ · g speeds. The RIAA also has evidence that this
- ·gh -speed network is also being used at another

Sources: Sebastian Rupley, "Infringing Copyrights at Mach 5,"
PC Magazine (June 7, 2005), p. 24, and "Majority of Youth
Under-
stand 'Copyright,' but Many Continue to Download lllegally,"
schools in 41 states. PR Newswire (May 18, 2004) pp. 1-3 .
ecret Protection
others revealing
ess
TRADE SECRETS
In certain instances, the entrepreneur may prefer to maintain an
idea or process as confiden-
tial and to sell or license it as a trade secret. The trade secret
will have a life as long as the
idea or process remains a secret.
A trade secret is not covered by any federal law but is
recognized under a governing
body of common laws in each state. Employees involved in
working with an idea or
process may be asked to first sign a confidential information
agreement that will protect
against their giving out the trade secret either while an
employee or after leaving the
organization. A simple example of a trade secret nondisclosure
agreement is illustrated
in Table 6.3 . The entrepreneur should hire an attorney to help
draw up any such agree-
ment. The holder of the trade secret has the right to sue any
signee who breaches such an
agreement.

What or how much information to give to employees is difficult
to judge and is often
determined by the entrepreneur' s judgment. Historically,
entrepreneurs tended to protect
sensitive or confidential company information from anyone else
by simply not making
them privy to this information. Today, there is a tendency to
take the opposite view, that the
more information entrusted to employees , the more effective
and creative employees can
be. The argument is that employees cannot be creative unless
they have a complete under-
standing of what is going on in the business.
Most entrepreneurs have limited resources, so they choose not
to find means to protect
their ideas, products, or services. This could become a serious
problem in the future, since
gathering competitive information legally is so easy to
accomplish, unless the entrepreneur
takes the proper precautions . For example, it is often easy to
learn competitive information
171
180 I '"'"P""""h;p -~-- - --·- -- ·----· --·- --- ... -- -- ----· --------
------·- -------- --------------~-------·· ---------------
TABLE 6.3 A Simple Trade Secret Nondisclosure Agreement
WHEREAS, New Venture Corporation (NVC), Anywhere Street,
Anyplace, U.S.A., is the Owner

of information relating to; and
WHEREAS, NVC is desirous of disclosing said information to
the undersigned (hereinafter
referred to as "Recipient") for the purposes of using, evaluating,
or entering into further
agreements using such trade secrets as an employee, consultant,
or agent of NVC; and
WHEREAS, NVC wishes to maintain in confidence said
information as trade secret; and
WHEREAS, the undersigned Recipient recognizes the necessity
of maintaining the strictest
confidence with respect to any trade secrets of NVC.
Recipient hereby agrees as follows:
1. Recipient shall observe the strictest secrecy with respect to
all information presented by
NVC and Recipient's evaluation thereof and shall disclose such
information only to
persons authorized to receive same by NVC. Recipient shall be
responsible for any
damage resulting from any breach of this Agreement by
Recipient.
2. Recipient shall neither make use of nor disclose to any third
party during the period of
this Agreement and thereafter any such trade secrets or
evaluation thereof unless prior
consent in writing is given by NVC.
3. Restriction on disclosure does not apply to information
previously known to Recipient or
otherwise in the public domain. Any prior knowledge of trade

secrets by the Recipient
shall be disclosed in writing within (30) days.
4. At the completion of the services performed by the Recipient,
Recipient shall wit~ in
(30) days return all original materials provided by NVC and any
copies, notes, or other
documents that are in the Recipient's possession pertaining
thereto.
5. Any trade secrets made public through publication or product
announcements are
excluded from this agreement.
6. This agreement is executed and delivered within the State of
__ and it shall be
construed, interpreted, and applied in accordance with the laws
of that State.
7. This agreement. including the provision hereof, shall not be
modified or changed in any
manner except only in writing signed by all parties hereto.
Effective this day of 20
RECIPIENT:-------------
NEW VENTURE CORPORATION:
By:---------
Title: _______ _
Date:--------
through such means as trade shows, transient employees, media
interviews or announce-

ments, and even Web sites . In all instances, overzealous
employees are the problem. To try
to control this problem, entrepreneurs should consider some of
the ideas listed below.
• Train employees to refer sensitive questions to one person.
• Provide escorts for all office visitors.
• Avoid discussing business in public places.
• Keep important travel plans secret.
• Control information that might be presented by employees at
conferences or published
in journals.
'"'~'~"'""h;p, E;ghth Edn;oo I 181 --------------------- -·-----··----
--~ ----~~------ ------------------------- ~~-------·· - ·--·-- --·--· -
·+-· ----~----
ensing Contractual
~ment giving rights to
ers to use intellectual
~rty in return for a
• . alty or fee
• Use simple security such as locked file cabinets, passwords on

computers, and
shredders where necessary.
• Have employees and consultants sign nondisclosure
agreements.
• Debrief departing employees on any confidential information.
• Avoid faxing any sensitive information.
• Mark documents confidential when needed.
Unfortunately, protection against the leaking of trade secrets is
difficult to enforce. More
important, legal action can be taken only after the secret has
been revealed. It is not neces-
sary for the entrepreneur to worry extensively about every
document or piece of informa-
tion. As long as minimal precautions are taken, most problems
can be avoided, primarily
because leaks usually occur inadvertently.
LICENSING
Licensing may be defined as an arrangement between two
parties, where one party has
proprietary rights over some information, process, or
technology protected by a patent,
trademark, or copyright. This arrangement, specified in a
contract (discussed later in this
chapter), requires the licensee to pay a royalty or some other
specified sum to the holder
of the proprietary rights (licensor) in return for permission to
copy the patent, trademark,
or copyright.
Thus, licensing has significant value as a marketing strategy to

holders of patents, trade-
marks, or copyrights to grow their business in new markets
when they lack resources or ex-
perience in those markets. It is also an important marketing
strategy for entrepreneurs who
wish to start a new venture but need permission to copy or
incorporate the patent, trade-
mark, or copyright with their ideas.
A patent license agreement specifies how the licensee would
have access to the patent.
For example, the licensor may still manufacture the product but
give the licensee the rights
to market it under their label in a noncompetitive market (i.e.,
foreign market). In other
instances, the licensee may actually manufacture and market the
patented product under its
own label. This agreement must be carefully worded and should
involve a lawyer, to ensure
the protection of all parties.
Licensing a trademark generally involves a franchising
agreement. The entrepreneur
operates a business using the trademark and agrees to pay a
fixed sum for use of the
trademark, pay a royalty based on sales volume, buy supplies
from the franchisor (exam-
ples would be Shell, Dunkin' Donuts, Pepsi Cola or Coca Cola
bottlers, or Midas muffler
shops), or some combination of these. Franchising is discussed
later in the text as an
option for the entrepreneur as a way to start a new business or
as a means of financing
growth.
Copyrights are another popular licensed property. They involve

rights to use or copy
books, software, music, photographs, and plays, to name a few.
In the late 1970s, computer
games were designed using licenses from arcade games and
movies. Television shows have
also licensed their names for board games or computer games.
Celebrities will often license
the right to use their name, likeness, or image in a product (i.e.,
Tiger Woods golf clothing,
Jessica Simpson perfume, Elvis Presley memorabilia, or Mickey
Mouse lunch boxes). This
is actually analogous to a trademark license.
Licensing has become a revenue boom for many Fortune 500
companies. These firms
spend billions of dollars each year on the research and
development of new technologies
that they will never bring to market. As a result, they will often
license patents, trademarks,
and other intellectual property to small companies that can
profit from them. Microsoft
182 I '"'"P'''"""hlp ~~~--+-~-- ------ ----- ----··------ ---------· ---
---·-- ------------ --- --------·-
Corporation, with its IP Ventures Division, is a great example
of a firm that has offeree
technologies for biometric identity authentication, counterfeit-
resistant labels, face detec-
tion and tracking, and other intellectual property that it does not
know how to market or has
no intent to market.B These agreements have generated millions

of dollars in revenue for
Microsoft. IBM continues to generate more than $1 billion from
its licensing agreements .1.!.
ARC International, the world leader in computer processors, has
increased its licensing of
its technology to semiconductor companies in their chip design.
At present there are abom
140 companies worldwide that rely on ARC's technology. 15
Although technology is one of the largest generators of
licensing revenue, there are
other significant players in this market. The entertainment
industry, particularly motion
picture studios such as Disney, Dream Works, Fox, Sony, and
Warner Brothers, generates
millions of dollars for its bottom line with licensing agreements
for clothing, toys, games,
and other related items. NBC Universal Inc., with its television,
movie, music, and con-
sumer products, amassed about $1 billion in revenues in 2008.
Just recently, NBC Univer-
sal released a full line of products from its successful television
show "Heroes." 16 Although
in 2006 Disney ended its 10-year licensing agreement with
McDonald's, it has inked huge
deals with retailers to market a variety of products based on the
success of "High School
Musical" and "Hannah Montana." These products are expected
to result in $2.7 billion in
global retail sales. In fact global retail sales of all Disney's
licensed merchandise exceeded
$30 billion in 2008_17 McDonald's, on the other hand, has
moved on and signed licensing
agreements with other motion picture studios such as Dream
Works Animation SKG and
Pixar Animation Studios. 18

Licensing is also popular around special sporting events, such
as the Olympics,
marathons, bowl games, and tournaments. Licenses to sell T-
shirts, clothing, and other
accessories require written permission in the form of a license
agreement before sales are
allowed.
Licensing represents opportunities for many firms to expand
into new markets, expand
product lines, or simply reach more customers within its
existing target markets. Some
examples include Microsoft's MSN Mobile group, which
recently signed a licensing agree-
ment with DeviceAtlas to incorporate their database so MSN
can improve the content it
presently delivers to its customers. This agreement has already
resulted in significant in-
creases in mobile registrations. 19 Retailers faced with
economic pressures are looking for
ways to increase sales of higher-margin items. For example,
Safeway has been using Bugs
Bunny and his Looney Tunes friends as part of their new Eating
Right Kids food and bev-
erage line. These items can command higher prices and provide
what retailers feel is a
value-added endorsement. 20
Before entering into a licensing agreement, the entrepreneur
should ask the following
questions:
• Will the customer recognize the licensed property?
• How well does the licensed property complement my products

or services?
• How much experience do I have with the licensed property?
• What is the long-term outlook for the licensed property? (For
example, the loss of
popularity of a celebrity can also result in an end to a business
involving that
celebrity's name.)
• What kind of protection does the licensing agreement provide?
• What commitment do I have in terms of payment of royalties,
sales quotas , and
so on?
• Are renewal options possible and under what terms?
product safety and
Jability Responsibility
of a company to meet any
;egal specifications
;egarding a new product
;:overed by the Consumer
Product Safety Act
Eotrep'"'""hip, Eighth Editioo I 183 -- ------ --- --· --- -- -+- ----

Licensing is an excellent option for the entrepreneur to increase
revenue, without the
risk and costly start-up investment. To be able to license
requires the entrepreneur to have
something to license, which is why it is so important to seek
protection for any product,
information, name, and so on, with a patent, trademark, or
copyright. On the other hand,
licensing can also be a way to start a new venture when the idea
may infringe on someone
else's patent, trademark, or copyright. In this instance, the
entrepreneur has nothing to lose
by trying to seek a license agreement from the holder of the
property.
Licensing continues to be a powerful marketing tool. With the
advice of a lawyer, entre-
preneurs may find that licensing opportunities are a way to
minimize risk, expand a business,
or complement an existing product line.
PRODUCT SAFETY AND LIAS I LITY
It is very important for the entrepreneur to assess whether any
product that is to be mar-
keted in the new venture is subject to any regulations under the
Consumer Product
Safety Act. The original act, which was passed in 1972 and then
amended in 1990, created
a five-member commission that has the power to prescribe
safety standards for more than
15,000 types of consumer products. In August of 2008 there
were significant changes that
were made into law, now requiring stricter standards for

potentially hazardous and unsafe
products .
Large fines as well as recalls of any products that are deemed
unsafe are the typical
outcomes of any action enforced by the commission. For
example, in 2007 U.S . compa-
nies were forced to make more than 100 recalls involving about
9 million toys. Polly
Pocket play sets and Batman action figures highlighted these
recalls, given that these
products were found to have high lead content or that they
contained small accessories
that could be potentially hazardous if swallowed by a child. The
public outcry from
these recalls was a major factor in getting Congress to act
quickly on the new legisla-
tion. In the past two decades, the Consumer Product Safety
Commission had been oper-
ating on tighter budgets and smaller staff and was not able to
oversee the large number
of new products being launched or imported each year. With a
new budget, significantly
larger staff, and support from the administration it is expected
that the commission will
now be able to take a more active role in making sure that firms
meet the new legal re-
quirements for product safety. Stricter enforcement as well as
the threat of significant
increases in fines for violations should improve the situation.
As an example, the fines
for violations in the past were $5,000 per violation. The new
law allows for fines of
$100,000 per violation with a cap of $15 million . The
commission will also be able to
take a more active role in demanding recalls where in the past it

only could oversee any
voluntary recalls. The development of stricter regulations
regarding labeling and adver-
tising is also part of the commission's responsibility under the
new law. It is clear with
just these mentioned changes that any entrepreneur involved in
marketing potentially
hazardous or unsafe products will need to make sure that
products are tested by approved
third-party testing facilities . 21
INSURANCE
Some of the problems relating to product liability were
discussed in the previous section.
Besides being cautious, it is also in the best interests of the
entrepreneur to purchase insur-
ance in the event that problems do occur. Service-related
businesses such as day-care cen-
ters, amusement parks, and shopping centers have had
significant increases in the number
of lawsuits.
184 I '"~'~"'""h;p "~~4-----------------···--------- ------------- -----
--- ·------------------------·--------·------c---
176 PART 2 FROMIDEATOTHEOPPORTUNITY
TABLE 6.4 Types of Insurance and Possible Coverage
Types of Insurance
Property
Casualty

Coverage Possible
• Fire insurance to cover losses to goods and premises resulting
from fire and lightning. Can extend coverage to include risks
associated with explosion, riot, vehicle damage, windstorm
hail, and smoke.
• Burglary and robbery to cover small losses for stolen property
in cases of forced entry (burglary) or if force or threat of
violence was involved (robbery).
• Business interruption will pay net profits and expenses when
a business is shut down because of fire or other insured cause.
• General liability covers the costs of defense and judgments
obtained against the company resulting from bodily injury or
property damage. This coverage can also be extended to cover
product liability.
• Automobile liability is needed when employees use their own
cars for company business.
Life • Life insurance protects the continuity of the business
(especially a partnership). It can also provide financial
protection for survivors of a sole proprietorship or for loss
of a key corporate executive.
Workers' compensation • May be mandatory in some states.
Provides benefits to
employees in case of work-related injury.
Bonding • This shifts responsibility to the employee for
performance of a
job. It protects company in case of employee theft of funds or
protects contractor if subcontractor fails to complete a job

within an agreed-upon time frame.
In general, most firms should consider coverage for those
situations as described in
Table 6.4. Each of these types of insurance provides a means of
managing risk in the new
business. The main problem is that the entrepreneur usually has
limited resources in the be-
ginning. Thus, it is important to first determine whether any of
these types of insurance are
needed. Note that some insurance, such as disability and vehicle
coverage, is required by
law and cannot be avoided. Other insurance, such as life
insurance of key employees, is not
required but may be necessary to protect the financial net worth
of the venture. Once the
entrepreneur determines what types of insurance are needed,
then a decision can be made
as to how much insurance and from what company. It is wise to
get quotes from more than
one insurance firm since rates and options can also vary. The
total insurance cost represents
an important financial planning factor, and the entrepreneur
needs to consider increasing
premiums in cost projections.
Skyrocketing medical costs have probably had the most
significant impact on insurance
premiums . This is especially true for workers' compensation
premiums, which for some
entrepreneurs have doubled or tripled in the last few years.
Insurance companies calcu-
late the premium for workers' compensation as a percentage of
payroll, the type of busi-
ness, and the number of prior claims. Given the problems with
fraudulent or suspicious

claims, some states are beginning to undertake reforms in the
coverage. Even before re-
forms are enacted, the entrepreneur can take some action to
control the premiums by pay-
ing attention to details, such as promoting safety through
comprehensive guidelines that
'"'"'""'""h;p, e;gh<h Ed;t;oo I 185 --------~---~-----·----·-- --- ---
--- ------·-- ------- ---- ~- --· -----~- . -~
are communicated to every staff member. Being personally
involved with safety can, in
· the long run, significantly control workers' compensation
premiums.
Entrepreneurs also have to consider health care coverage. This
is an important ben-
efit to employees and will require the venture to cover a
significant portion of this
expense for the employee. Rates to the company will vary
significantly depending on
the plan and its various options. Health insurance premiums are
less expensive if there
is a large group of insured participants. This is, of course,
difficult for a start-up venture
but can be resolved by joining a group such as a professional
association that offers such
coverage.
However, if you are a self-employed entrepreneur, the options
are limited. If you are

leaving a corporate position, consider extending your health
care benefits with COBRA.
This usually allows you to continue on the same health care
policy you were on for
about three years . However, you now will have to pay the
entire premium on the policy.
If your COBRA has expired or one is not available, you can
consider contacting your
state insurance department, which can supply a list of insurance
companies that provide
individual health care insurance. Policies that have higher
deductibles can also be con-
sidered because of their lower premiums . For additional
assistance in these matters it is
recommended that the entrepreneur contact the Association of
Health Insurance Agents,
the Health Insurance Association of America, or the U.S. Labor
Department, all located
in Washington, D.C.
Most recently there has been some controversy regarding safety
for employees in home-
based businesses. The government's response has been that the
company is responsible for
safety or health violations in home-based offices. The best
protection for entrepreneurs
operating home-based businesses is to write handbooks with
stated policies on home office
safety.
Seeking advice from an insurance agent is often difficult
because the agent is trying to
sell insurance. However, there are specialists at universities or
the Small Business Admin-
istration who can provide this advice at little or no cost.

SARBANES-OXLEY ACT
After a lengthy period of reported corporate misconduct
involving companies such as
Enron and Arthur Andersen, Congress passed the Sarbanes-
Oxley Act in 2002. Although
this act has provided a mechanism for greater control over the
financial activities of public
companies, it also has created some difficulties for start-ups and
smaller companies. Argu-
ments are now being put forth that the law was passed too
quickly as a result of all the cor-
porate scandals and that the provisions are too vague and their
implementation by CPAs too
rigid. In fact it is argued that the cost of compliance is not only
prohibitive but that it has
led to a decline in the number of start-ups going public. 22
The act contains a number of provisions, and no attempt will be
made here to cover
them all. Instead an overview of the law's requirements will be
discussed. The complete
law or relevant sections can be downloaded from the Internet.
The Sarbanes-Oxley Act covers a wide range of corporate
governance activities.
Under this law, CEOs are required to vouch for financial
statements through a series of
internal control mechanisms and reports. Directors must meet
background, length of
service, and responsibilities requirements regarding internal
auditing and control. Any
attempt to influence the auditor or impede the internal auditing
process is considered a
criminal act. In addition, the law covers bank fraud; securities
fraud; and fraud by wire,
radio, or TV. 23

186 Entrepreneurship ---· .... ..:.._....._;..,_.._ .,
contract A legally
binding agreement
between two parties
With the passage of this law there has been some concern as to
the interpretation of this
law and subsequent directors' liability. For example, will this
law discourage qualified in-
dividuals from being members of important boards because of
their concern for negative
publicity that could be initiated by a disgruntled employee or
stockholder?
Foreign companies that trade on U .S. stock exchanges are often
delisted since there
are major conflicts with the provisions of the new law and the
laws of that foreign country.
For example, independent audit committees, required by the
new law, conflict with some
foreign countries' rules and customs. This is only one example
of the many conflicts tha·
presently exist with foreign laws and customs. 24
At present, private companies are not included in this act.
However, there could be some
future controls established to prevent any of these governance
issues in private companies.

Private companies are also subject to control if they consult
with a public company and in
any way influence that public company in any wrongdoing
established by the Sarbanes-
Oxley Act.
The other option, of course, is for the entrepreneur to set up a
board of advisors instead
of an extended board of directors. Advisors would not be
subject to liability since they do
not formulate fmal policy for the venture but only provide
recommendations to the actual
board of directors , which in this case could consist of the
management of the start-up ven-
ture. If a venture capitalist or even an angel investor were
involved, they would require a
board seat, in which case the use of a board of advisors would
not likely be acceptable and
liability protection would be necessary.
CONTRACTS
The entrepreneur, in starting a new venture, will be involved in
a number of negotiations
and contracts with vendors, landlords, and clients. A contract is
a legally enforceable agree-
ment between two or more parties as long as certain conditions
are met. Table 6.5 identi-
fies these conditions and the outcomes (breaches of contract)
should one party not live up
to the terms of the contract. It is very important for the
entrepreneur to understand the
TABLE 6.5 Contract Conditions and Results of a Breach of
Contract
Contract Conditions

• An offer is made. It can be oral or written but is not binding
until voluntary acceptance of
offer is given.
• Voluntary acceptance of offer.
• Consideration (something of value) is given by both parties.
• Both parties are competent and/or have the right to negotiate
for their firms.
• Contract must be legal. Any illegal activities under a contract
are not binding. An example
might be gambling.
• Any sales of $500 or more must be in writing.
Results of a Contract Breach
• The party in violation of a contract may be required to live up
to the agreement or pay
damages.
• If one party fails to live up to its end of a contract. the second
party may also agree to drop
the matter and thus not live up to the agreement as well. This is
referred to as contract
restitution.
_ ____ ______ ___ ____ ______ ____ __ _ ___ __ ___ _____
_____ __ __ _ _ __ _ _ _ Eo_'~_P"'""~h;P:_E;gh<h_Ed;~~"---~-
1_81 ___ _

EVIEW
MARY
fundamental issues related to contracts while also recognizing
the need for a lawyer in
many of these negotiations.
Often business deals are concluded with a handshake. Ordering
supplies, lining up
financing, reaching an agreement with a partner, and so on, are
common situations in which
a handshake consummates the deal. Usually, when things are
operating smoothly, this pro-
cedure is sufficient. However, if there are disagreements, the
entrepreneur may find that
there is no deal and that he or she may be liable for something
never intended. The courts
generally provide some guidelines based on precedence of
cases. One rule is to never rely
on a handshake if the deal cannot be completed within one year.
For example, a company
that trains salespeople asked another firm to produce videotapes
used in the training. The
training firm was asked to promise to use the tapes only for its
own sales force and not to
sell the tapes to others. Some time after the tapes were
produced, this firm began to produce
and sell the tapes under a newly formed company. The original
developer of the tapes
brought suit, and the courts ruled that an oral agreement for
more than one year is not en-
forceable. The only way that this could have been prevented

was if the copying firm had
signed a contract.
In addition to the one-year rule of thumb, the courts insist that a
written contract ex-
ist for all transactions over $500 . Even a quote on a specified
number of parts from a
manufacturer may not be considered a legal contract. For
example, if an entrepreneur
asked for and received a quote for 10 items and then ordered
only 1 item, the seller
would not have to sell that item at the original quoted price
unless a written contract ex-
isted. If the items totaled over $500, even the quoted price
could be changed without a
written contract.
Most sellers would not want to try to avoid their obligations in
the preceding example.
However, unusual circumstances may arise that force the seller
to change his or her mind.
Thus, the safest way to conduct business deals is with a written
contract, especially if the
amount of the deal is over $500 and is likely to extend beyond
one year.
Any deal involving real estate must be in writing to be valid.
Leases, rentals, and pur-
chases all necessitate some type of written agreement.
Although a lawyer might be necessary in very complicated or
large transactions, the en-
trepreneur cannot always afford one. Therefore, it is helpful for
the entrepreneur to under-
stand that before signing a contract he or she should do the
following:

1. Understand the terms and conditions in the contract.
2. Cross out anything that you do not agree to .
3. Do not sign if there are blank spaces (these can be crossed
out) .
4. Make a copy for your files after signing.
This chapter explores some of the major concerns regarding
intellectual property of
the entrepreneur, as well as other important legal issues such as
product safety, insur-
ance, contracts, and the Sarbanes-Oxley Act. The problems with
intellectual property
have become more complicated with the growth of the Internet.
It is important for the
entrepreneur to seek legal advice in making any intellectual
property legal decisions
such as patents, trademarks, copyrights, and trade secrets.
Lawyers have specialties
that can provide the entrepreneur with the most appropriate
advice under the circum-
stances. There are also resources identified in the chapter that
should be considered
before hiring an attorney. Some of this information can save
time and money for the
entrepreneur.

A patent requires a patent attorney, who assists the entrepreneur
in completing an
application to the Patent and Trademark Office with the history
and description of the
invention, as well as claims for its usefulness. An assessment of
the existing patent(s)
will he lp to ascertain whether infringement is likely and to
evaluate the possibilities of
modifying the patented product or licensing the rights from the
holder of the patent.
A provisional patent can be filed that will give the entrepreneur
12 months to finalize
the patent. Being the first to file with a provisional patent can
be very useful to pro-
vide immediate notification of ownership of the patent rights as
well as provide time
to develop business strategies.
A trademark may be a word, symbol, design, or some
combination, or a slogan or
sound that identifies the source of certain goods or services.
Trademarks give the en-
trepreneur certain benefits as long as the following four
requirements are met: (1) com-
pletion of the written application form, (2} submission of a
drawing of the mark,
(3} submission of five specimens showing actual use of the
mark, and (4) payment of
the required fees.
Copyrights protect original works of authorship. Copyrights are
registered with the
Library of Congress and do not usually require an attorney.
Copyrights have become
relevant to the use of the Internet, especially to download

music, literary works, pic-
tures, or videos. Copyright protection related to the Internet
will continue to be a gray
area until regulations are made clearer. Both trademark and
copyright applications can
be filed electronica lly.
Licensing is a viable means of starting a business using
someone else's product,
name, information, and so on. It is also an important strategy
that the entrepreneur
can use to expand the business without extensive risk or large
investments.
The entrepreneur should also be sensitive to possible product
safety and liability
requirements. Careful scrutiny of possible product problems, as
well as insurance, can
reduce the risk. Other risks relating to property insurance, life
insurance, health insur-
ance, workers' compensation, and bonding should be evaluated
to ascertain the most
cost-effective program for the entrepreneur.
Contracts are an important part of the transactions that the
entrepreneur will
make. As a rule of thumb, oral agreements are invalid for deals
over one year and over
$500. In addition, all real estate transactions must be in writing
to be valid. It is impor-
tant in a written agreement to identify all the parties and their
respective roles, to
describe the transaction in detail, to specify the value of the
deal, and to obtain the
signatures of the persons with whom you are doing business.

The Sarbanes-Oxley Act was passed in 2002 and places a great
burden on pub lic
companies to streamline their financial reporting, modify the
role and responsibility
of boards of directors, and basically provide more checks and
balances to avoid
repeating the scandals of WorldCom, Enron, and others. There
are a number of pro-
visions of the law, and entrepreneurs should be aware of any
relevant requirements,
particularly if there is intent to take the company public. At this
point the law
applies only to public companies, but there are possible
interactions with private
firms as well as likely changes to these laws that will require
continued scrutiny by
entrepreneurs.
'""''""'"""'' E;ghth Ed;tloo I 189 -··- -------------------··--·-·-----
···· ----- -·--··-· ---·---·· ·-··. ------·-------------- -- ----··-··-i-----
-----
RESEARCH TASKS
1. Using the Internet, obtain copies of three patents that are at
least three years
old. What are the elements that are common across these
patents? What are the
differences? Which do you believe will be the greatest success?
Can you find any
evidence of products that are now on the market that

incorporate any of these
patented technologies?
2. Search press reports for patent infringement cases. Describe
the process and
the outcome. Of particular value are examples that list the legal
costs of
defending patent infringements and the amount awarded for a
successful
defense.
3. What are some of the world's most famous trademarks? Use
data to back up your
answer.
4. Provide a real-life example for each of the following
different types of product
liability: (a) negligence, (b) warranty, (c) strict liability, and (d)
misrepresentation.
When possible, report both the details and the payouts.
5. How much does it cost to apply for and obtain a patent?
CLASS DISCUSSION
1. Provide three examples of companies that use trade secrets to
keep competitors
from imitat ing their products. What activities do they
undertake to maintain this
secrecy? How effective do you think they are?
2. Should copyrighted music be available on the Internet free of
charge, even if it is
against the wishes of the artist and the recording company?
Consider both sides
of the argument to make a more convincing argument.

3. To what extent should the government be involved in creating
and enforcing
safety laws and to what extent should companies (and
industries) be responsible
for creating their own standards and self-policing those
standards?
SELECTED READINGS
Baroncelli, Eugenia; Carsten Fink; and Beata Javorcik. (2005).
The Global Distribution
of Trademarks: Some Stylised Facts. World Economy, vol. 28,
no. 6, pp. 765-82.
This paper provides the first empirical analysis of the global
distribution of trade-
marks. The analysis is based on data compiled and published by
the World Intellec-
tual Property Organization. It includes an analysis of trademark
registrations across
countries of different income groups and different sectors of the
economy. The re-
sults provide implications for changes in intellectual property
protection in interna-
tional trade.
Caballero-Sanz, F.; R. Moner-Colonques; and J. Sempere-
Monerris. (2005). Licensing
Policies for a New Product. Economics of Innovation & New
Technology, vol. 14, no. 8,
pp. 697-713.
This paper assesses the licensing policies for the developer of a
new product. The
study argues that the best licensing policy is fixed-fee licensing

with an exclusive ter-
ritory clause. Consumers are felt to be better off with the fixed-
fee arrangement
but do not prefer the exclusive territory provision.
190 I '"'""""'""h'· -------- ~----- --- --- ·--- ------- - --------- --- --
---- ---- ---- -- --~ - - --- -- --- ---- - ---
Chaudhry, Rahul; and Kajigailiu G. Kamei. (July 2008). Can
Your Firm Keep Its Secrets?
Managing Intellectual Property, Issue 181, pp. 109-12.
Trade secrets have become an important strategy of choice to
protect confidentia l
information. The information age has enhanced the amount and
importance of
nonpatentable information. This article focuses on a definition
of a trade secret and
describes ways to protect this information.
Cromley, Timothy. (2004). Twenty Steps for Pricing a Patent.
Journal of Accountancy,
vol. 198, no. 5, pp. 31-34.
There are a number of steps that can be followed to assist the
accountant in deter-
mining an evaluation of a patent. In addition to a discussion of
these procedures,
this paper also discusses the makeup of a valuation team.
Depoorter, Ben; Francisco Parisi; and Sven Vanneste. (2005).
Problems with the

Enforcement of Copyright Law: Is There a Social Norm
Backlash? International Journal
of the Economics of Business, vol. 12, no . 3, pp. 361-69.
Copyright norms have developed in opposition to existing
copyright laws. This arti-
cle argues that copyright enforcement efforts may actually
induce further copyright
disobedience by reinforcing the moral and social beliefs against
conventional copy-
right law.
Dodwell, William J. (2008). Six Years of the Sarbanes-Oxley
Act. CPA Journal, vol. 78,
no. 8, pp. 38-43.
An assessment of corporate financial reporting is provided in
this review of the
effectiveness of the Sarbanes-Oxley Act. The backlash of
negative factors that was
created from the new law is presented as well as a subsequent
cost-benefit analysis
of the relative significance of each of these factors.
France, M.; and S. Siwolop. (1996). How to Skin a Copycat.
BusinessWeek (October 21,
1996), pp. 4-7.
Small businesses are particularly vulnerable to knockoffs
because of their limited
resources. A number of examples, with effective strategies that
can be used to fight
knockoffs, are presented.
Johnson, E. Scott. (February 2003). Using and Protecting
Trademarks. CPA Journal,

pp. 39-41.
This article argues that because a trademark is an appreciating
asset with a poten-
tially perpetual life, it is important to choose trademarks
carefully and protect them
through federal registration and controlled licensing. It
discusses issues of trade-
mark clearance, the establishment of trademark rights, the
federal trademark reg-
istration and application process, and domain names.
Marshall, Jeffrey; and Ellen M. Hetfes. (July/August 2008).
Smaller Firms Get Hit Harder
Overseas, Survey Finds. Financial Executive, pp. 9-10.
The expansion of many small entities into foreign markets
raises some significant
legal issues. Differences in laws, languages, currencies, and
styles of conducting
business enhance the need for hiring a lawyer. The survey
reported here indicates a
shift in relevant factors in doing business overseas from
terrorism and political insta-
bility to currency risk and supply chain failure.
Ryan, Kenneth E. (February 2003). Product Liability Risk
Control. Professional Safety,
pp. 20-25.
In the current legal climate, parties injured by the defective
product can easily sue
not only the manufacturer of the product, but also any
commercial supplier in the
distribution channel, including the wholesaler and the retailer.
The article discusses

some of the risks and liabilities that these parties face and some
of the product
quality guidelines that they can follow to limit their liability.
D NOTES
Weiss, Carter. (2006). Innovative Designs Make Us Successful,
but Defending Our
Intellectual Property Keeps Us in Business. Fortune Small
Business, vol. 16, no. 9,
pp. 81-82.
This article relates the experience of an entrepreneur trying to
protect one of his
company's signature products, a neoprene wine tote, from
copycats. It further dis-
cusses how the company managed to maintain its legal rights to
this product by
spending a certain amount of its budget each year policing
copycats and how the
threat of a lawsuit usually Jed to negotiation and resolution of
the issue.
1. See L. Olmstead, "How Steve Lipscomb Reinvented Poker
and Built the
Hottest Business in America," Inc. (May 2005), pp. 80-92;
"World Poker Tour®
Season VII Premiers January 4 on Fox Sports Network; Series
Joins FSN's

Sunday Night Sports Block," Business Wire (December 22,
2008), pp. 1-2;
www.WorldPokerTour.com, 2007 Annual Report, pp. 1-34.
2. Patent and Trademark Office, U.S. Department of Commerce
Web site
(www.uspto.gov).
3. J. Rutherford, "Patent Licensing," Licensing Journal
(February 2008),
pp. 28-29.
4. "Weighing Up the WTO," Economist (November 23, 2002), p.
72.
5. W. B. State, "Filing Strategies under the Patent Cooperation
Treaty," Intellec-
tual Property and Technology Law Journal (October 2002), pp.
1-6.
6. J. P. Kamath, "Judge Backs UK Patents for Software,"
Computer Weekly
(March 25, 2008), p. 6.
7. R. C. Scheinfeld and J.D. Sullivan, "Internet-Related Patents:
Are They Paying
Off?" New York Law Journal (December 10, 2002), p. 5.
8. See G. Pike, "Business Method Patents in Jeopardy,"
Information Today
(January 2009), pp. 15, 17; and J. Rapoza, "Hope for
Innovation," £Week
(November 10, 2008), p. 52.
9. See www.uspto.gov/main/trademarks.htm.
10. S. W. Halpern, C. A. Nard, and K. L. Port, Fundamentals of

United States Intellec-
tual Property Law (Boston: Kluwer Law International, 1999),
pp. 30-34.
11. "Face the Music," Economist (April 2, 2005), pp. 57-58.
12. K. Fritz, "Playing a Different Tune," Information Today
(December 2008), p. 15;
D. 0. Blood and Kee-Min Ngiam, "A Focus on Filters: Latest
Developments in
MGM v. Grokster," Intellectual Property & Technology Law
Journal (February 2008),
pp. 7-8.
13. "Patents: Cuffing Innovation," Electronics Design (April 28,
2005), pp. 49-55.
14. K. Chow, "Patent Play: Making Money from Intellectual
Property," Ottawa
Business Journal (September 29, 2008), p. 12.
15. "ARC Announces New Licensing Agreements with Leading
European
Semiconductor Companies and Design Teams," Business Wire
(March 6,
2007), p. 1.
16. C. Purcell, "Finding Revenue beyond the Screen,"
Television Week(April21,
2008), pp. 6-7.
17. "Retailing Today," News in Brief(June 23, 2008), p. 4.
18. M. Marr and S. Grey, "McDonald's Woos New Partners as
Disney Pact
Nears End," The Wall Street Journal, Eastern Edition (June 6,

2005)
pp. B1-B2.
19. "MSN Mobile and Morodo Join Number of Companies
Adopting DeviceAtlas
Database for Delivering Device-Aware Content," PR Newswire
(August 5, 2008),
pp. 1-2.
192 I '""'P~"'""h;p ~· --~· ---~------------- ----------- ----------
20. "Licensed to Sell: Direct-to-Licensing Agreements Appear
to be a Natural
Evolution for Retailers' Private Label Lines, Which Keep
Trending Upward to
Gourmet, Organic, and Other High-Quality Alternatives,"
Private Label Buyer
(November 1, 2008), pp. 85-87.
21. A. Nicholas, "Dangerous Goods," Inside Counsel (November
2008), pp. 16-18.
22. I. Mount, "Death of the IPO Dream," Fortune Small
Business (April 2005},
pp. 16-18.
23. G. Weiss, "Tighter Nooses for White Collars,"
BusinessWeek(April 7, 2003),
p. 10.
24. P. S. Foote and J. Chen, "Accounting Standards, Disclosure
Requirements,

and Foreign Company Listings on Stock Exchanges," Chinese
Business Review
(September 2008), p. 35.
LAUREATE
EDUCATION INC
40 I '""'"""'""h;p -...-.:-..----· -+------------~------··--·---- - ·------
- ---·--···· ----------------------------------------------··--------------
-----
ENTREPRENEURIAL INTENTIONS AND
CORPORATE ENTREPRENEURSHIP
1
To introduce the importance of perception of feasibility and
desirability in explaining
entrepreneurial intentions.
2
To understand the role of individuals' background
characteristics in explaining
3
To demonstrate that management can influence the intentions of
those within

established organizations.
4
To discuss how established firms can develop an entrepreneurial
culture.
5
To provide a scale for capturing the extent to which
management adopts
entrepreneurial or traditional behaviors.
I
Entrepreneurship, Eighth Edition I 41
----------·--~-- ----~------··-·------------ ---- -----· -----·----- --- --
·-----------·-·----~---
OPENING PROFILE
ROBERT MONDAVI
Robert G. Mondavi, the son of poor Italian immigrants, began
making wine in California
in 1943 when his family purchased the Charles Krug Winery in
Napa Valley, where he
served as a general manager. In 1966, at the age of 54, after a
severe dispute over con-
trol of the family-owned winery, Robert Mondavi used his
personal savings and loans

from friends to start the flagship Robert Mondavi Winery
in Napa Valley with his eldest son, Michael Mondavi.
Robert's vision was to create wines in California that could
successfully compete with the greatest wines of the world.
As a result. Robert Mondavi Winery became the first in
California to produce and mar-
ket premium wines that were expected to compete with premium
wines from France,
Spain, Italy, and Germany.
To achieve this objective Robert believed that he needed to
build a Robert Mondavi
brand in the premium wine market segment. This resulted in the
initial production of
a limited quantity of premium wines using the best grapes,
which brought the highest
prices in the market and had the highest profit margins per
bottle. However, he soon
realized that this strategy, while establishing the brand, did not
allow the company to
generate enough cash flow to expand the business. To solve this
problem Robert de-
cided to produce less expensive wines that he could sell in
higher volumes. He dedi-

cated time and effort to finding the best vineyards in Napa
Valley for the company's
production of grapes. In addition, he signed long-term contracts
with growers in Napa
Valley and worked closely with each grower to improve grape
quality.
Robert Mondavi built a state-of-the-art winery that became a
premium wine-
making facility as well as conveying a unique sense of Mondavi
wines to the visitors. Soon
the new winery became a place where the best practices in the
production of premium
wines were developed, eventually establishing the standard in
the wine industry.
Robert Mondavi was the first winemaker to assemble experts
with various back-
grounds in the fields of viticulture and wine-making to give
advice on the new wines.
He also developed new technology that allowed special handling
of grapes and the
cold fermentation of white wines. Furthermore, Mondavi's
company created process
innovations, such as steel fermentation tanks, vacuum corking
of bottles, and aging of

wines in new French oak barrels. Dedicated to growing vines
naturally, Robert Mondavi
35
42
I
I . J Entrepreneurship
__ l______ - ----- ----- --- --- -- ------· -_ _, __ -- -__ _,_ - ---·--
- ----- --- .. -
36 PART 1 THE ENTREPRENEURIAL PERSPECTIVE
introduced a natural farming and conservation program that
allowed enhanced grape
quality, environmental protection, and worker health. Moreover,
from the very begin-
ning, the company promoted the presentation of wine as part of
a sociable way of
everyday living. Robert Mondavi W inery was one of the first
wineries to present con-
certs, art exhibitions, and culinary programs.
In his book, Robert Mondavi describes his search for
innovation:
From the outset, I wanted my w inery to draw inspiration and

methods from the traditional
Old World chateaux of France and Italy, but I also wanted to
become a model of state-of-
the-art technology, a pioneer in research and a gathering place
for the finest minds in our
industry. I wanted our winery to be a haven of creativity,
innovation, excitement, and that
unbelievable energy you find in a start-up venture when
everyone is committed, heart and
soul, to a common cause and a common quest.
In 1972 Mondavi's hard work and dedication to his venture were
formally recog-
nized when the Los Angeles Times Vintners Tasting Event
selected the 1969 Robe rt
Mondavi Winery Cabernet Sauvignon as the top wine produced
in Californ ia.
Despite Robert Mondavi's relentless efforts, things did not
always go smoothly. A
noticeable improvement in the quality and reputation of the
Robert Mondavi wines
during the 1970s did not spark the interest of reputable five-star
restaurants and top
wine shops across the country. So, for over a decade, Mondavi
traveled throughout the

country and abroad, promoting Napa Valley wines and the
Robert Mondavi brand
name. Often, while dining alone on business trips, Mondavi
offered restaurant em-
ployees the opportunity to taste his wine. Slowly, Mondavi got
his wines on the wine
lists of the top five-sta r restaurants in the United States. By the
end of the 1970s,
restaurant owners, famous wine connoisseurs, and industry
critics were eager to be in-
troduced to Robert Mondavi products. Recognizing the
increased popularity of his
wines, Mondavi began slowly raising the prices of his wines to
the price level of com-
parable French wines. Subsequently, the company expanded it s
capacity to produce
500,000 cases of premium wines annually.
About this time Robert Mondavi started building a portfolio of
premium w ine
brands to satisfy the needs of consumers in various price and
quality segments of the
domestic wine market. As a result, from the late 1970s until the
1980s Robert Mondavi

diversified its portfolio through acquisition and further growth
of the Woodbridge,
Byron, and Coastal brands of California wine. Most of these
acquisitions were financed
through long-term debt.
In the early 1990s Robert Mondavi faced financial difficulties
as a resu lt of the
rapid expansion; the increased competition; and a phylloxera
infestation of several
of the company's vineyards, which necessitat ed replanting.
After contemplating the
matter for several years, Robert Mondavi decided to raise
enough capital to con-
tinue expansion of his company while maintaining family
control of the company.
On June 10, 1993, Robert Mondavi issued 3.7 million shares of
stock at $13.50 a
share and began trading on the NASDAQ as MONO. The initial
public offering (IPO)
raised approximately $49.95 million, bringing the company's
market capita lization
to $2 13.3 million .

I
-~. --~-·· --·------- - ·--------, ·---~
CHAPTER 2 ENTREPRENEURIAL INTENTIONS AND
CORPORATE ENTREPRENEURSHIP 37
The IPO was structured with two classes of stock: Class A
common stock issued to
the Mondavi family, and Class B common stock offered to the
public. Class A shares
carried ten votes per share, and Class B shares carried one vote
per share. This structure
allowed the Mondavi family to retain 90 percent ownership of
the company and, subse-
quently, to preserve control over the company's destiny. Robert
Mondavi stock was
trading at $8 a share a few days after the initia l offering and at
$6.50 a share six
months later, slashing the company's value, and the Mondavi
fami ly's wealth, by half.
One factor affecting the price decrease in the stock was the
difficulty that the in-
vestment community and analysts had in valuing Robert
Mondavi due to a lack of in-
formation on the wine industry. There .were only two other

publicly traded wine
companies, both in low-end wine categories. To help solve this
problem, Robert
Mondavi began educating investors, trying to convince them
that it is possible to
build a strong, globally recognized business selling premium
wines. As part of his
knowledge-building and awareness-creation campaign, Robert
sent teams to New
York, Boston, and Chicago, who brought wine presentations,
recept ions, and tastings
to the investors. According to Robert Mondavi, "Well, we had
to mount an effective
campaign and take it right to them, and not just explain our
approach but put our
wines right in their hands! Let them taste, in their own mouths,
our expertise and
commitment to excellence."
At the same time the company was continuing its innovating
efforts, creating in
1994 a revolutionary, capsule-free, flange-top bottle design,
which became widely ac-
cepted in the industry.

In the mid-1990s, the company started engaging in various
multinational partner-
ships on a 50:50 basis: Its partnership with the Baron Philippe
de Rothschild of
Chateau Mouton Rothschild in Bordeaux, France, resulted in the
creation of Opus
One wine in 1979; with the Frescobaldi family of Tuscany,
Italy, Mondavi launched
Luce, Lucente, and Danzante wines in 1995; with the Eduardo
Chadwick family of
Chile, it introduced Ca/iterra wines in 1996; and with
Australia's largest premium pro-
ducer, Southcorp, it began producing and marketing new wines
from Australia and
California in 2001.
Today, the company continues to pursue its goals around the
world with its unique
cultural and innovative -spirit and its consistent growth
strategy, reaching revenue of
over $441 million in 2002. The company produces 20 unique
and separate labels repre-
senting more than 80 individual wines from California, Italy,
Chile, and France and sells
its wines in more than 80 countries. Some of the popular Robert

Mondavi fine wine
labels such as Robert Mondavi Winery, Robert Mondavi Coastal
Private Selection, and
Woodbridge Wine·ry have gained enormous popularity among
wine lovers in the United
States as well as the rest of the world. The company remains a
close family business.
Recognized as the global representative of California wines,
Robert Mondavi has
been a major force in leading the U.S. wine industry into the
modern era and has de-
voted his life to creating a fine wine culture in America.
Through hard work and a con-
stant striving for excellence, he has achieved his goal of causing
California wines to be
viewed as some of the great wines of the world.
I
44 ! Entrepreneurship
__ ...__ ............ __ -~.-... -:r--------------------.. ---·-· -·---- -----
--
entrepreneurial

intentions The
motivational factors that
influence individuals to
pursue entrepreneurial
outcomes
entrepreneurial
self-efficacy The
conviction that one can
successfully execute the
entrepreneurial process
perceived desirability
The degree to which an
individual has a favorable
or unfavorable evaluation
of the potential
entrepreneurial outcomes
THE INTENTION TO ACT ENTREPRENEURIALLY
Entrepreneurial action is most often intentional. Entrepreneurs
intend to pursue certain op-

portunities, enter new markets, and offer new products- and this
is rarely the process of
unintentional behavior. Intentions capture the motivational
factors that influence a behav-
ior; they are indications of how hard people are willing to try,
of how much of an effort they
are planning to exert to perform the behavior. As a general rule,
the stronger the intention
to engage in a behavior, the more likely should be its
performance. 1 Individuals have
stronger intentions to act when taking action is perceived to be
feasible and desirable .
Entrepreneurial intentions can be explained in the same way.
The perception of feasibility has much to do with an
entrepreneur's self-efficacy. Entre-
preneurial self-efficacy refers to the conviction that one can
successfully execute the be-
havior required; people who believe they have the capacity to
perform (high self-efficacy)
tend to perform well. Thus, it reflects the perception of a
personal capability to do a partic-
ular job or set of tasks . High self-efficacy leads to increased
initiative and persistence and
thus improved performance; low self-efficacy reduces effort and
thus performance. Indeed,
people with high self-efficacy think differently and behave
differently than people with low
self-efficacy.2 Self-efficacy affects the person's choice of
action and the amount of effort
exerted. Entrepreneurship scholars have found that self-efficacy
is positively associated
with the creation of a new independent organization. 3
Not only must an individual perceive entrepreneurial action as
feasible for entrepre-

neurial intention to be high, the individual must also perceive
this course of action as
desirable. Perceived desirability refers to an individual's
attitude toward entrepreneurial
action- the degree to which she has a favorable or unfavorable
evaluation of the poten-
tial entrepreneurial outcomes. 4 For example, creative actions
are not likely to emerge un-
less they produce personal rewards that are perceived as
relatively more desirable than
more familiar behaviors .5
Therefore, the higher the perceived desirability and feasibility,
the stronger the intention
to act entrepreneurially. We next investigate the background
characteristics of entrepreneurs
to understand why some individuals are more likely to engage in
entrepreneurship than
other individuals. That is, we examine how background
characteristics provide an indica-
tion of whether certain individuals are more or less likely to
perceive entrepreneurial action
as feasible and/or desirable and therefore whether they are more
or less likely to intend to
be entrepreneurs.
ENTREPRENEUR BACKGROUND AND CHARACTERISTICS
Education
Although some may feel that entrepreneurs are less educated
than the general population,
research findings indicate that this is clearly not the case.
Education is important in the
upbringing of the entrepreneur. Its importance is reflected not
only in the level of education
obtained but also in the fact that it continues to play a major
role in helping entrepre-

neurs cope with the problems they confront. Although a formal
education is not necessary
for starting a new business- as is reflected in the success of
such high school dropouts as
Andrew Carnegie, William Durant, Henry Ford, and William
Lear- it does provide a
good background, particularly when it is related to the field of
the venture. For example,
entrepreneurs have cited an educational need in the areas of
finance, strategic planning,
marketing (particularly distribution), and management. The
ability to communicate
clearly with both the written and the spoken word is also
important in any entrepreneurial
activity.
'"'"'""" "h; p, E;ghth Ed;tloo I - ---~·-···--~· ·---------- -··-· -----
-------------- ~----------------- ------------- -·--------+
$ ETHICS
ETHICAL CONDUCT OF
ENTREPRENEURS VERSUS
MANAGERS
Understanding the factors that contribute to and in-
fluence the ethical conduct of managers and entrepre-
neurs is important for the future of the U.S. economic
system as well as the economic system of the world.
The significance of these factors becomes all the more
salient when operating in a hypercompetitive global
economy. In such an environment, competitors aggres-
sively disrupt the status quo and seek to change the
rules of competition. While current businesses impact

t he ethical standards used in present business deal-
ings, emerging entrepreneurial companies set the eth-
ical tone for the future economic system of the world.
Although the United States has strong laws, such as
he Foreign Corrupt Practices Act of 1977, and pro-
motes ethical behavior on the part of managers and
entrepreneurs, the ethical attitudes of these groups are
otwell understood. How will managers and entrepre-
eurs react in certain situations? Will they have high
eth ical standards in their internal and external deal-
ings? Will managers, because of their more bureau-
cratic environment, have higher ethical standards than
entrepreneurs? Or, will entrepreneurs, because their
iness practices more closely reflect their personal
lues, have higher ethical attitudes than managers?
In one study, 165 entrepreneurs and 128 managers
ere surveyed using a detached measuring instru-
ent containing binary, response questions, scenar-
os, and comprehensive demographic information.
Generally, entrepreneurs and managers differed
ly slightly in their views regarding the ethics of vari-
activities and their ethical perceptions regarding
others. There were few differences in the two groups
regarding their evaluation of the ethical nature of 12
circumstances and 7 scenarios. The similarities in eth-
ical _ attitudes between the two groups of decision
makers seem to be one of the important findings,

which can be explained by similar legal, cultural, and
educational factors that affect the ethical attitudes of
both groups. Some significant differences consistently
indicate that entrepreneurs are more prone to hold
ethical attitudes.
The findings ind icate that managers need to sacri-
fice their personal values to those of the company
more than entrepreneurs. Also, entrepreneurs consis-
tently demonstrate higher ethical attitudes in the in-
ternal dealings of the company, such as not taking
longer than necessary for a job and not using com-
pany resources for personal use. These findings are
consistent with the theory of property where we
would expect someone to be more ethical in dealing
with his or her own property. This finding suggests
that, through increased ownership, managers might
be motivated to have more ethical dealings with
their company's assets. Profit-sharing companies (man-
agers and other key employees) can therefore per-
haps reduce the possibilities of moral hazard and op-
portunistic behavior within the company through
some type of managerial ownersh ip . Likewise, long-
term relationships with customers and the commu-
nity in general have to be reflected in the property of
the company through philanthropic acts and differ-
ent liability accounts.
Source: From Branko Bucar and Robert Hisrich, "Ethics of
Business
Managers vs. Entrepreneurs," Journal of Developmental
Entrepre-
neurship 6, no. 1 (2001). Reprinted with pennission of The
Journal
of Developmental Entrepreneurship. All rights reserved.

Even general education is valuable because it facilitates the
integration and accumula-
tion of new knowledge, providing individuals with a larger
opportunity set (i.e., a broader
base of knowledge casts a wider net for the discovery or
generation of potential opportuni-
ties), and assists entrepreneurs in adapting to new situations. 6
The general education (and
experiences) of an entrepreneur can provide knowledge, skills,
and problem-solving abili-
ties that are transferable across many different situations.
Indeed, it has been found that
while education has a positive influence on the chance that a
person will discover new op-
portunities, it does not necessarily determine whether he will
create a new business to ex-
ploit the discovered opportunity.7 To the extent that individuals
believe that their education
has made entrepreneurial action more feasible, they are more
likely to become entrepre-
neurs. As entrepreneurs it is likely that aspects of their ethics
differ from other managers,
as is discussed in the article in the Ethics box.
39
l
._ ______ ,--------··----~- -------- ----·--·----- -----------··-----·-
work history The past

work experience of an
individual
role models Individuals
whose example an
entrepreneur can aspire
to and copy
Age
The relationship of age to the entrepreneurial career process
also has been carefully re-
searched. 8 In evaluating these results, it is important to
differentiate between entrepreneur-
ial age (the age of the entrepreneur reflected in his or her
experience) and chronological age
(years since birth). As discussed in the next section,
entrepreneurial experience is one of the
best predictors of success, particularly when the new venture is
in the same field as the pre-
vious business experience.
In terms of chronological age, most entrepreneurs initiate their
entrepreneurial careers
between the ages of 22 and 45. A career can be initiated before
or after these ages, as long
as the entrepreneur has the necessary experience and financial
support, and the high energy
level needed to launch and manage a new venture successfully.
Also, there are milestone
ages every five years (25, 30, 35, 40, and 45) when an

individual is more inclined to start
an entrepreneurial career. As one entrepreneur succinctly stated,
"I felt it was now or never
in terms of starting a new venture when I approached 30."
Generally, male entrepreneurs
tend to start their first significant venture in their early 30s,
while women entrepreneurs
tend to do so in their middle 30s. However, an entrepreneurial
career is quite popular later
in life when the children have left home, there are fewer
financial concerns, and individu-
als start to think about what they would really like to do with
the rest of their lives. 9
Work History
Work history can influence the decision to launch a new
entrepreneurial venture, but it also
plays a role in the growth and eventual success of the new
venture. While dissatisfaction
with various aspects of one's job-such as a lack of challenge or
promotional opportuni-
ties, as well as frustration and boredom-often motivates the
launching of a new venture,
previous technical and industry experience is important once the
decision to launch has
been made. Experience in the following areas is particularly
important: financing, product
or service development, manufacturing, development of
distribution channels, and prepa-
ration of a marketing plan.
As the venture becomes established and starts growing,
managerial experience and skills
become increasingly important. Although most ventures start
with few (if any) employees, as
the number of employees increases, the entrepreneur's

managerial skills come more and more
into play. In addition, entrepreneurial experiences, such as the
start-up process, making deci-
sions under high levels of uncertainty, building a culture from
"scratch," raising venture cap-
ital, and managing high growth, are also important. Most
entrepreneurs indicate that their
most significant venture was not their first one. Throughout
their entrepreneurial careers, they
are exposed to many new venture opportunities and gather ideas
for many more new ventures.
Finally, previous start-up experience can provide entrepreneurs
with expertise in running an
independent business as well as benchmarks for judging the
relevance of information, which
can lead to an understanding of the "real" value of new entry
opportunities, speed up the busi-
ness creation process, and enhance performance. 10 Previous
start-up experience is a relatively
good predictor of starting subsequent businesses. 11 To the
extent that start-up experience pro-
vides entrepreneurs with a greater belief in their ability to
successfully achieve entrepreneurial
outcomes, this increased perceived feasibility will strengthen
ROLE MODELS AND SUPPORT SYSTEMS
One of the most important factors influencing entrepreneurs in
their career path is their
choice of a role model. 12 Role models can be parents, brothers
or sisters, other relatives, or
other entrepreneurs. Successful entrepreneurs frequently are
viewed as catalysts by potential

moral-support network
Individuals who give
psychological support to
an entrepreneur
professional-support
network Individuals
who help the entrepreneur
in business activities
Eo<~P''"'""hlp, E;ghth Ed;tioo I
--- - -··--- -- ·- ------ ·--· --- -- - -- ----· -------- ~ -
entrepreneurs. As one entrepreneur succinctly stated, "After
evaluating Ted and his success
as an entrepreneur, I knew I was much smarter and could do a
better job. So I started my
own business." In this way, role models can provide important
signals that entrepreneurship
is feasible for them.
Role models can also serve in a supportive capacity as mentors
during and after the
launch of a new venture. An entrepreneur needs a strong support
and advisory system in every
phase of the new venture. This support system is perhaps most

crucial during the start-up
phase, as it provides information, advice, and guidance on such
matters as organizational
structure, obtaining needed financial resources, and marketing.
Since entrepreneurship is a
social role embedded in a social context, it is important that an
entrepreneur establish con-
nections and eventually networks early in the new venture
formation process.
As initial contacts and connections expand, they form a network
with similar properties
prevalent in a social network--density (the extensiveness of ties
between the two individ-
uals) and centrality (the total distance of the entrepreneur to all
other individuals and the to-
tal number of individuals in the network). The strength of the
ties between the entrepreneur
and any individual in the network is dependent upon the
frequency, level, and reciprocity
of the relationship. The more frequent, in-depth, and mutually
beneficial a relationship, the
stronger and more durable the network between the entrepreneur
and the individual. 13 Al-
though most networks are not formally organized, an informal
network for moral and pro-
fessional support still greatly benefits the entrepreneur.
Moral-Support Network
It is important for each entrepreneur to establish a moral-
support network of family and
friends-a cheering squad. This cheering squad plays a critical
role during the many diffi-
cult and lonely times that occur throughout the entrepreneurial
process. Most entrepreneurs
indicate that their spouses are their biggest supporters and allow

them to devote the exces-
sive amounts of time necessary to the new venture.
Friends also play key roles in a moral-support network. Not
only can friends provide ad-
vice that is often more honest than that received from other
sources, but they also provide
encouragement, understanding, and even assistance.
Entrepreneurs can confide in friends
without fear of criticism. Finally, relatives (children, parents,
grandparents, aunts, and un-
cles) also can be strong sources of moral support, particular! y
if they are also entrepreneurs.
As one entrepreneur stated, "The total family support I received
was the key to my success.
Having an understanding cheering squad giving me
encouragement allowed me to persist
through the many difficulties and problems."
Professional-Support Network
In addition to encouragement, the entrepreneur needs advice and
counsel throughout the
establishment of the new venture. This advice can be obtained
from a mentor, business
associates, trade associations, or personal affiliations-all
members of a professional-
support network.
Most entrepreneurs indicate that they have mentors. How does
one find a mentor? This
task sounds much more difficult than it really is. Since a mentor
is a coach, a sounding
board, and an advocate-someone with whom the entrepreneur
can share both problems
and successes-the individual selected needs to be an expert in

the field. An entrepreneur
can start the "mentor-finding process" by preparing a list of
experts in various fields-
such as in the fundamental business activities of finance,
marketing, accounting, law, or
management-who can provide the practical "how-to" advice
needed. From this list,
47
48 I '"''"'~"'""h;p -· ·-~ - ~~+-''--·-----------·----------·--· ·--· --·-
-------------- ·-------------··--------·-----------
HOT OR NOT?
DO YOU BELIEVE THIS DIGITAL FRIDGE
TECHNOLOGY REPRESENTS AN
OPPORTUNITY?
Why, oh why, must employees stop working just be-
cause they're having lunch or stoking up on caffeine?
They won't if your lunchroom is equipped with the
Multi-Media Refrigerator ($8,000) from LG Electron-
ics (www.lgappliances.com). A 25.5-cubic-foot refrig-
erator with an Internet connection and built-in LCD,
the digital fridge lets workers keep researching Web
projects and reading e-mail while they munch. The
fridge has a built-in TV, camera, and Web radio so
you can stretch videoconferences through coffee
breaks. Here's a morale booster: Alternate photos of
your office manager with those pencil requisition
training videos on its LCD.a

DO YOU BELIEVE THIS "SMALL
WORLD" TECHNOLOGY REPRESENTS
AN OPPORTUNITY?
Rick Snyder, CEO of Ardesta, a holding firm in Ann
Arbor, Michigan, has a mantra: "Smaller, faster, better,
cheaper." He's talking about "small tech," a term
that describes nanotechnology, microtechnology, and
micro-electromechanical systems (MEMS). Nanotech-
nology in particular has gotten a lot of coverage as
big companies like Hewlett-Packard and Intel have
begun to introduce nano into computing. It's hard to
pinpoint exactly what small tech is because it has so
many wide-ranging applications. "I would call it
more of a revolution than an evolution," says Snyder.
Nanotechnology, for example, deals with matter at
an atomic and molecular level-that is, with matter
often described as being less than the width of a
human hair in size. It's appearing in everything from
stainproof coating for fabrics to scratch-resistant
coating for eyeglasses to miniscule computer chip cir-
cuits from HP Labs.
Research funding for small tech is enormous.
Ardesta is devoted to investing in and helping launch
various small tech ventures with an ultimate goal of
bringing actual products to market. Many businesses
in this fledgling technological area are small entre-
preneurial start-ups and spin-offs from research insti-
tutions. Life sciences and materials manufacturing
are two industries that will really feel the early effects
of the growing small tech market. Eventually, though,
small tech will touch just about everything. Snyder
calls it pervasive and transparent.
Some applications are out already and operating

in your business right under your nose. Microtech is
built into inkjet cartridges and portable projectors.
At SmaiiTimes.com, a clearinghouse for information
on small technology, the section devoted to applica-
tions is an eye-opener: A recent visit to the site brought
up articles on nanotech use in products such as tennis
rackets and LCD monitors, among others.
There are a million microscopic reasons to get ex-
cited, but it's important to keep them all in perspec-
tive. Snyder sees an accelerating growth curve over
the next five years as small tech makes its way into
real-life markets. But you shouldn't expect companies
to shout "nano" or "MEMS" in their product adver-
tising. The way you'll know small tech has touched
your business is when Snyder's mantra comes into
play: "Smaller, faster, better, cheaper."b
•source: Mike Hogan, "Employees Can Munch and Work on the
Web at the Same Time with This Time-Saver," Entrepreneur
(Febru-
ary 2003), pp. 18-22.
bSource: Reprinted with permission of Entrepreneur Media,
Inc.,
"Nanotechnology Will Soon Mean Big Changes in the Way You
Do
Business," by Amanda C. Kooser, March 2003, Entrepreneur
maga-
zine: www.entrepreneur.com.
an individual who can offer the most assistance should be
identified and contacted. If the
selected individual is willing to act as a mentor, he or she
should be periodically apprised
of the progress of the business so that a relationship can
gradually develop.

42
Another good source of advice can be cultivated by establishing
a network of business
associates. This group can be composed of self-employed
individuals who have experi-
enced starting a business; clients or buyers of the venture's
product or service; experts such
as consultants, lawyers, or accountants; and the venture's
suppliers. Clients or buyers are a
particularly important group to cultivate. This group represents
the source of revenue to the
venture and is the best provider of word-of-mouth advertising.
There is nothing better than
Eotr•P~"'""h;p, E;gh<h Edttloo I 49
--------------------------- ---------· ---. ---- ----~------
word-of-mouth advertising from satisfied customers to help
establish a winning business
reputation and promote goodwill.
Suppliers are another important component in a professional-
support network. A new
venture needs to establish a solid track record with suppliers to
build a good relationship
and to ensure the adequate availability of materials and other
supplies. Suppliers also
can provide good information on the nature of trends, as well as
competition, in the

industry.
In addition to mentors and business associates, trade
associations can offer an excel-
lent professional-support network. Trade association members
can help keep the new
venture competitive. Trade associations keep up with new
developments and can pro-
vide overall industry data.
Finally, personal affiliations of the entrepreneur also can be a
valuable part of a
professional-support network. Affiliations developed with
individuals through shared hob-
bies, participation in sporting events, clubs, civic involvements,
and school alumni groups
are excellent potential sources of referrals, advice, and
information. Each entrepreneur
needs to establish both moral- and professional-support
networks. These contacts provide
confidence, support, advice, and information. As one
entrepreneur stated, "In your own
business, you are all alone. There is a definite need to establish
support groups to share
problems with and to obtain information and overall support for
the new venture."
Therefore, it is important to recognize that entrepreneurial
activity is embedded in
networks of interpersonal relationships. These networks are
defined by a set of actors
(individuals and organizations) and a set of linkages between
them, and they provide indi-
viduals access to a variety of resources necessary for
entrepreneurial outcomes. 14 These re-
sources may assist in efforts to discover and exploit

opportunities, as well as in the creation
of new independent organizations. 15 The trust embedded in
some of these networks pro-
vides potential entrepreneurs the opportunity to access highly
valuable resources. For ex-
ample, business networks are composed of independent firms
linked by common interests,
friendship, and trust and are particularly important in
facilitating the transfer of difficult-
to-codify, knowledge-intensive skills that are expensive to
obtain in other ways. 16 These
networks also create opportunities for exchanging goods and
services that are difficult to
enforce through contractual arrangements, which facilitates the
pursuit of opportunities. 17
To the extent that a network provides an individual greater
belief in his or her ability to
access resources critical to the successful achievement of
entrepreneurial outcomes, this
increased perceived feasibility will strengthen entrepreneurial
intentions .
MINORITY ENTREPRENEURS
Another individual characteristic among entrepreneurs that has
been studied is gender. There
has been significant growth in female self-employment, with
women now starting new ven-
tures at a higher rate than men. In fact, women are starting
businesses in the United States at
twice the rate of all businesses and are staying in business
longer. According to the latest data
from the Census Bureau and the Small Business
Administration's (SBA) Office of Advocacy,
28 percent of all private companies are women-owned
businesses. The Census Bureau's 2002

survey of business owners found that 6.5 million companies had
female owners, 13.2 million
had male owners, and 2.7 million were equally owned by males
and females. Women-owned
businesses grew at twice that national rate for all private
companies from 1997 to 2002. Nearly
one-third of women-owned businesses are connected with health
care and social services.
Based on more recent statistics (as of 2008) reported by the
Center for Women's Business
Research, 10.1 million firms are owned by women (50%
ownership or more), employing
more than 13 million people, and generating $1.9 trillion in
sales (www.nfwbo.org).
50 -~ Entrepreneurship
PROVIDE ADVICE TO AN ENTREPRENEUR ABOUT
IMPROVING A BUSINESS
THROUGH CERTIFICATION AS A WOMAN-OWNED
BUSINESS
Is becoming a certified Women's Business Enterprise
(WBE) really beneficial? We spoke with women entre-
preneurs from a variety of industries to find out. Be-
ing certified as a Women's Business Enterprise (WBE)
means a third-party certifying entity has confirmed
that a business is at least 51 percent owned, managed,
and controlled by a woman or women. The leading
certifier is the Women's Business Enterprise National
Council (WBENC), which certifies to a national standard
and has 14 partner organizations across the country.

WHAT'S IN IT FOR YOU?
One of WBENC's goals is to achieve equal procure-
ment opportunities for women . As a WBE, a business
is recognized by more than 500 major U.S. corpora-
tions and eligible to apply for their supplier diversity
programs. WBENC provides members access to data-
bases of information, including contact information
for programs and procurement executives and listings
of sourcing opportunities. Members also are listed in
the WBENC database that corporations and govern-
ment agencies use to find WBEs.
BUT GETTING CERTIFIED IS ONLY
STEP ONE
"Although [my company] had been certified through
the City of Charlotte, North Carolina, for several
years, we hadn't been able to convert that into actual
contracts," says Beverly Green, 32, owner of Change-
Ad Letter Co ., a $2 million-plus manufacturer of elec-
trical sign components. Further research showed she
had been missing out on many opportunities . "I'd
previously thought the value of certification was
gaining local and regional government work, and
that can be true." But Green's target market was cor-
porations. Once she accessed WBENC's data on corpo-
rate purchasing practices, she was able to use this
information to win major corporate accounts. Julie
Rodriguez, 44, is president and CEO of Epic Cos., a $12
million-plus Harvey, Louisiana, supplier of commercial
divers and utility vessels to the oil and gas industry.
"Like everything else in life, you get out of [WBE]
what you put in," she says. "The program has more
to offer than just certification."

GETIING CERTIFIED
Applications and instructions for certification are
available at www.wbenc.org; you can either complete
the application online or print it and mail it in. Fees
range from free to about $200, depending on the cer-
tifying entity and scope (local, regional, or national),
and must be renewed annually. "The process is time-
consuming, and the paperwork can be overwhelming,
though this varies depending on the level of certifica-
tion," says Green. "My national certification took
about six months." National applications can require
more than 100 pages of documentation. Women busi-
ness owners say getting certified is worth the effort.
Says Green, "Networking with other women-owned
businesses and getting involved in organizations such
as WBENC can lead to many opportunities and help
open doors you would never have thought of."
ADVICE TO AN ENTREPRENEUR
A successful woman entrepreneur has read the above
article and comes to you for advice:
In the corporate world I hit the glass ceiling, and that is the
reason why I became an entrepreneur. As an entrepreneur
you are rewarded for good products and a good business,
and gender has not really been an issue to date. Do you think
that I should get certified as a "woman-owned" business? Is
it worth filling out all that paperwork? Is it fair that I in-
crease my access to possible government contracts by being
certified as a woman -owned business? Or should I think
about it more as a competitive advantage because every en-
trepreneur tries to best their competitive advantage into
profits?
Source: Reprinted with permission of Entrepreneur Media, Inc.,
"Proof Positive: Want the Full Benefits of a Woman-Owned

Busi-
ness? Get Your Company Certified," by Aliza Pilar Sherman,
Febru-
ary 2003, Entrepreneur magazine: www.entrepreneur.com.
There has also been a significant increase in the number of
Asian, African American,
Hispanic, and Native American majority owned firms. Of U.S.
businesses, Hispanic
Americans owned 5.8 percent; Asian Americans, 4.4 percent;
African Americans, 4 percent;
and American Indians, about 1 percent. This 15.8 percent
minority share of U.S . busi-
nesses in 2002 reflects the continuation of a positive trend-14.6
percent share in 1997,
44
'"'"'""'""h;p, e;ghth Edltloo I
- --- -------------- ·-·~-
12.5 percent share in 1992, 9.3 percent share in 1987, and 6.8
percent share in 1982. With an
increase in the encouragement of entrepreneurship among
minority groups, particularly in
their formative high school years, and the increase in the
number of role models, more
minorities are likely to select entrepreneurship as a viable
career option.
More and more women and ethnic minorities perceive an

entrepreneurial career as per-
sonally feasible and desirable.
ENTREPRENEURIAL INTENTIONS WITHIN
EXISTING ORGANIZATIONS
Earlier in this chapter, we have shown that acting
entrepreneurially is something that people
choose to do based on their perceptions of the desirability and
feasibility of creating a new
venture to pursue an opportunity. However, existing companies
also can pursue opportunities,
but this requires that the management of these firms create an
environment that encourages
employees to think and act entrepreneurially. Such an
environment is one that helps people
realize that entrepreneurial behavior within the firm is both
personally desirable and feasi-
ble. This builds a strong entrepreneurial intention and, as
discussed earlier in this chapter,
the general rule is that the stronger the intention to engage in
entrepreneurial action, the
more likely it will happen. To create such a culture requires a
different orientation toward
the management of the firm, to which we now tum.
MANAGERIAL VERSUS ENTREPRENEURIAL DECISION
MAKING
Howard Stevenson, a professor at Harvard University, believes
that entrepreneurship represents
a mode of managing an existing finn that is distinct from the
way existing firms are tradition-
ally managed. Entrepreneurial management is distinct from
traditional management in terms
of eight dimensions: (1) strategic orientation, (2) commitment
to opportunity, (3) commitment
of resources, (4) control of resources, (5) management structure,

(6) reward philosophy,
(7) growth orientation, and (8) entrepreneurial culture. 18 The
nature of the differences
among these dimensions is represented in Table 2.1 and
described in greater detail below. 19
TABLE 2.1 Distinguishing Entrepreneurially from Traditionally
Managed Firms
Entrepreneurial Focus
riven by perception of opportunity
"evol utionary with short duration
any stages with minimal exposure
:= 'sodic use or rent of required resources
Conceptual Dimension Administrative Focus
Strategic orientation Driven by controlled resources
Commitment to opportunity Evolutionary with long duration
Commitment of resources A single stage with complete
commitment
out of decision
Control of resources Ownership or employment of required
resources
-=a with multiple informal networks Management structure
Hierarchy
:::ased on value creation Reward philosophy

=" "d growth is top priority; risk Growth orientation
= ~ pted to achieve growth
- :: oti ng broad search for opportunities Entrepreneurial culture
Based on responsibility and seniority
Safe, slow, and steady ·
Opportunity search restricted by
controlled resources; failure punished
- lbis table is taken from T. Brown, P. Davidsson, and J.
Wiklund, "An Operationalization of Stevenson's
Conceptualization of Entrepreneurship as
~~::i·ry-Based Firm Behavior," Strategic Management Jouma/22
(2001) , p. 955.
51
52
--~------.. --------------------------·-·------------- ----·---------------
-------- --------- -~---------~--------------------·-----------
strategic orientation
A focus on those factors
that are inputs into the
formulation of the firm's

strategy
entrepreneurial
orientation toward
opportunity
A commitment to taking
action on potential
opportunities
entrepreneurial
orientation toward
commitment of resources
A focus on how to
minimize the resources
that would be required in
the pursuit of a particular
opportunity
Strategic Orientation and Commitment to Opportunity
The first two factors that help distinguish more
entrepreneurially managed firms from those
that are more traditionally managed relate to strategic issues-
strategic orientation and
commitment to opportunity. An emphasis on strategy in

developing a deeper understanding
of entrepreneurship at the firm level is not surprising because
both entrepreneurship and
strategy have important implications for the performance of the
firm.
Strategic orientation refers to those factors that are inputs into
the formulation of the
firm's strategy. We can think of it as the philosophy of the firm
that drives its decision about
strategy; the way that it looks at the world and the way it looks
at itself and these percep-
tions are the driving factors behind the firm's strategy. The
strategy of entrepreneurial man-
agement is driven by the presence or generation of opportunities
for new entry and is less
concerned about the resources that may be required to pursue
such opportunities. Acquir-
ing and marshaling the necessary resources represents a
secondary step for the entrepre-
neurially managed firm and perhaps part of the thinking about
the implementation of
discovered opportunities. Resources do not constrain the
strategic thinking of an entrepre-
neurially managed firm. In contrast, the strategy of traditional
management is to use the re-
sources of the firm efficiently. Therefore, the type and the
amount of resources that the firm
has (or knows it can readily access) represent a key starting
point for thinking strategically
about the future of the firm. Only those opportunities that can
be pursued effectively using
existing resources are considered the appropriate domain of
further strategic thinking.
Both entrepreneurship and strategy are more than simply

thinking about the future of the
firm, they are also concerned with the firm taking action. It is
through its actions that a firm
is judged, often by analysis of its financial and competitive
performance. Entrepreneurially
and traditionally managed firms can be distinguished in terms of
their commitment to
opportunity. More entrepreneurially managed firms have an
entrepreneurial orientation
toward opportunity in that they are committed to taking action
on potential opportunities
and therefore can pursue opportunities rapidly, making the most
of windows of opportunity.
They also are able to withdraw their resources from a particular
opportunity and do so
rapidly, such that if initial feedback from the pursuit of an
opportunity provides informa-
tion suggesting that it might not be the right opportunity for the
firm, then management can
"pull the plug," minimizing losses from the initial pursuit. In
contrast, traditionally man-
aged firms tend to place considerable emphasis on information;
information is derived from
data collection and analysis of that information to determine,
say, the return on resources
to be deployed. If the traditionally managed firm chooses to
pursue the given opportunity,
it would be with a much larger initial investment and the
intention of remaining in that line
of business for a considerable time.
Commitment of Resources and Control of Resources
It is important to note that entrepreneurs still care about the
resources they must com-
mit to the pursuit of an opportunity, but they have an

entrepreneurial orientation toward
the commitment of resources that is focused on the opportunity.
Thoughts of resources
turn more to how the firm can minimize the resources that
would be required in the pur-
suit of a particular opportunity. By minimizing the resources
that the firm must invest to
initially pursue an opportunity, the amount of resources at risk
if the opportunity does
not "pan out" is also minimized. For example, entrepreneurially
managed firms may
"test the waters" by committing small amounts of resources in a
multistep manner with
minimal (risk) exposure at each step. This small and
incremental process of resource
commitment provides the firm the flexibility to change direction
rapidly as new information
entrepreneurial
orimtation toward control
of resources A focu s on
how to access others'
re source s
mtrepreneurial
orientation toward
management structure

More organic focus-has
few layers of bureaucracy
between top management
and the customer and
typically has multiple
informal networks
rnrrepreneurial
p ilosoplzy toward
r ·ards One that
compensates employees
llased on their
tribution toward the
.5scovery/generation and
!2;ploitation of
:JPPC>rtunity
Eot~P""'""hip, Eigh<h Eddioo I -- ... -- ------ -.. ··--·--- --. --- --
-· ----- - ---- -- ·---- --·· ·-l--

about the opportunity or the environment comes to light.
Psychologically, these smaller
sunk costs help stop entrepreneurially managed firms from
becoming entrenched with a
particular course of action, especially if that course of action
turns out to be a losing
one. In contrast, when traditionally managed firms decide to
commit resources to an op-
portunity, they do so on a large scale. That is, rather than put a
toe in to test the water,
they make calculations based on the ambient temperature over
the last week, the density
of the water, and whether a pool cover has been used or not. If,
based on that calcula-
tion, the water is theoretically deemed to be sufficiently warm,
the traditional manager
commits to that assessment with a full swan dive . Having made
a large commitment of
resources the firm often feels compelled to justify the initial
decision to commit, and so
the initial commitment gains momentum that maintains the
status quo of continual re-
source commitment. Therefore, a traditionally managed firm
uses in-depth analysis of
available information to go for it or not-and if they do go for it,
then the investment of
resources is not easily reversed.
Over and above their commitment of resources,
entrepreneurially and traditionally man-
aged firms differ in their control of resources. Entrepreneurially
managed firms are less
concerned about the ownership of resources and more concerned
about having access to
others' resources, including financial capital, intellectual
capital, skills, and competencies.

Entrepreneurially managed firms operate from the standpoint,
"Why do I need to control
resources if I can access them from others?" Access to resources
is possible to the extent
that the opportunity allows the firm to effectively deploy others'
resources for the benefit of
the entrepreneurial firm and the owner of the invested
resources. In contrast, traditionally
managed firms focus on the ownership of resources and the
accumulation of further re-
sources. They believe that if they control their own resources
then they are self-contained.
For these firms , the control that comes with ownership means
that resources can be de-
ployed more effectively for the benefit of the firm. They have
an entrepreneurial orientation
toward the control of resources.
Management Structure and Reward Philosophy
An entrepreneurial orientation toward management structure is
organic . That is, the
organizational structure has few layers of bureaucracy between
top management and the
customer and typically has multiple informal communication
channels. In this way,
entrepreneurially managed firms are able to capture and
communicate more information
from the external environment and are sufficiently "fluid" to be
able to take quick action
based on that information.
In addition, entrepreneurially managed firms are more
structured to make use of both
their internal networks (for example, through informal
communication channels at work)
and external networks (with buyers, suppliers, and financial

institutions), which provide
information and other resources important in the
discovery/generation and exploitation of
opportunities. In contrast, the traditionally managed firm has a
structure well suited for the
internal efficiencies of allocating controlled resources. There is
a formalized hierarchy with
clear roles and responsibilities , highly routinized work, and
layers of middle management
to "manage" employees' use of the firm's resources.
Traditionally managed firms have
structures that are typically inwardly focused on efficiency
rather than on detecting and rap-
idly acting on changes in the external environment.
Firms are organized not only by their structures but also by
their reward philosophy. The
entrepreneurially managed firm is focused on pursuing
opportunities for new entry that rep-
resent new value for the firm (and hopefully for others,
including society as a whole). It is
not surprising then that entrepreneurially managed firms have
an entrepreneurial philosophy
53
54 I '""'P~'""hip
-· ~--- --~~-- ··- --- ------- -·- ·-- ---· -· ---- ·- ··-··---· ·-----· ··-
-·--· -···-----·· ---·-···-··-· ------·--··· ---- ----- -- -·· ---- -
entrepreneurial

orientation toward
growth A focus ou
rapid growth
culture The
environment of a
particular organization
entrepreneurial
orientation toward
culture A focus on
encouraging employees
to generate ideas,
experiment, and engage
in other tasks that might
produce opportunities
toward rewards that compensates employees based on their
contribution toward the discovery/
generation and exploitation of opportunity. Given the organic
structure described earlier,
employees often have the freedom to experiment with potential
opportunities and are re-
warded accordingly. The traditionally managed firm rewards
management and employees

based on their responsibilities, where responsibilities are
typically determined by the
amount of resources (assets and/or people) that each manager or
employee controls. Pro-
motion is a reward that provides a manager control of even
more resources and, therefore,
further scope for rewards.
Growth Orientation and Entrepreneurial Culture
In a firm that has an entrepreneurial orientation toward growth
there is a great desire to
expand the size of the firm at a rapid pace. Although
traditionally managed firms may also
desire to grow, they prefer growth to be slow and at a steady
pace. That is, they prefer a
pace of growth that is more "manageable" in that it does not
"unsettle the firm" by putting
at risk the resources that the firm controls and thus does not put
at risk the jobs and power
of top management.
Culture also distinguishes entrepreneurially and traditionally
managed firms. A firm
with an entrepreneurial orientation toward culture encourages
employees to generate
ideas, experiment, and engage in other tasks that might produce
creative output. Such
output is highly valued by entrepreneurial management because
it is often the source of
opportunities for new entries. Opportunities are the focus of the
entrepreneurially man-
aged firm.
In contrast, the traditionally managed firm begins with an
assessment of the resources
that it controls, and this is reflected in its organizational

culture. So while a traditionally
managed firm is still interested in ideas, it is mostly interested
in ideas that revolve around
currently controlled resources. With only ideas considered that
relate to currently con-
trolled resources, the scope of opportunities discovered and
generated by a traditionally
managed firm is limited.
It is unlikely that there are many firms that are "purely"
entrepreneurially managed or
purely traditionally managed; most firms fall somewhere in
between. Table 2.2 presents a
scale for determining how entrepreneurially managed a
particular firm is. The higher the
score, the more entrepreneurially managed the firm is.
Causes for Interest in Corporate Entrepreneurship
Earlier we acknowledged that established firms can be
considered entrepreneurial, and we
highlighted some of the differences between firms that are more
entrepreneurially managed
and those that are more traditionally managed. This interest in
entrepreneurship within es-
tablished businesses has intensified due to a variety of events
occurring on social, cultural,
and business levels. On a social level, there is an increasing
interest in "doing your own
thing" and doing it on one's own terms. Individuals who believe
strongly in their own tal-
ents frequently desire to create something of their own. They
want responsibility and have
a strong need for individual expression and freedom in their
work environment. When this
freedom is not there, frustration can cause that individual to
become less productive or even

leave the organization to achieve self-actualization elsewhere.
This new search for meaning,
and the impatience involved, has recently caused more
discontent in structured organiza-
tions than ever before. When meaning is not provided within the
organization, individuals
often search for an institution that will provide it.
Corporate entrepreneurship is one method of stimulating, and
then capitalizing on, indi-
viduals in an organization who think that something can be done
differently and better.
'""'P""'""h;p, E;ghth Edd;oo I .. ··-··--· ----- -- --- ... ----- -- --- -
- ----+-
TABLE 2.2 Scale to Capture How Entrepreneurially a Firm Is
Managed
As we define our strategies, our major
concern is how to best utilize
the sources we control.
We limit the opportunities we pursue
on the basis of our current resources.
The resources we have significantly
influence our business strategies.
Since our objective is to use our
resources, we will usually invest heavily

and rapidly.
We prefer to totally control and own
th e resources we use.
We prefer to use only our own resources
in our ventures.
In exploiting opportunities, access to
money is more important than just
having the idea.
We prefer tight control of funds and
operations by means of sophisticated
control and information systems.
We strongly emphasize getting things
d on e by following formal processes
and procedures.
Ve strongly emphasize holding to tried
and true management principles and
dustry norms.
ere is a strong insistence on a uniform
an agement style throughout the firm.
ere is a strong emphasis on getting
e and staff personnel to adhere closely
- th eir formal job descriptions.
employees are evaluated and
pensated based on their responsibilities.

- • em ployees are usually rewarded by
- otion and annual raises.
- - em pl oyee's standing is based on the
nt of responsibility s/he has.
Strategic Orientation
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Resource Orientation
1 2 3 4 56 7 8 9 10
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Management Structure
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Reward Philosophy
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We are not constrained by the resources
at (or not at) hand .
Our fundamental task is to pursue
opportunities we perceive as valuable and
then to acquire the resources to exploit
them.
Opportunities control our business
strategies.
Since we do not need resources to
commence the pursuit of an
opportunity, our commitment of
resources may be in stages.
All we need from resources is the ability
to use them.
We like to employ resources that we
borrow or rent.
In exploiting opportunities, having the
idea is more important than just having
the money.
We prefer loose, informal control. There is
a dependence on informal relations.

We strongly emphasize getting things
done even if this means disregarding
formal procedures.
We strongly emphasize adapting freely to
changing circumstances without much
concern for past practices.
Managers' operating styles are allowed to
range freely from very formal to very
informal.
There is a strong tendency to let the
requirements of the situation and the
personality of the individual dictate
proper job behavior.
Our employees are evaluated and
compensated based on the value they
add to the firm.
We try to compensate our employees by
devising ways that they can benefit from
the increased value of the firm.
An employee's standing is based on the
value s/he adds.
55
56 I '"'"'""'"""'' -~-----~ ·---- ---------------------------------------·-
----

Growth is not necessarily our top objective.
Long-term survival may be at least as
important.
It is generally known throughout the firm
that steady and sure growth is the best
way to expand.
It is difficult to find a sufficient number
of promising ideas to utilize all of our
resources.
Changes in the society-at-large se ldom
lead to commercially promising ideas
for our firm .
It is difficult for our firm to find ideas
that can be converted into profitable
products/services.
Growth Orientation
12345678910
12345678910
Entrepreneurial Culture
12345678910
1 2 3 4 56 7 8 9 10
12345678910

that growth is our top objective.
that our intention is to grow as big and as
fast as possible.
We have many more promising ideas than
we have time and resources to pursue.
Changes in the society-at-large often give
us ideas for new products and services.
We never experience a lack of ideas that
we can convert into profitable
products/services.
Source: This table is taken from T. Brown, P. Davidsson, and J.
Wiklund, "An Operationalization of Stevenson's
Conceptualization of Entrepreneurship as
Opportunity-Based Firm Behavior," Strategic Management
Joumal22 (2001) , Appendix.
Most people think of Xerox as a large, bureaucratic Fortune 100
company. Although, in
part, this may be true of the $15 billion giant company, Xerox
has done something unique
in trying to ensure that its creative employees do not leave like
Steve Jobs did to form
Apple Computer, Inc. In 1989, Xerox set up Xerox Technology
Ventures (XTV) for the
purpose of generating profits by investing in the promising
technologies of the company,
many of which would have otherwise been overlooked.20 Xerox
wanted to avoid mistakes
of the past by having "a system to prevent technology from

leaking out of the company,"
according to Robert V. Adams, president of XTV.
The fund has supported numerous start-ups thus far, similar to
Quad Mark, the brain-
child of Dennis Stemmle, a Xerox employee of 25 years.
Stemmle's idea was to make a
battery-operated, plain paper copier that would fit in a briefcase
along with a laptop
computer. Although Xerox's operating committee did not
approve the idea for 10 years, it
was finally funded by XTV and Taiwan's Advanced Scientific
Corporation. As is the case
with all the companies funded by XTV, the founder and key
employees of a company own
20 percent of it. This provides an incentive for employees like
Dennis Stemmle to take the
risk, leave Xerox, and form a technology-based venture.
XTV provides both financial and nonfinancial benefits to its
parent, Xerox. The funded
companies provide profits to the parent company as well as the
founders and employees,
and now Xerox managers pay closer attention to employees'
ideas as well as internal tech-
nologies. Is XTV a success? Apparently so, if replication is any
indication. The XTV con-
cept contains an element of risk in that Xerox employees
forming new ventures are not
guaranteed a management position if the new venture fails. This
makes XTV different from
most entrepreneurial ventures in companies. This aspect of risk
and no guaranteed em-
ployment is the basis for AT&T Ventures, a fund modeled on
XTV.

What Xerox recognized is what hundreds of executives in other
organizations are also
becoming aware of: It is important to keep, or instill, the
entrepreneurial spirit in an organ-
ization to innovate and grow. This realization has
revolutionized management thinking. In
a large organization, problems often occur that thwart creativity
and innovation, particularly
in activities not directly related to the organization's main
mission. The growth and diver-
sification that can result from flexibility and creativity are
particularly critical since large,
corporate
entrepreneurship
Entrepreneurial action
within an established
organization
I
Entrepreneurship, Eighth Edition + 57
-·----- ·---···---------------·--· _____ .........._ __ _
vertically integrated, diversified corporations are often more
efficient in a competitive mar-
ket than smaller firms.

The resistance against flexibility, growth, and diversification
can, in part, be overcome
by developing a spirit of entrepreneurship within the existing
organization, called corpo-
rate entrepreneurship. An increase in corporate entrepreneurship
reflects an increase in
social, cultural, and business pressures. Hypercompetition has
forced companies to have an
increased interest in such areas as new product development,
diversification, increased pro-
ductivity, and decreasing costs by methods such as reducing the
company's labor force.
Corporate entrepreneurship is most strongly reflected in
entrepreneurial activities as
well as in top management orientations in organizations. These
entrepreneurial endeavors
consist of the following four key elements: new business
venturing, innovativeness, self-
renewal, and proactiveness. 21
New business venturing (sometimes called corporate venturing)
refers to the creation of
a new business within an existing organization. These
entrepreneurial activities consist of
creating something new of value either by redefining the
company's current products or
services, developing new markets, or forming more formally
autonomous or semiau-
tonomous units or firms. Formations of new corporate ventures
are the most salient mani-
festations of corporate entrepreneurship. Organizational
innovativeness refers to product
and service innovation, with an emphasis on development and
innovation in technology. It

includes new product development, product improvements, and
new production methods
and procedures .
Self-renewal is the transformation of an organization through
the renewal of the key
ideas on which it is built. It has strategic and organizational
change connotations and in-
cludes a redefinition of the business concept, reorganization,
and the introduction of sys-
temwide changes to increase innovation. Proactiveness includes
initiative and risk taking,
as well as competitive aggressiveness and boldness, which are
particularly reflected in the
orientations and activities of top management. A proactive
organization tends to take risks
by conducting experiments; it also takes initiative and is bold
and aggressive in pursuing
opportunities. Organizations with this proactive spirit attempt to
lead rather than follow
competitors in such key business areas as the introduction of
new products or services, op-
erating technologies, and administrative techniques.
Establishing a Culture for Corporate Entrepreneurship
How can the culture for corporate entrepreneurship be
established in an organization? In
establishing an entrepreneurial environment within an
established organization, certain fac-
tors and leadership characteristics need to be present. 22 The
overall characteristics of a
good entrepreneurial environment are summarized in Table 2.3.
The first of these is that the
organization operates on the frontiers of technology. Since
research and development are
key sources for successful new product ideas , the firm must

operate on the cutting edge of
the industry's technology, encouraging and supporting new
ideas instead of discouraging
them, as frequently occurs in firms that require a rapid return on
investment and a high
sales volume.
Second, experimentation-trial and error-is encouraged.
Successful new products or
services usually do not appear fully developed; instead, they
evolve. It took time and some
product failures before the first marketable computer appeared.
A company wanting to es-
tablish an entrepreneurial spirit has to establish an environment
that allows mistakes and
failures in developing new and innovative products . This is in
direct opposition to the es-
tablished career and promotion system of the traditional
organization. Yet without the op-
portunity to fail in an organization, few, if any, corporate
entrepreneurial ventures will be
developed. Almost every entrepreneur has experienced at least
one failure in establishing a
I
58 ~~. Entrepreneurship
TABLE 2.3 Characteristics of an Entrepreneurial Environment
• Organization operates on frontiers of technology
• New ideas encouraged

• Trial and error encouraged
• Fa ilures allowed
• No opportunity parameters
• Resources availab le and accessib le
• Multidiscipline teamwork approach
• Long time horizon
• Vo lunteer program
• Appropriate reward system
• Sponsors and champions available
• Support of top management
successful venture. The importance and the difficulty of
learning from the experience are
discussed in Chapter 1.
Third, an organization should make sure that there are no initial
organizational obstacles
that inhibit creativity in new product development. Frequently
in an organization, various
"turfs" are protected, frustrating attempts by potential
entrepreneurs to establish new ven-
tures. In one Fortune 500 company, an attempt to establish an
entrepreneurial environment
ran into problems and eventually failed when the potential
entrepreneurs were informed
that a proposed new product and venture was not possible

because it was in the domain of
another division.
Fourth, the resources of the finn need to be available and easily
accessible. As one cor-
porate entrepreneur stated, "If my company really wants me to
take the time, effort, and ca-
reer risks to establish a new venture, then it needs to put money
and people resources on the
line." Often, insufficient funds are allocated not to creating
something new, but instead to
solving problems that have an immediate effect on the bottom
line. Some companies-
like Xerox, 3M, and AT&T -have recognized this problem and
have established separate
venture-capital areas for funding new internal as well as
external ventures. Even when re-
sources are available, all too often the reporting requirements
become obstacles to obtain-
ing them.
Fifth, a multidisciplined team approach needs to be encouraged.
This open approach,
with participation by needed individuals regardless of area, is
the antithesis of the typical
corporate organizational structure. An evaluation of successful
cases of corporate entrepre-
neurship indicated that one key to success was the existence of
"skunkworks" involving rel-
evant people. Developing the needed teamwork for a new
venture is further complicated by
the fact that a team member's promotion and overall career
within the corporation are based
on his or her job performance in the current position, not on his
or her contribution to the
new venture being created.

Besides encouraging teamwork, the corporate environment must
establish a long time hori-
zon for evaluating the success of the overall program as well as
the success of each individual
venture. If a company is not willing to invest money without a
guarantee of return for 5 to
10 years, it should not attempt to create an entrepreneurial
environment. This patient atti-
tude toward money in the corporate setting is no different from
the investment/return time
horizon used by venture capitalists and others when they invest
in an entrepreneurial effort.
Entrepreneurship, Eighth Edition ~~59 .
Sixth, the spirit of corporate entrepreneurship cannot be forced
upon individuals; it must
be on a volunteer basis. There is a difference between corporate
thinking and entrepre-
neurial thinking (discussed earlier and summarized in Table
2.1), with certain individuals
performing much better on one side of the continuum or the
other. Most managers in a cor-
poration are not capable of being successful corporate
entrepreneurs. Those who do emerge
from this self-selection process must be allowed the latitude to
carry a project through to
completion. This is not consistent with most corporate
procedures for new product devel-
opment, where different departments and individuals are

involved in each stage of the de-
velopment process . An individual willing to spend the excess
hours and effort to create a
new venture needs the opportunity and the accompanying
reward of completing the proj-
ect. A corporate entrepreneur falls in love with the newly
created internal venture and will
do almost anything to help ensure its success.
The seventh characteristic of a good entrepreneurial
environment is a reward system.
The corporate entrepreneur needs to be appropriately rewarded
for all the energy, effort,
and risk taking expended in the creation of the new venture.
Rewards should be based on
the attainment of established performance goals. An equity
position in the new venture is
one of the best rewards for motivating and eliciting the amount
of activity and effort needed
for success.
Eighth, a corporate environment favorable for corporate
entrepreneurship has sponsors
and champions throughout the organization who not only
support the creative activity but
also have the planning flexibility to establish new objectives
and directions as needed. As
one corporate entrepreneur stated, "For a new business venture
to succeed, the corporate
entrepreneur needs to be able to alter plans at will and not be
concerned about how close
they come to achieving the previously stated objectives."
Corporate structures frequently
measure managers on their ability to come close to objectives,
regardless of the quality of
performance reflected in this accomplishment.

Finally, and perhaps most important, the entrepreneurial activity
must be wholeheartedly
supported and embraced by top management, both by their
physical presence and by mak-
ing sure that the necessary personnel and financial resources are
available. Without top
management support, a successful entrepreneurial environment
cannot be created.
Leadership Characteristics of Corporate Entrepreneurs
Within this overall corporate environment, certain individual
characteristics have been
identified that constitute a successful corporate entrepreneur.
As summarized in Table 2.4,
these include understanding the environment, being visionary
and flexible, creating man-
agement options, encouraging teamwork, encouraging open
discussion, building a coalition
of supporters, and being persistent.
TABLE 2.4 Leadership Characteristics of a Corporate
Entrepreneur
• Understands the environment
• Is visionary and flexible
• Creates management options
• Encourages teamwork
• Encourages open discussion
• Builds a coalition of supporters

• Persists
--~o_J Entrepreneurship
An entrepreneur needs to understand all aspects of the
environment. Part of this ability
is reflected in the individual's level of creativity, which
generally decreases with age and
education in most individuals. To establish a successful
corporate venture, the individual
must be creative and have a broad understanding of the internal
and external environments
of the corporation.
The person who is going to establish a successful new venture
within the firm must also
be a visionary leader-a person who dreams great dreams.
Although there are many defi-
nitions of leadership, the one that best describes what is needed
for corporate entrepre-
neurship is: "A leader is like a gardener. When you want a
tomato, you take a seed, put it in
fertile soil, and carefully water under tender care. You don't
manufacture tomatoes; you
grow them." Another good definition is that "leadership is the
ability to dream great things
and communicate these in such a way that people say yes to
being a part of the dream."
Martin Luther King, Jr., said, "I have a dream," and articulated
that dream in such a way
that thousands followed him in his efforts, in spite of
overwhelming obstacles. To establish

a successful new venture, the corporate entrepreneur must have
a dream and overcome ob-
stacles to achieving it by selling the dream to others.
The third necessary leadership characteristic is that the
corporate entrepreneur must be
flexible and create management options. A corporate
entrepreneur does not "mind the
store," but rather is open to and even encourages change. By
challenging the beliefs and as-
sumptions of the corporation, a corporate entrepreneur has the
opportunity to create some-
thing new in the organizational structure.
The corporate entrepreneur needs a fourth characteristic: the
ability to encourage team-
work and use a multidisciplined approach. This also violates the
organizational practices
and structures taught in most business schools that are apparent
in established organiza-
tional structures. In forming a new venture, putting together a
variety of skills requires
crossing established departmental structure and reporting
systems. To minimize disruption,
the corporate entrepreneur must be a good diplomat.
Open discussion must be encouraged to develop a good team for
creating something
new. Many corporate managers have forgotten the frank, open
discussions and disagreements
that were a part of their educational process. Instead, they spend
time building protective
barriers and insulating themselves in their corporate empires. A
successful new venture
within an established firm can be formed only when the team
involved feels free to disagree

and to critique an idea to reach the best solution. The degree of
openness among the team
members depends on the degree of openness of the corporate
entrepreneur.
Openness leads also to the establishment of a strong coalition of
supporters and encour-
agers. The corporate entrepreneur must encourage and affirm
each team member, particu-
larly during difficult times. This encouragement is very
important, as the usual motivators
of career paths and job security are not operational in
establishing a new corporate venture.
A good corporate entrepreneur makes everyone a hero.
Last, but not least, is persistence. Throughout the establishment
of any new venture,
frustration and obstacles will occur. Only through the corporate
entrepreneur's persistence
will a new venture be created and successful commercialization
result.
ESTABLISHING CORPORATE ENTREPRENEURSHIP
IN THE ORGANIZATION
Over and above the creation of an organizational culture and the
leadership characteristics
discussed so far, an organization wanting to establish a more
entrepreneurial firm must
implement a procedure for its creation. Although this can be
done internally, frequently it
is easier to use someone outside to facilitate the process. This is
particularly true when the
Em~p~"'""h;p, E;gh<h Edtt;oo I 61 -~----_. ---· --~- - --~ --- --·-

· --··-- ------··----- --- --~--- ---·---~-----·--·-···- ---·-·- -------- -
--- -·-----------·- ---- -~- -- ----·
top management
commitment Managers
in an organization
strongly supporting
corporate
entrepreneurship
organization's environment is very traditional and has a record
of little change and few new
products being introduced.
The first step in this process is to secure a commitment to
corporate entrepreneurship in
the organization by top, upper, and middle management levels.
Without top management
commitment, the organization will never be able to go through
all the cultural changes nec-
essary for implementation. Once the top management of the
organization has been com-
mitted to corporate entrepreneurship for a sufficient period of
time (at least three years), the
concept can be introduced throughout the organization. This is
accomplished most effec-
tively through seminars, where the aspects of corporate
entrepreneurship are introduced

and strategies are developed to transform the organizational
culture into an entrepreneurial
one. General guidelines need to be established for corporate
venture development. Once the
initial framework is established and the concept embraced,
corporate entrepreneurs need to
be identified, selected, and trained. This training needs to focus
on identifying viable op-
portunities and their markets and developing the appropriate
business plan.
Second, ideas and general areas that top management is
interested in supporting
should be identified, along with the amount of risk money that
is available to develop the
concept further. Overall program expectations and the target
results of each corporate venture
should be established. As much as possible, these should
specify the time frame, volume, and
profitability requirements for the new venture, as well as the
impact of the organization.
Along with entrepreneurial training, a mentor/sponsor system
needs to be established. With-
out sponsors or champions, there is little hope that the culture
of the organization can be
transformed into an entrepreneurial one.
Third, a company needs to use technology to make itself more
flexible. Technology has
been used successfully for the past decade by small companies
that behave like big ones. 23
How else could a small firm like Value Quest Ltd. compete
against very large money man-
agement firms, except through a state-of-the-art personal
computer and access to large data

banks? Similarly, large companies can use technology to make
themselves responsive and
flexible like smaller firms.
Fourth, the organization should be a group of interested
managers who will train em-
ployees as well as share their experiences. The training sessions
should be conducted one
day per month for a specified period of time. Informational
items about corporate entre-
preneurship in general-and about the specifics of the company's
activities in developing
ideas into marketable products or services that are the basis of
new business venture
units-should be well publicized. This will require the
entrepreneurial team to develop a
business plan, obtain customer reaction and some initial
intentions to buy, and learn how to
coexist within the organizational structure.
Fifth, the organization needs to develop ways to get closer to its
customers. This can be
done by tapping the database, hiring from smaller rivals, and
helping the retailer.
Sixth, an organization that wants to become more
entrepreneurial must learn to be more
productive with fewer resources. This has already occurred in
many companies that have
downsized. Top-heavy organizations are out of date in today's
hypercompetitive environ-
ment. To accommodate the large cutbacks in middle
management, much more control has
to be given to subordinates at all levels in the organization. Not
surprisingly, the span of
control may become as high as 30-to-1 in divisions of such

companies. The concept of
"lean and mean" needs to exist if corporate entrepreneurship is
to prevail.
Seventh, the organization needs to establish a strong support
structure for corporate en-
trepreneurship. This is particularly important since corporate
entrepreneurship is usually a
secondary activity in the organization. Since entrepreneurial
activities do not immediately
affect the bottom line, they can be easily overlooked and may
receive little funding and sup-
port. To be successful, these ventures require flexible,
innovative behavior, with the corporate
62 l Entrepreneurship
"""--c .. ..;....;-~.c.=--·~...:._..._.:,_;· --------·--·------------··-----
-----------------------·-----··----· -.---------- ----- ----·---------------
---- ------ ---------
entrepreneurs having total authority over expenditures and
access to sufficient funds. When
the corporate entrepreneur has to justify expenses on a daily
basis, it is really not a new in-
ternal venture but merely an operational extension of the
funding source.
Eighth, support also must involve tying the rewards to the
performance of the entrepre-
neurial unit. This encourages the team members to work harder
and compete more effec-
tively since they will benefit directly from their efforts.

Because the corporate venture is a
part of the larger organization and not a totally independent
unit, the equity portion of the
compensation is particularly difficult to handle.
Finally, the organization needs to implement an evaluation
system that allows successful
entrepreneurial units to expand and unsuccessful ones to be
eliminated. The organization
can establish constraints to ensure that this expansion does not
run contrary to the corpo-
rate mission statement. Similarly, corporate ventures that fail to
show sufficient viability
should not be allowed to exist just because of vested interests.
Problems and Successful Efforts
Corporate entrepreneurship is not without its problems. One
study found that new ventures
started within a corporation performed worse than those started
independently by entre-
preneurs.24 The reasons cited were the corporation's difficulty
in maintaining a long-term
commitment, a lack of freedom to make autonomous decisions,
and a constrained environ-
ment. Generally, independent, venture-capital-based start-ups
by entrepreneurs tend to out-
perform corporate start-ups significantly. On average, not only
did the independents become
profitable twice as fast, but they ended up twice as profitable.25
These findings should not deter organizations from starting the
process. There are
numerous examples of companies that, having understood the
environmental and entre-
preneurial characteristics necessary, have adopted their own

version of the implementa-
tion process to launch new ventures successfully. One of the
best known of these firms
is Minnesota Mining and Manufacturing (3M). Having had many
entrepreneurial suc-
cesses, 3M, in effect, allows employees to devote a percentage
of their time to inde-
pendent projects. This enables the divisions of the company to
meet an important goal:
to generate a significant percent of sales from new products
introduced within the last
five years. One of the most successful of these entrepreneurial
activities was the devel-
opment of Post-it Notes by entrepreneur Arthur Fry. This effort
developed out of Fry's
annoyance that pieces of paper marking his church hymnal
constantly fell out while he
was singing. As a 3M chemical engineer, Fry knew about the
discovery by a scientist,
Spencer Silver, of an adhesive with very low sticking power,
which to the company was
a poor product characteristic. However, this characteristic was
perfect for Fry's prob-
lem; a marker with a light-sticking adhesive that would be easy
to remove provided a
good solution. Obtaining approval to commercialize the idea
proved to be a monumen-
tal task until the samples distributed to secretaries within 3M,
as well as to other com-
panies, created such a demand that the company eventually
began selling the product
under the name Post-it.
Another firm committed to the concept of corporate
entrepreneurship is Hewlett-
Packard (HP). After failing to recognize the potential of Steven

Wozniak's proposal for a
personal computer (which was the basis for Apple Computer
Inc.), Hewlett-Packard has
taken steps to ensure that it will be recognized as a leader in
innovation and not miss future
opportunities. However, the entrepreneurial road at HP is not an
easy one. Such was the
case for Charles House, an engineer who went far beyond his
entrepreneurial duty when
he ignored an order from David Packard to stop working on a
high-quality video monitor.
The monitor, once developed, was used in NASA's manned
moon landings and in heart
IN REVIEW
S UMMARY
Eotr•P"''""h;p, E;ghth Ed;t;oo I 63
·-- . -- -- -·----· --- - -- --- - -·· ---·--- -· -- -- -~~-- - -
transplants. Although projected to achieve sales of no more than
30 units, these large-screen
displays have obtained good sales and profits.
IBM also decided that corporate entrepreneurship would help
spur corporate growth.
The company developed the independent business unit concept,
in which each unit is a sep-
arate organization with its own mini-board of directors and
autonomous decision-making

authority on many manufacturing and marketing issues. The
business units have developed
such products as the automatic teller machine for banks,
industrial robots, and the IBM per-
sonal computer. The latter business unit was given a blank
check with a mandate to get
IBM into the personal computer market. Corporate entrepreneur
Philip Estridge led his
group to develop and market the PCs, through both IBM's sales
force and the retail market,
breaking some of the most binding operational rules of IBM at
that time.
These and other success stories indicate that the problems of
corporate entrepreneurship
are not insurmountable and that implementing corporate
entrepreneurship can lead to new
products, growth, and the development of an entirely new
corporate environment and
culture.
Individuals become entrepreneurs because they intend to do so.
The stronger the inten-
tion to be an entrepreneur, the more likely it is that it will
happen. Intentions become
stronger as individuals perceive an entrepreneurial career as
feasible and desirable.
These perceptions of feasibility and desirability are influenced
by one's background
and characteristics, such as education, personal values, age and
work history, role mod-
els and support systems, and networks. Gender and race are also
characteristics of in-
dividuals that help us understand the entrepreneurial
phenomenon . Established firms
can create environmental conditions to motivate individuals

within their organizations
to act entrepreneurially, that is, conditions that allow
organizational members to per-
ceive entrepreneurial outcomes as feasible and desirable. Within
existing corporate
structures, this entrepreneurial spirit and effort is called
corporate entrepreneurship.
Corporate entrepreneurship requires an entrepreneurial
management approach. To
demonstrate this entrepreneurial approach, we contrasted
entrepreneurially managed
firms with traditionally managed firms on eight dimensions: (1)
strategic orientation,
(2) commitment to opportunity, (3) commitment of resources,
(4) control of resources,
(5) management structure, (6) reward philosophy, (7) growth
orientation, and (8) en-
trepreneurial culture. Fortunately, three leading Swedish
researchers developed a scale
that enables us to assess firms in terms of where they fall on the
scale between entre-
preneu rial and traditional management.
Organizations desiring an entrepreneurial culture need to
encourage new ideas and
experimental efforts, eliminate opportunity parameters, make
resources available, pro-
mote a teamwork approach and voluntary corporate
entrepreneurship, and enlist top
management's support. The corporate entrepreneur also must
have appropriate leader-
ship characteristics. In addition to being creative, flexible, and
visionary, the corporate
entrepreneur must be able to work within the corporate
structure. Corporate entrepre-

neurs need to encourage teamwork and work diplomatically
across established struc-
tures. Open discussion and strong support of team members are
also required. Finally,
the corporate entrepreneur must be persistent to overcome the
inevitable obstacles.
i
64 I Entrepreneurship -- ~----"------~-- -------- --- -
The process of establishing corporate entrepreneurship w ithin
an existing orga ni-
zation requires the commitment of management, particularly top
management. The
organization must carefully choose leaders, develop general
guidelines for venture
and delineate expectations before the entrepreneurial program
begins. Training ses-
sions are an important part of the process. As role models and
entrepreneurial ve n-
tures are introduced, the organization must establish a strong
organizational support
system, along with a syst em of incentives and rewards to
encourage team members. Fi-
nally, the organization should establish a system to expand
successful ventures and
eliminate unsuccessful ones.
RESEARCH TASKS
c 1. Speak to three entrepreneurs and find out what motivated
them to become entrepreneurs. Also find one person who, at one

time, conside red becoming an entrepreneur but did not do so.
Find out why.
2. Interview two women entrepreneurs and find out whether
they believe that the
tasks of being an entrepreneur are different for them than for
their male
counterparts. What are the advantages of being a female
entrepreneur? What
are the disadvantages of being a female entrepreneur? Are these
differences
substantial or minor?
3. Interview three individuals employed within the research and
development (R&D)
departments of large, well-established companies. From the
interview, gain an
understanding of what the company does to foster corporate
entrepreneurship,
what it does to inhibit corporate entrepreneurship, and what it
could be doing
better toward further enhancing entrepreneurship throughout the
whole
organization.
4. Search the Internet for four accounts of successful corporate
entrepreneurship.
What key factors for success are common across all these
accounts? Which are
unique? If one company can foster an entrepreneurial culture
within an existing
firm, what stops another company from copying its process and
taking away the
initial advantage?
5. Request the participation of managers from two companies

and then ask them to
fill out an "entrepreneurial management" scale (see Table 2.2).
Based on the scale,
which firm is more entrepreneurially managed? Does this
coincide with your "gut
feel" about the businesses?
CLASS DISCUSSION
,_tiff
1. We know that people with high IQ scores, or even high SAT
or high GMAT
scores, do not necessarily do any better than others in school.
How
predictive do you believe persona l ity tests are in predicting
success as an
entrepreneur? What are the dangers of classifying people using
personality
tests as "not very entrepreneurial" or "very entrepreneurial"?
What are the
potential benefits?
2. Why do role models have an impact on a person's decision to
become an
entrepreneur? Do you think that a person whose parent was an
entrepreneur
of a failed business is more or less likely to start his or her own
business than a
person whose parents were managers of large, established
companies?
I

--·---- -------- , ___ ·---- --·~-------~
3. To what extent do men and women differ as entrepreneurs in
terms of the
types of companies they create and manage, the industries in
which they
operate, the challenges they face, and their sources of
competitive advantage?
Are these differences greater or less than they were five years
ago? Are we
going to soon find that there are no differences between women
and men
entrepreneurs?
4. Isn't "corporate entrepreneurship" an oxymoron? Do the
characteristics of an
established organization, such as its routines and structure,
increase efficiency but
at the same time kill any entrepreneurial spirit? Is there any way
that a company
can have the best of both worlds?
5. Is increasing the entrepreneurial orientation of a firm always
a good thing? Or are
there circumstances or environments in which the further
pursuit of opportunities
can diminish firm performance?
SELECTED READINGS
Baron, Robert A.; and Gideon D. Markman. (2000). Beyond
Social Capital: How Social

Skills Can Enhance Entrepreneurs' Success. Academy of
Management Executive, vol. 14,
no. 1, pp. 106-16.
This article suggests that entrepreneurs' social skills-specific
competencies that
help them interact effectively with others-may play a role in
their success. A high
level of social capital, built on a favorable reputation, relevant
previous experience,
&~.wi direct ~'SOt'i'ci/1 cutrt'i!Cts; oftl!rr aS"S"ists
entrepreneurs Fn gaining access to ven-
ture capitalists, potential customers, and others.
Boden, Richard J.; and Brian Headd. (October 2002) . Race and
Gender Differences in
Business Ownership and Business Turnover. Business
Economics, pp. 61-72 .
This article describes a study that uses a nove/longitudinal
Bureau of the Census
employer data series to examine the survival prospects of new
employer businesses
for four different, mutually exclusive classifications of
ownership: white non-Hispanics;
white Hispanics; blacks; and Asians and other minorities.
Brown, Terence; Per Davidsson; and Johan Wiklund. (2001). An
Operationalization of
Stevenson's Conceptualization of Entrepreneurship as
Opportunity-Based Firm Behav-
.inr..-~tmt?.j71.rtlv'ciiRi!Jl!lm!ffl"';/JutrPcJ7/ liol.' i27 pp.
9'53:..69:
This article describes a new instrument that was developed
specifically for opera-

tionalizing Stevenson's conceptualization of entrepreneurial
management. The
instrument should open up opportunities for researchers to
further evaluate en-
trepreneurship in existing firms.
Coleman, Susan. (2002). Constraints Faced by Women Small
Business Owners: Evidence
from the Data. Journal of Developmental Entrepreneurship, vol.
7, no. 2, pp. 151-74.
This article explores some of the possible constraints faced by
women business own-
ers. Although results do not demonstrate evidence of
noneconomic discrimination
against women-owned firms, they do reveal that certain
characteristics typical of
many women-owned firms, including small size" Jimited
pro.spects for qrawth and
profitabifity, and failure to provide collateral or guarantee,
reduce the likelihood of
obtaining debt capital.
Davidsson, Per; and Benson Honig. (2003). The Role of Social
and Human Capital
among Nascent Entrepreneurs. Journal of Business Venturing,
vol. 18, pp. 301-31.
This study examines nascent entrepreneurship by comparing
individuals engaged in
nascent activities with a control group and finds that social
capital is a robust pre-
dictor for nascent entrepreneurs, as well as for advancing
through the start-up

---~6 __ [ Entrepreneurship
process. With regard to outcomes like first sale or showing a
profit, only one aspect
of social capital, viz., being a member of a business network,
had a statistically sig-
nificant positive effect. The study supports human capital in
predicting entry in to
nascent entrepreneurship, but only weakly for carrying the start-
up process towa rd
successful completion.
Dess, Gregory; R. Duane Ireland; Shaker Zahra; Steven Floyd;
Jay Janney; and Pete r
Lane. (2003). Emerging Issues in Corporate Entrepreneurship.
Journal of Managemen t,
vol. 29, pp. 351-78.
In this article, the authors identify four major issues scholars
can pursue to further our
understanding about corporate entrepreneurship (CE). The
issues explored include var-
ious forms of CE and their implications for
organizational/earning; the role of leader-
ship and social exchange in the CE process; and key research
opportunities relevant to
CE in an international context. Throughout the article, the
authors use the organiza-
tional/earning theory as a means of integrating our discussion
and highlighting the
potential contributions of CE to knowledge creation and
effective exploitation.

Dyer, Linda M.; and Christopher A. Ross. (April 2000) . Ethnic
Enterprises and Thei r
Clientele. Journal of Small Business Management, vol. 38, pp.
48-66.
The goal of this article is to examine the relationships between
ethnic-minority busi-
nesses and their co-ethnic customers. A theoretical framework
emerges, which high-
lights three dimensions: (1) the coincident roles of business
owner/manager and
co-ethnic individual, (2) the easy flow of communication among
co-ethnics, and (3) the
symbolic aspects of ethnicity. These dimensions are causes of
the ambivalent relations
that exist between many businesses and their co-ethnic clients.
Eddleston, Kimberly; and Gary N. Powell. (2008). The Role of
Gender Identity in Ex-
plaining Sex Differences in Business Owners' Career Satisfier
Preferences. Journal of
Business Venturing, vol. 23, pp. 244-56.
This study examines how gender identity explains what male
and female business own-
ers look for from their careers. Results suggest that gender
identity, represented by the
dimensions of masculinity and femininity, serves as a cognitive
mechanism that con-
tributes to sex differences in business owners' career satisfier
preferences. Masculinity
mediates the relationship between sex and preferences for
status-based satisfiers. Fem-
ininity mediates the relationships between sex and preferences
for employee relation-
ship satisfiers and contribution to society satisfiers. These

results support the view that
entrepreneurship is a gendered process and that incorporation of
a feminine perspec-
tive into entrepreneurial theories and research is needed.
[Abstract from authors.]
Hmieleski, Keith; and Andrew Corbett. (2006). Proclivity for
Improvisation as a Predictor
of Entrepreneurial Intentions. Journal of Small Business
Management, vol. 44, pp. 45-63.
This study examines the relationship between improvisation and
entrepreneurial
intentions and finds that entrepreneurial intentions are
associated with measures of
personality, motivation, cognitive style, social models, and
improvisation. The strongest
relationship is found between entrepreneurial intentions and
improvisation.
Ireland, R. Duane; Jeffrey G. Covin; and Don F. Kuratko.
(2009). Conceptualizing Corpo-
rate Entrepreneurship Strategy. Entrepreneurship: Theory and
Practice, vol. 33, pp. 19-46.
In this article the authors conceptualize the components of
corporate entrepreneur-
ship (CE) to include (1) the individual entrepreneurial
cognitions of the organization's
members and external environmental conditions that invite
entrepreneurial activity;
(2) the top management's entrepreneurial strategic vision for the
firm, organizational
architectures that encourage entrepreneurial processes and
behavior, and the generic
forms of entrepreneurial process that are reflected in

entrepreneurial behavior; and
(3) the organizational outcomes resulting from entrepreneurial
actions, including the
development of competitive capability and strategic
repositioning.
Jack, Sarah; and Alistair Anderson. (2002). The Effects of
Embeddedness on the Entre-
preneurial Process. Journal of Business Venturing, vol. 17, pp.
467-87.
'"'"'""'""h;p, E;ghth Edi<;oo I 67 -~----- ...• ---------· - --- -· ---
- ----- --- ----- ----- -- - - ------- - ________ .. _____ - - ------- --
-- ~----
END NOTES
In this study the authors examine the use of Gidden's theory of
structuration to de-
velop the conception of entrepreneurship as an embedded
socioeconomic process.
In particular they focus on the role of embedded ness in shaping
and sustaining busi-
ness, in recognizing and realizing opportunities, and in the
effect of social structure
on entrepreneurship.
Kruege r, Norris. (2000). The Cognitive Infrastructure of
Opportunity Emergence.
Entrepreneurship: Theory and Practice, vol. 24, pp. 5-23.

In this article the author argues that seeing a prospective course
of action as a cred-
ible opportunity reflects an intentions-driven process driven by
known critical an-
tecedents. On the basis of well-developed theory and robust
empirical evidence, he
proposes an intentions-based model of the cognitive
infrastructure that supports or
inhibits how individuals perceive opportunities. The author also
shows the practical
diagnostic power this model offers to managers.
Kuemmerle, Walter. (May 2002). A Test for the Fainthearted.
Harvard Business Review,
pp. 122-27.
Starting a business is rarely a dignified affair. The article
discusses what really makes
an entrepreneur; what characteristics set successful
entrepreneurs apart, enabling
them to start ventures against all odds and keep them alive even
in the worst of
times; and finally, whether, if you don't possess those
characteristics, they can be
developed.
Kuratko, Donald; R. Duane Ireland; Jeffrey Covin; and Jeffrey
Hornsby. (2005). A Model
of Middle-Level Managers' Entrepreneurial Behavior.
Entrepreneurship: Theory & Prac-
tice, vol. 29, pp. 699-716.
In this article, the authors integrate knowledge about corporate
entrepreneurship
and middle-/eve/ managers' behaviors to develop and explore a
conceptual model.

The model depicts the organizational antecedents of middle-
level managers' entre-
preneurial behavior, the entrepreneurial actions describing that
behavior, and out-
comes of that behavior, as well as factors influencing its
continuance.
Shepherd, Dean; and Norris Krueger. (2002). An Intentions-
Based Model of Entrepre-
neurial Teams' Social Cognition. Entrepreneurship: Theory and
Practice, vol. 27,
pp. 167-85.
In this article the authors present an intentions-based model of
how to promote
entrepreneurial thinking in the domain of corporate
entrepreneurship. They em-
phasize the importance of perceptions of desirability and
feasibility and that these
perceptions are from the team as well as the individual
perspective.
Stevenson, Howard; and J. Carlos Jarillo. (1990). A Paradigm of
Entrepreneurship: Entre-
preneurial Management. Strategic Management Journal, vol. 11
(Special Issue), pp. 17-27.
In this article the authors propose that the very concept of
ship sounds to many entrepreneurship scholars like something
of an oxymoron.
They point out that there is no doubt that, of late,
entrepreneurship in general has
gained its status as a legitimate scholarly research subject,
enjoying in addition
much public interest. The authors offer a discussion of the

concept of entrepre-
neurship within established firms.
1. J. Ajzen, "The Theory of Planned Behavior," Organizational
Behavior and Human
Decision Processes 50 (1991), pp. 179-211.
2. A. Bandura, "Self-Efficacy: The Exercise of Control (New
York: W.H. Freeman and
Company, 1997); and D. A. Shepherd and N. Krueger, "An
Intentions-Based Model
of Entrepreneurial Teams' Social Cognition," Special Issue on
Cognition and Infor-
mation Processing, Entrepreneurship: Theory and Practice 27
(2002), pp. 167-85.
68 I '"'~'~""""' ~-- -- --- -· -·- --- .
3. N. F. J. Krueger and D. V. Brazael, "Entrepreneurial
Potential and Potential
Entrepreneurs." Entrepreneurship: Theory and Practice 18
(1994), pp. 91-104.
4. Shepherd and Krueger, "An Intentions-Based Model."
5. C. M. Ford and D. A. Gioia, Creativity in Organizations:
Ivory Tower Visions and
Real World Voices (Newbury Park, CA: Sage, 1995).
6. See J. Gimeno, T. Folta, A. Cooper, and C. Woo, "Survival of
the Fittest? Entre-
preneurial Human Capital and the Persistence of

Underperforming Firms,"
Administrative Science Quarterly 42 (1997}, pp. 750-83.
7. P. Davidsson and B. Honig, "The Role of Social and Human
Capital among
Nascent Entrepreneurs," Journal of Business Venturing 18
(2003), pp. 301-31.
D. R. DeTienne, D. A. Shepherd, and J. 0. De Castro, "The
Fallacy of 'Only the
Strong Survive': The Effects of Extrinsic Motivation on the
Persistence Decisions for
Under-Performing Firms," Journal of Business Venturing 23
(2008}, pp. 528--46.
8. Much of this information is based on research findings in
Robert C. Ronstadt,
"Initial Venture Goals, Age, and the Decision to Start an
Entrepreneurial Career,"
Proceedings of the 43rd Annual Meeting of the Academy of
Management
(August 1983}, p. 472; and Robert C. Ronstadt, "The Decision
Not to Become an
Entrepreneur," Proceedings, 1983 Conference on
Entrepreneurship (April 1983),
pp. 192-212. See also M. Levesque, D. A. Shepherd, and E. J.
Douglas, "Employ-
ment or Self-Employment: A Dynamic Utility-Maximizing
Model," Journal of
Business Venturing 17 (2002}, pp. 189-210.
9. See also Levesque, Shepherd, and Douglas, "Employment or
Self-Employment."
10. A. C. Cooper, T. B. Folta, and C. Woo, "Entrepreneurial
Information Search," Jour-
nal of Business Venturing 10 (1995}, pp. 1 07-20; and M.

Wright, K. Robbie, and
C. En new, "Venture Capitalists and Serial Entrepreneurs,"
Journal of Business
Venturing 12, no. 3, (1997), pp. 227-49.
11. Davidsson and Honig, "The Role of Social and Human
Capital."
12. The influence of role models on career choice is discussed
in E. Almquist and
S. Angrist, "Role Model Influences on College Women's Career
Aspirations,"
Merrill-Palmer Quarterly 17 (July 1971), pp. 263-97; J. Strake
and C. Granger,
"Same-Sex and Opposite-Sex Teacher Model Influences on
Science Career Commit-
ment among High School Students," Journal of Educational
Psychology 70 (April
1978), pp. 180-86; Alan L. Carsrud, Connie Marie Gaglio, and
Kenneth W. Olm,
"Entrepreneurs-Mentors, Networks, and Successful New
Venture Development: An
Exploratory Study," Proceedings, 1986 Conference on
Entrepreneurship (April1986),
pp. 29-35; and Howard Aldrich, Ben Rosen, and William
Woodward, "The Impact of
Social Networks on Business Foundings and Profit: A
Longitudinal Study," Proceed-
ings, 1987 Conference on Entrepreneurship (April1987}, pp.
154-68.
13. A thoughtful development of the network concept can be
found in Howard Aldrich
and Catherine Zimmer, "Entrepreneurship through Social
Networks," in The Art
and Science of Entrepreneurship (Cambridge, MA: Ballinger,

1986}, pp. 3-24.
14. H. Hoang and B. Antoncic, "Netwo rk-Based Research in
Entrepreneurship: A Criti-
cal Review," Journal of Business Venturing 18 (2003), pp. 165-
88.
15. S. Birley, "The Role of Networks in the Entrepreneurial
Process," Journal of Busi-
ness Venturing 1 (1985}, pp. 107-17; A. Cooper and W.
Dunkelberg, "Entrepre-
neurship and Paths to Business Ownership," Strategic
Management Journal7
(1986), pp. 53-68. B. Johannisson, "Networking and
Entrepreneurial Growth," in
D. Sexton and H. Landstrom (eds.), The Blackwell Handbook of
Entrepreneurship
(Oxford, MA: Blackwell, 2000), pp. 26-44.
16. A. Larson, "Network Dyads in Entrepreneurial Settings: A
Study of the Gover-
nance of Exchange Relationships," Administrative Science
Quarterly 37 (1992),
pp. 76-104; W. Powell, "Neither Market nor Hierarchy: Network
Forms of Organi-
zation," in B. Staw and L. Cummings (eds.), Research in
Organizational Behavior
(Greenwich, CT: JAI Press, 1990); B. Uzzi, "The Sources and
Consequences of
------ ·--·--·-· -- - ------ Entrepreneurship, Eighth Edition
CORPORATE £NTR£PR£N£URSHIP 63

Embedded ness for the Economic Performance of Organizations:
The Network
Effect," American Sociological Review61 (1996), pp. 674-98.
17. Uzzi, "The Sources and Consequences of Embeddedness."
18. H. H. Stevenson and D. Gumpert, "The Heart of
Entrepreneurship," Harvard
Business Review 63, no. 2, (1985), pp. 85-94.
19. Based on T. Brown, P. Davidsson, and J. Wiklund, "An
Operationalization of
Stevenson's Conceptualization of Entrepreneurship as
Opportunity-Based Firm
Behavior," Strategic Management Journal22 (2001), pp. 953-69
(table on
page 955).
20. For a discussion of XTV, see Larry Armstrong, "Nurturing
an Employee's Brain-
chi ld," Business Week/Enterprise (1993), p. 196.
21. For a discussion of corporate entrepreneurship elements and
their measures, see
G. T. Lumpkin and G. G. Dess, "Clarifying the Entrepreneurial
Orientation Con-
struct and Linking It to Performance," Academy of Management
Review 12, no. 1
(1996), pp. 135-72; and B. Antoncic and R. D. Hisrich,
"lntrapreneurship: Con-
struct Refinement and Cross-Cultural Validation," Journal of
Business Venturing
16, no. 61 (September 2001), pp. 495-527.
22. For a thorough discussion of the factors important in

ship, seeR. M . Kanter, The Change Masters (New York: Simon
& Schuster, 1983);
and G. Pinchot Ill, lntrapreneuring (New York: Harper & Row,
1985).
23. For a discussion of this aspect, see Peter Coy, "Start with
Some High-Tech
Magic ... ," BusinessWeek/Enterprise (1993), pp. 24-25, 28, 32.
24. N. Fast, "Pitfalls of Corporate Venturing," Research
Management (March 1981),
pp. 21-24.
25. For complete information on the relative performance, see
R. Biggadike, "The
Risky Business of Diversification," Harvard Business Review
(May-June 1979),
pp. 103-11; L. E. Weiss, "Start-Up Business: A Comparison of
Performances,"
Sloan Management Review (Fall1981), pp. 37-53; and N.D. Fast
and S. E. Pratt,
"Individual Entrepreneurship and the Large Corporation,"
Proceedings, Babson
Research Conference (April1984), pp. 443-50.
LAUREATE
EDUCATION INC'
8 ! Entrepreneurship

----~----r·--------------- ------- ---~- ---------------------------------
------ --· ·- --
ENTREPRENEURSHIP AND THE
ENTREPRENEURIAL MIN D-5 ET
1
To introduce the concept of entrepreneurship and explain the
entrepreneurial process.
2
To introduce effectuation as a way that expert entrepreneurs
sometimes think.
3
To develop the notion that entrepreneurs learn to be cognitively
adaptable.
4
To acknowledge that some entrepreneurs experience failure and
to recognize the
process by which they maximize their ability to learn from that
experience.
5
To recognize that entrepreneurs have an important economic
impact and an ethical and
social responsibility.
I
----------------------------------·---------- ----···- --·-·- -------------

-· ___________ _!_~~~-~:_~~~~i_p~ E_ig_h~~i~~-~----~--
OPENING PROFILE
EWING MARION KAUFFMAN
Born on a farm in Garden City, Missouri, Ewing Marion
Kauffman moved to Kansas City
with his family when he was eight years old. A critical event in
his life occurred several
years later when Kauffman was diagnosed with a leakage of the
heart. His prescription
was one year of complete bed rest; he was not even allowed to
sit up. Kauffman's
mother, a college graduate, came up with a solution to
keep the active 11-year-old boy lying in bed-reading.
According to Kauffman, he "sure read! Because nothing
else would do, I read as many as 40 to 50 books every
month. When you read that much, you read anything. So I read
the biographies of all
the presidents, the frontiersmen, and I read the Bible twice and
that's pretty rough
reading."
Another important early childhood experience centered on door-
to-door sales.

Since his family did not have a lot of money, Kauffman would
sell 36 dozen eggs col-
lected from the farm or fish he and his father had caught,
cleaned, and dressed. His
mother was very encouraging during these formative school
years, telling young Ewing
each day, "There may be some who have more money in their
pockets, but Ewing, there
is nobody better than you."
During his youth, Kauffman worked as a laundry delivery
person and was a Boy
Scout. In addition to passing all the requirements to become an
Eagle Scout and a Sea
Scout, he sold twice as many tickets to the Boy Scout Roundup
as anyone else in Kansas
City, an accomplishment that enabled him to attend, for free, a
two-week scout sum-
mer camp that his parents would not otherwise have been able
to afford. According to
Kauffman, "This experience gave me some of the sales
techniques which came into
play when subsequently I went into the pharmaceutical
business."

Kauffman went to junior college from 8 to 12 in the morning
and then walked two
miles to the laundry where he worked until 7 p.m. Upon
graduation, he went to work
at the laundry full time for Mr. R. A. Long, who would
eventually become one of his
role models. His job as route foreman involved managing 18 to
20 route drivers, where
he would set up sales contests, such as challenging the other
drivers to get more cus-
tomers on a particular route than he could obtain. Ewing says,
"I got practice in selling
and that proved to be beneficial later in life." R. A. Long made
money not only at the
3
1 0 I Entrepreneurship
laundry business but also on patents, one of which was a form
fit for the collar of a
shirt that wou ld hold the shape of the shirt. He showed his
young protege that one
could make money with brains as well as brawn. Kauffman

commented, "He was quite
a man and had quite an influence on my life."
Kauffman's sales ability was also useful during his stint in the
Navy, which he joined
shortly after Pearl Harbor on January 11, 1942. When
designated as an apprentice sea-
man, a position that paid $21 per month, he responded, "I'm
better than an apprentice
seaman, because I have been a Sea Scout. I've sailed ships and
I've ridden in whale
boats." His selling ability convinced the Navy that he should
instead start as a seaman
first class, with a $54 monthly salary. Kauffman was assigned
to the admiral's staff,
where he became an outstanding signalman (a seaman who
transmitted messages from
ship to ship), in part because he was able to read messages
better than anyone else due
to his previous intensive reading. With his admiral's
encouragement, Kauffman took a
correspondence navigator's course and was given a deck
commission and made a nav-
igation officer.

After the war was over in 1947, Ewing Kauffman began his
career as a pharmaceu-
tical salesperson after performing better on an aptitude test than
50 other applicants.
The job involved selling supplies of vitamin and liver shots to
doctors. Working on
straight commission, without expenses or benefits, he was
earning pay higher than the
president's salary by the end of the second year; the president
promptly cut the com-
mission. Eventually, when Kauffman was made Midwest sales
manager, he made 3 per-
cent of everything his salespeople sold and continued to make
more money than the
president. When his territory was cut, he eventually quit and in
1950 started his own
company-Marion Laboratories. (Marion is his middle name.)
When reflecting on founding the new company, Ewing
Kauffman commented, "It
was easier than it sounds because I had doctors whom I had
been selling office supplies
to for several years. Before I made the break, I went to three of
them and said, 'I'm
thinking of starting my own company. May I count on you to

give me your orders if
I can give you the same quality and service?' These three were
my biggest accounts
and each one of them agreed because they liked me and were
happy to do business
with me."
Marion Laboratories started by marketing injectable products
that were manufac-
tured by another company under Marion's label. The company
expanded to other ac-
counts and other products and then developed its first
prescription item, Vicam, a vitamin
product. The second pharmaceutical product it developed,
oyster shell calcium, also
sold well.
To expand the company, Kauffman borrowed $5,000 from the
Commerce Trust
Company. He repaid the loan, and the company continued to
grow. After several years,
outside investors could buy $1,000 worth of common stock if
they loaned the company
$1,000 to be paid back in five years at $1,250, without any
intermittent interest. This

initial $1,000 investment, if held until1993, would have been
worth $21 million.
Marion Laboratories continued to grow and reached over $1
billion per year in
sales, due primarily to the relationship between Ewing
Kauffman and the people in
'"'"'''"'""h;p, E;ghth Ed;t;oc I 11
. ·----···--·---~- ... ---" "---" ""- -"--"--"---" ~-"--~---
CHAPTER 1 ENTREPRENEURSHIP AND THE
ENTREPRENEURIAL MIND-SET 5
the company, who were called associates, not employees. "They
are all stockholders,
they build this company, and they mean so much to us," said
Kauffman. The concept
of associates was also a part of the two basic philosophies of
the company: Those who
produce should share in the results or profits, and treat others as
you would like to be
treated.
The company went public through Smith Barney on August 16,
1965, at $21 per share.
The stock jumped to $28 per share immediately and has never
dropped below that level,

sometimes selling at a 50 to 60 price/earnings multiple. The
associates of the company
were offered a profit-sharing plan, where each could own stock
in the company. In
1968 Kauffman brought Major League Baseball back to Kansas
City by purchasing the
Kansas City Royals. This boosted the city's economic base,
community profile, and civic
pride. When Marion Laboratories merged with Merrill Dow in
1989, there were 3,400
associates, 300 of whom became millionaires as a result of the
merger. The new com-
pany, Marion Merrill Dow, Inc., grew to 9,000 associates and
sales of $4 billion in 1998
when it was acquired by Hoechst, a European pharmaceutical
company. Hoechst Marion
Roussel became a world leader in pharmaceutical-based health
care involved in the dis-
covery, development, manufacture, and sale of pharmaceutical
products. In late 1999
the company was again merged with Aventis Pharma, a global
pharmaceutical company
focusing on human medicines (prescription pharmaceuticals and
vaccines) and animal

health. In 2002, Aventis's sales reached $16.634 billion, an
increase of 11.6 percent
from 2001, while earnings per share grew 27 percent from the
previous year.
Ewing Marion Kauffman was an entrepreneur, a Major League
Baseball team
owner, and a philanthropist who believed his success was a
direct result of one funda-
mental philosophy: Treat others as you would like to be treated.
"It is the happiest
principle by which to live and the most intelligent principle by
which to do business
and make money," he said.
Ewing Marion Kauffman's philosophies of associates, rewarding
those who produce,
and allowing decision making throughout the organization are
the fundamental con-
cepts underlying what is now called corporate entrepreneurship
in a company. He
went even further and illustrated his belief in entrepreneurship
and the spirit of giving
back when he established the Kauffman Foundation, which
supports programs in two

areas: youth development and entrepreneurship. Truly a
remarkable entrepreneur,
Mr. K, as he was affectionately called by his employees, will
now produce many more
successful "associate entrepreneurs."
Like Ewing Marion Kauffman, many other entrepreneurs and
future entrepreneurs
frequently ask themselves, "Am I really an entrepreneur? Do I
have what it takes to be
a success? Do I have sufficient background and experience to
start and manage a new
venture?" As enticing as the thought of starting and owning a
business may be, the
problems and pitfalls inherent to the process are as legendary as
the success stories.
The fact remains that more new business ventures fail than
succeed. To be one of the
few successful entrepreneurs requires more than just hard work
and luck. It requires
the ability to think in an environment of high uncertainty, be
flexible, and learn from
one's failures.

12 I Eott, pre"""h;p -i -------------- -- -----·----- ·-" ·--·-- -·
e11trepre11eur An
individual who takes
initiative to bundle
resources in innovative
ways and is willing to
bear the risk and/ or
uncertainty to act
NATURE AND DEVELOPMENT OF ENTREPRENEURSHIP
Who is an entrepreneur? What is entrepreneurship? What is an
entrepreneurial process?
These frequently asked questions reflect the increased national
and international interest in
entrepreneurs by corporate executives, venture capitalists,
university professors and stu-
dents, recruiters, and government officials. To an economist, an
entrepreneur is one who
brings resources, labor, materials, and other assets into
combinations that make their value
greater than before, and also one who introduces changes,
innovations, and a new order. To
a psychologist, such a person is typically driven by certain
forces- the need to obtain or at-
tain something, to experiment, to accomplish, or perhaps to
escape the authority of others.
To one businessman, an entrepreneur appears as a threat, an
aggressive competitor, whereas
to another businessman the same entrepreneur may be an ally, a

source of supply, a cus-
tomer, or someone who creates wealth for others, as well as
finds better ways to utilize re-
sources, reduce waste, and produce jobs others are glad to get. 1
Although being an entrepreneur means different things to
different people, there is agree-
ment that we are talking about a kind of behavior that includes:
(1) initiative taking, (2) the
organizing and reorganizing of social and economic mechanisms
to bundle resources in in-
novative ways, and (3) the acceptance of risk, uncertainty,
and/or the potential for failure. 2
Entrepreneurship is the dynamic process of creating incremental
wealth. The wealth is
created by individuals who assume the major risks in terms of
equity, time, and/or career
commitment to provide value for some product or service. The
product or service may or
may not be new or unique, but the entrepreneur must somehow
infuse value by receiving
and bundling the necessary skills and resources.3
To be inclusive of the many types of entrepreneurial behavior,
the following definition
of entrepreneurship will be the foundation of this book:
Entrepreneurship is the process of creating something new with
value by devoting the neces-
sary time and effort; assuming the accompanying financial,
psychic, and social risks and un-
certainties; and receiving the resulting rewards of monetary and
personal satisfaction.4
This definition stresses four basic aspects of being an

entrepreneur. First, entrepreneur-
ship involves the creation process--creating something new of
value. The creation has to
have value to the entrepreneur and value to the audience for
which it is developed. This au-
dience can be (1) the market of organizational buyers for
business innovation, (2) the hos-
pital's administration for a new admitting procedure and
software, (3) prospective students
for a new course or even college of entrepreneurship, or (4) the
constituency for a new serv-
ice provided by a nonprofit agency. Second, entrepreneurship
requires the devotion of the
necessary time and effort. Only those going through the
entrepreneurial process appreciate
the significant amount of time and effort it takes to create
something new and make it op-
erational. As one new entrepreneur so succinctly stated, "While
I may have worked as
many hours in the office while I was in industry, as an
entrepreneur I never stop thinking
about the business."
The third part of the definition involves the rewards of being an
entrepreneur. The most
important of these rewards is independence, followed by
personal satisfaction, but mone-
tary reward also comes into play. For some entrepreneurs,
money becomes the indicator of
the degree of success achieved. Assuming the necessary risks
and uncertainties is the final
aspect of entrepreneurship. Because action takes place over
time, and the future is un-
knowable, action is inherently uncertain.5 This uncertainty is
further enhanced by the nov-
elty intrinsic to entrepreneurial actions, such as the creation of

new products, new services,
and new ventures. 6 Entrepreneurs must decide to act even in
the face of uncertainty over the
outcome of that action. Therefore, entrepreneurs respond to, and
create, change through
Entrepreneurship, Eighth Edition 1 3 - ------ ------------ ----------
---- ---------------------------------------------------------------- -----
-------r-----
entrepreneurial action
Refers to behavior in
response to a judgmental
decision under uncertainty
about a possible
opportunity for profit
The process of creating
something new with value
by devoting the necessary
time and effort, assuming
the accompanying

financial, psychic,
and social risks and
uncertainties, and
receiving the resulting
rewards of monetary and
personal satisfaction
opportunity identification
The process by which an
entrepreneur comes up
with the opportunity for a
new venture
their entrepreneurial actions, where entrepreneurial action refers
to behavior in response to
a judgmental decision under uncertainty about a possible
opportunity for profit.7 We now
offer a process perspective of entrepreneurial action.
THE ENTREPRENEURIAL PROCESS
The process of pursuing a new venture is embodied in the
entrepreneurial process, which
involves more than just problem solving in a typical
management position. 8 An entrepre-

neur must find, evaluate, and develop an opportunity by
overcoming the forces that resist
the creation of something new. The process has four distinct
phases: (1) identification
and evaluation of the opportunity, (2) development of the
business plan, (3) determination
of the required resources, and (4) management of the resulting
enterprise (see Table 1.1).
Although these phases proceed progressively, no one stage is
dealt with in isolation or is
totally completed before work on other phases occurs. For
example, to successfully iden-
tify and evaluate an opportunity (phase 1), an entrepreneur must
have in mind the type of
business desired (phase 4).
Identify and Evaluate the Opportunity
Opportunity identification and evaluation is a very difficult
task. Most good business
opportunities do not suddenly appear, but rather result from an
entrepreneur's alertness to
possibilities or, in some cases, the establishment of mechanisms
that identify potential op-
portunities. For example, one entrepreneur asks at every
cocktail party whether anyone is
using a product that does not adequately fulfill its intended
purpose. This person is con-
stantly looking for a need and an opportunity to create a better
product. Another entrepreneur
TABLE 1.1 Aspects of the Entrepreneurial Process
Identify and Evaluate
the Opportunity

• Opportunity assessment
• Creation and length of
opportunity
• Real and perceived
Value of opportJnity
• Risks and returns of
opportunity
• Opportunity versus
personal skills and
goals
• Competitive
environment
Develop Business Plan
• Title page
• Table of Contents
• Executive Summary
• Major Section
1. Description of
Business
2. Description of
Industry
3. Technology Plan

4. Marketing Plan
5. Financial Plan
6. Production Plan
7. Organization Plan
8. Operational Plan
9. Summary
• Appendixes (Exhibits)
Resources Required
• Determine resources
needed
• Determine existing
resources
• Identify resource gaps
and available suppliers
• Develop access to
needed resources
Manage the Enterprise
• Develop management
style
• Understand key
variables for success

• Identify problems and
potential problems
• Implement control
systems
• Develop growth
strategy
1
14 j__ '"'~'~"'""hip
~--- I --------·---- -----
window of opportunity
The time period available
for creating the new
venture
always monitors the play habits and toys of her nieces and
nephews. This is her way of
looking for any unique toy product niche for a new venture.
Although most entrepreneurs do not have formal mechanisms
for identifying business
opportunities, some sources are often fruitful: consumers and
business associates, members
of the distribution system, and technical people. Often,
consumers are the best source of

ideas for a new venture. How many times have you heard
someone comment, "If only there
was a product that would ... " This comment can result in the
creation of a new business.
One entrepreneur's evaluation of why so many business
executives were complaining about
the lack of good technical writing and word-processing services
resulted in the creation of
her own business venture to fill this need. Her technical writing
service grew to 10 em-
ployees in two years.
Because of their close contact with the end user, channel
members in the distribution
system also see product needs. One entrepreneur started a
college bookstore after hearing
all the students complain about the high cost of books and the
lack of service provided
by the only bookstore on campus. Many other entrepreneurs
have identified business
opportunities through a discussion with a retailer, wholesaler,
or manufacturer's repre-
sentative. Finally, technically oriented individuals often
conceptualize business opportu-
nities when working on other projects. One entrepreneur's
business resulted from seeing
the application of a plastic resin compound in developing and
manufacturing a new type
of pallet while developing the resin application in another
totally unrelated area-casket
moldings.
Whether one identifies the opportunity by using input from
consumers, business associates,
channel members, or technical people, each opportunity must be
carefully screened and

evaluated. This evaluation of the opportunity is perhaps the
most critical element of the
entrepreneurial process, as it allows the entrepreneur to assess
whether the specific
product or service has the returns needed compared to the
resources required. As indi-
cated in Table 1.1, this evaluation process involves looking at
the length of the opportu-
nity, its real and perceived value, its risks and returns, its fit
with the personal skills and
goals of the entrepreneur, and its uniqueness or differential
advantage in its competitive
environment.
The market size and the length of the window of opportunity are
the primary bases for
determining the risks and rewards. The risks reflect the market,
competition, technology,
and amount of capital involved. The amount of capital needed
provides the basis for the re-
turn and rewards. The methodology for evaluating risks and
rewards, the focus of Chap-
ters 7 and 10, frequently indicates that an opportunity offers
neither a financial nor a per-
sonal reward commensurate with the risks involved. One
company that delivered bark
mulch to residential and commercial users for decoration around
the base of trees and
shrubs added loam and shells to its product line. These products
were sold to the same cus-
tomer base using the same distribution (delivery) system.
Follow-on products are important
for a company expanding or diversifying in a particular channel.
A distribution channel
member such as Kmart, Service Merchandise, or Target prefers
to do business with multi-

product, rather than single-product, firms.
Finally, the opportunity must fit the personal skills and goals of
the entrepreneur. It is
particularly important that the entrepreneur be able to put forth
the necessary time and ef-
fort required to make the venture succeed. Although many
entrepreneurs feel that the desire
can be developed along with the venture, typically it does not
materialize. An entrepreneur
must believe in the opportunity so much that he or she will
make the necessary sacrifices
to develop the opportunity and manage the resulting
organization.
Opportunity analysis, or what is frequently called an
opportunity assessment plan, is one
method for evaluating an opportunity. It is not a business plan.
Compared to a business
-oji
I
business plan The
description of the future
direction of the business
Entrepreneurship, Eighth Edition I
-- ----------- -- --- - - - -- ---· - ----- ·- -

plan, it should be shorter; focus on the opportunity, not the
entire venture; and provide the
basis for making the decision of whether or not to act on the
opportunity.
An opportunity assessment plan includes the following: a
description of the product or
service, an assessment of the opportunity, an assessment of the
entrepreneur and the team,
specifications of all the activities and resources needed to
translate the opportunity into a
viable business venture, and the source of capital to finance the
initial venture as well as its
growth. The assessment of the opportunity requires answering
the following questions:
• What market need does it fill?
• What personal observations have you experienced or recorded
with regard to that
market need?
• What social condition underlies this market need?
• What market research data can be marshaled to describe this
market need?
• What patents might be available to fulfill this need?
• What competition exists in this market? How would you
describe the behavior of this
competition?
• What does the international market look like?

• What does the international competition look like?
• Where is the money to be made in this activity?
Develop a Business Plan
A good business plan must be developed to exploit the defined
opportunity. For example, a
business plan is often required to obtain the resources necessary
to launch the business.
Writing a business plan is a very time-consuming phase of the
entrepreneurial process. An
entrepreneur usually has not prepared a business plan before
and does not have the re-
sources available to do a good job. Although the preparation of
the business plan is the fo-
cus of Chapter 7, it is important to understand the basic issues
involved as well as the three
major sections of the plan (see Table 1.1). A good business plan
is essential to developing
the opportunity and determining the resources required,
obtaining those resources, and suc-
cessfully managing the resulting venture.
Determine the Resources Required
The entrepreneur must determine the resources needed for
addressing the opportunity.
This process starts with an appraisal of the entrepreneur's
present resources. Any re-
sources that are critical need to be differentiated from those that
are just helpful. Care
must be taken not to underestimate the amount and variety of
resources needed. The en-
trepreneur should also assess the downside risks associated with
insufficient or inappro-
priate resources.

The next step in the entrepreneurial process is acquiring the
needed resources in a timely
manner while giving up as little control as possible. An
entrepreneur should strive to main-
tain as large an ownership position as possible, particularly in
the start-up stage. As the
business develops, more funds will probably be needed to
finance the growth of the ven-
ture, requiring more ownership to be relinquished. The
entrepreneur also needs to identify
alternative suppliers of these resources, the focus of Chapter 11,
along with their needs and
desires. By understanding resource supplier needs, the
entrepreneur can structure a deal
that enables the resources to be acquired at the lowest possible
cost and with the least loss
of control.
15
16 l Entrepreneurship
-----------------------·------------··--~----------
causal process A
process that starts with a
desired outcome and
focuses on the means to
generate that outcome

effectuation process A
process that starts with
what one has (who they
are, what they know, and
whom they know) and
selects among possible
outcomes
Manage the Enterprise
After resources are acquired, the entrepreneur must use them to
implement the business
plan. The operational problems of the growing enterprise must
also be examined. This in-
volves implementing a management style and structure, as well
as determining the key
variables for success. A control system must be established so
that any problem areas can
be quickly identified and resolved. Some entrepreneurs have
difficulty managing and grow-
ing the venture they created.
HOW ENTREPRENEURS THINK
Entrepreneurs think differently than nonentrepreneurs.
Moreover, an entrepreneur in a
particular situation may think differently when faced with a
different task or decision
environment. Entrepreneurs must often make decisions in highly
uncertain environments
where the stakes are high, time pressures are immense, and

there is considerable emo-
tional investment. We think differently in these environments
than we do when the nature
of a problem is well understood and we have time and rational
procedures at hand to solve
it. Given the nature of an entrepreneur's decision-making
environment, he or she must
sometimes (1) effectuate, (2) be cognitively adaptable, and (3)
learn from failure . We now
discuss the thought process behind each of these requirements.
Effectuation
As potential business leaders you are trained to think rationally
and perhaps admonished
if you do not. This admonishment might be appropriate given
the nature of the task, but it
appears that there is an alternate way of thinking that
entrepreneurs sometimes use, es-
pecially when thinking about opportunities. Professor Saras
Sarasvathy (from Darden,
University of Virginia) has found that entrepreneurs do not
always think through a problem
in a way that starts with a desired outcome and focuses on the
means to generate that out-
come. Such a process is referred to as a causal process. Our
description of the entrepre-
neurial process in the preceding section reflects a causal
explanation. But, entrepreneurs
sometimes use an effectuation process, which means they take
what they have (who they
are, what they know, and whom they know) and select among
possible outcomes. Profes-
sor Saras is a great cook, so it is not surprising that her
examples of these thought processes
revolve around cooking.

Imagine a chef assigned the task of cooking dinner. There are
two ways the task can be organ-
ized. In the first, the host or client picks out a menu in advance.
All the chef needs to do is list
the ingredients needed, shop for them, and then actually cook
the meal. This is a process of
causation. It begins with a given menu and focuses on selecting
between effective ways to pre-
pare the meal.
In the second case, the host asks the chef to look through the
cupboards in the kitchen for
possible ingredients and utensils and then cook a meal. Here,
the chef has to imagine possible
menus based on the given ingredients and utensils, select the
menu, and then prepare the meal.
This is a process of effectuation. It begins with given
ingredients and utensils and focuses on
preparing one of many possible desirable meals with them.9
SarasvathY.s Thought Experiment #1: Curry in a Hurry
In this example I [Sarasvathy] trace the process for building an
imaginary Indian restaurant,
"Curry in a Hurry.'' Two cases, one using causation and the
other effectuation, are examined.
For the purposes of this illustration, the example chosen is a
typical causation process that
'""'P~"'""h;p, E;ghth Edo;oo I 17
----·-------··------------------- ----- ---· -------- - ------·-- ----------
-~--- -----

underlies many economic theories today- theories in which it is
argued that artifacts such as
firms are inevitable outcomes, given the preference orderings of
economic actors and certain
simple assumptions of rationality (implying causal reasoning) in
their choice behavior. The cau-
sation process used in the example here is typified by and
embodied in the procedures stated by
Philip Kotler in his Marketing Management (1991: 63, 263), a
book that in its many editions is
considered a classic and is widely used as a textbook in MBA
programs around the world.
Kotler defmes a market as follows: "A market consists of all the
potential customers shar-
ing a particular need or want who might be willing and able to
engage in exchange to satisfy
that need or want" (1991 : 63). Given a product or a service,
Kotler suggests the following pro-
cedure for bringing the product/service to market (note that
Kotler assumes the market exists):
l. Analyze long-run opportunities in the market.
2. Research and select target markets.
3. Identify segmentation variables and segment the market.
4. Develop profiles of resulting segments.
5. Evaluate the attractiveness of each segment.
6. Select the target segment(s).

7. Identify possible positioning concepts for each target
segment.
8. Select, develop, and communicate the chosen positioning
concept.
9. Design marketing strategies.
10. Plan marketing programs.
11. Organize, implement, and control marketing effort.
This process is commonly known in marketing as the STP-
segmentation, targeting, and
positioning- process.
Curry in a Hurry is a restaurant with a new twist- say, an Indian
restaurant with a fast food
section. The current paradigm using causation processes
indicates that, to implement this
idea, the entrepreneur should start with a universe of all
potential customers. Let us imagine
that she wants to build her restaurant in Pittsburgh,
Pennsylvania, USA, which will then
become the initial universe or market for Curry in a Hurry.
Assuming that the percentage of
the population of Pittsburgh that totally abhors Indian food is
negligible, the entrepreneur can
start the STP process .
Several relevant segmentation variables, such as demographics,
residential neighbor-
hoods, ethnic origin, marital status, income level, and patterns
of eating out, could be used.
On the basis of these, the entrepreneur could send out
questionnaires to selected neighbor-

hoods and organize focus groups at, say, the two major
universities in Pittsburgh. Analyz-
ing responses to the questionnaires and focus groups, she could
arrive at a target segment-
for example, wealthy families, both Indian and others, who eat
out at least twice a week.
That would help her determine her menu choices, decor, hours,
and other operational de-
tails. She could then design marketing and sales campaigns to
induce her target segment to
try her restaurant. She could also visit other Indian and fast
food restaurants and find some
method of surveying them and then develop plausible demand
forecasts for her planned
restaurant.
In any case, the process would involve considerable amounts of
time and analytical effort.
It would also require resources both for research and, thereafter,
for implementing the market-
ing strategies. In summary, the current paradigm suggests that
we proceed inward to specifics
from a larger, general universe- that is, to an optimal target
segment from a predetermined
market. In terms of Curry in a Hurry, this could mean something
like a progression from the
entire city of Pittsburgh to Fox Chapel (an affluent residential
neighborhood) to the Joneses
(specific customer profile of a wealthy family), as it were.
Instead, if our imaginary entrepreneur were to use processes of
effectuation to build her
restaurant, she would have to proceed in the opposite direction
(note that effectuation is
suggested here as a viable and descriptively valid alternative to
the STP process-not as a

18 I Entrepreneurship -- -r
normatively superior one). For example, instead of starting with
the assumption of an existing
market and investing money and other resources to design the
best possible restaurant for the
given market, she would begin by examining the particular set
of means or causes available to
her. Assuming she has extremely limited monetary resources-
say $20,000-she should think
creatively to bring the idea to market with as close to zero
resources as possible. She could do
this by convincing an established restaurateur to become a
strategic partner or by doing just
enough market research to convince a financier to invest the
money needed to start the restau-
rant. Another method of effectuation would be to convince a
local Indian restaurant or a local
fast food restaurant to allow her to put up a counter where she
would actually sell a selection
of Indian fast food. Selecting a menu and honing other such
details would be seat-of-the-pants
and tentative, perhaps a process of satisficing. 10
Several other courses of effectuation can be imagined. Perhaps
the course the entrepreneur
actually pursues is to contact one or two of her friends or
relatives who work downtown and
bring them and their office colleagues some of her food to taste.
If the people in the office like
her food, she might get a lunch delivery service going. Over

time, she might develop enough
of a customer base to start a restaurant or else, after a few
weeks of trying to build the lunch
business, she might discover that the people who said they
enjoyed her food did not really
enjoy it so much as they did her quirky personality and
conversation, particularly her rather un-
usual life perceptions. Our imaginary entrepreneur might now
decide to give up the lunch busi-
ness and start writing a book, going on the lecture circuit and
eventually building a business in
the motivational consulting industry!
Given the exact same starting point- but with a different set of
contingencies-the entrepre-
neur might end up building one of a variety of businesses. To
take a quick tour of some possi-
bilities, consider the following: Whoever first buys the food
from our imaginary Curry in a
Hurry entrepreneur becomes, by definition, the first target
customer. By continually listening
to the customer and building an ever-increasing network of
customers and strategic partners.
the entrepreneur can then identify a workable segment profile.
For example, if the first cus-
tomers who actually buy the food and come back for more are
working women of varied eth-
nic origin, this becomes her target segment. Depending on what
the first customer really wants.
she can start defining her market. If the customer is really
interested in the food, the entrepre-
neur can start targeting all working women in the geographic
location, or she can think in
terms of locating more outlets in areas with working women of
similar profiles-a "Women in
a Hurry" franchise?

Or, if the customer is interested primarily in the idea of ethnic
or exotic entertainmenl
rather than merely in food, the entrepreneur might develop other
products, such as catering
services, party planning, and so on-"Curry Favors"? Perhaps, if
the customers buy food from
her because they actually enjoy learning about new cultures, she
might offer lectures and
classes, maybe beginning with Indian cooking and moving on to
cultural aspects, including
concerts and ancient history and philosophy, and the profound
idea that food is a vehicle of
cultural exploration-"School of Curry"? Or maybe what really
interests them is theme tours
and other travel options to India and the Far East- "Curryland
Travels"?
In a nutshell, in using effectuation processes to build her firm,
the entrepreneur can build
several different types of firms in completely disparate
industries. This means that the original
idea (or set of causes) does not imply any one single strategic
universe for the firm (or effect).
Instead, the process of effectuation allows the entrepreneur to
create one or more several pos-
sible effects irrespective of the generalized end goal with which
she started. The process not
only enables the realization of several possible effects (although
generally one or only a few
are actually realized in the implementation) but it also allows a
decision maker to change his
or her goals and even to shape and construct them over time,
making use of contingencies as
they arise. 11

Our use of direct quotes from Sarasvathy on effectuation is not
to make the case that :-
is superior to thought processes that involve causation; rather, it
represents a way that
trepreneurs sometimes think. Effectuation helps entrepreneurs
think in an environment o=
entrepreneurio.l mind-set
Involves the ability to
rapidly sense, act, and
mobilize, even under
uncertain conditions
cognitive adaptability
Describes the extent to
which entrepreneurs are
dynamic, flexible, self-
regulating, and engaged
in the process of
generating multiple
decision frameworks
focused on sensing and

processing changes in
their environments and
then acting on them
comprehension questions
Questions designed to
increase entrepreneurs'
understanding of the
nature of the environment
Entrepreneurship, Eighth Edition 19
high uncertainty. Indeed organizations today operate in complex
and dynamic environ-
ments that are increasingly characterized by rapid, substantial,
and discontinuous change. 12
Given the nature of this type of environment, most managers of
firms need to take on an
entrepreneurial mind-set so that their firms can successfully
adapt to environmental
changes. 13 This entrepreneurial mind-set involves the ability to
rapidly sense, act, and
mobilize, even under uncertain conditions. 14 In developing an
entrepreneurial mind-set,
individuals must attempt to make sense of opportunities in the

context of changing goals,
constantly questioning the "dominant logic" in the context of a
changing environment
and revisiting "deceptively simple questions" about what is
thought to be true about markets
and the firm. For example, effective entrepreneurs are thought
to continuously "rethink
current strategic actions, organization structure,
communications systems, corporate
culture, asset deployment, investment strategies, in short every
aspect of a firm's operation
and long-term health."15
To be good at these tasks individuals must develop a cognitive
adaptability. Mike
Haynie, a retired major of the U.S. Air Force and now professor
at Syracuse University, has
developed a number of models of cognitive adaptability and a
survey for capturing it, to
which we now tum. 16
Cognitive Adaptability
Cognitive adaptability describes the extent to which
entrepreneurs are dynamic, flexible,
self-regulating, and engaged in the process of generating
multiple decision frameworks
focused on sensing and processing changes in their
environments and then acting on
them. Decision frameworks are organized prior knowledge
about people and situations
that are used to help someone make sense of what is going on.
17 Cognitive adaptability
is reflected in an entrepreneur's metacognitive awareness, that
is, the ability to reflect
upon, understand, and control one's thinking and learning. 18
Specifically, metacognition

describes a higher-order cognitive process that serves to
organize what individuals know
and recognize about themselves, tasks, situations, and their
environments to promote ef-
fective and adaptable cognitive functioning in the face of
feedback from complex and
dynamic environments. 19
How cognitively adaptable are you? Try the survey in Table 1.2
and compare yourself to
some of your classmates. A higher score means that you are
more metacognitively aware,
and this in tum helps provide cognitive adaptability. Regardless
of your score, the good
news is that you can learn to be more cognitively adaptable.
This ability will serve you well
in most new tasks, but particularly when pursuing a new entry
and managing a firm in an
uncertain environment. Put simply, it requires us to "think about
thinking which requires,
and helps provide, knowledge and control over our thinking and
learning activities-it
requires us to be self-aware, to think aloud, to reflect, to be
strategic, to plan, to have a
plan in mind, to know what to know, to self-monitor.20 We can
achieve this by asking our-
selves a series of questions that relate to (1) comprehension, (2)
connection, (3) strategy,
and (4) reflection.21
1. Comprehension questions are designed to increase
entrepreneurs' understanding of the
nature of the environment before they begin to address an
entrepreneurial challenge,
whether it be a change in the environment or the assessment of
a potential opportunity.

Understanding arises from recognition that a problem or
opportunity exists, the nature
of that situation, and its implications. In general, the questions
that stimulate individu-
als to think about comprehension include: What is the problem
all about? What is the
question? What are the meanings of the key concepts? Specific
to entrepreneurs, the
WHAT ME WORRY? HOW SMART ENTREPRENEURS
HARNESS THE POWER
OF PARANOIA
Depending on whom you're talking to, paranoia is:
(1) a psychotic disorder characterized by delusions of
persecution, (2) an irrational distrust of others, or
(3) a key trait in entrepreneurial success.
Sound crazy? Not according to Andrew S. Grove,
president and CEO of Intel Corp. in Santa Clara,
California, and author of Only the Paranoid Survive
(Doubleday/Currency). The title of Grove's book
comes from an oft-repeated quote that has become
the mantra of the chip king's rise to the top of the
technology business.
"I have no idea when I first said this," Grove
writes, "but the fact remains that, when it comes to
business, I believe in the value of paranoia." To those
who suffer from clinical delusions of persecution, of
course, paranoia is neither a joke nor a help. How-
ever, in a business context, the practice of voluntarily

being highly concerned about potential threats to
your company has something of a following.
"If you're not a little bit paranoid, you're compla-
cent," says Dave Lakhani, an entrepreneur in Boise,
Idaho, who offers marketing consulting to small busi-
nesses. "And complacency is what leads people into
missed opportunities and business failure. rr
PICK YOUR PARANOIA
Being paranoid, according to Grove, is a matter of re-
membering that others want the success you have,
paying attention to the details of your business, and
watching for the trouble that inevitably awaits. That
basically means he is paranoid about everything. "I
worry about products getting screwed up, and I worry
about products getting introduced prematurely,"
Grove writes. "I worry about factories not performing
well, and I worry about having too many factories."
For Grove, as for most advocates of paranoia, be-
ing paranoid primarily consists of two things. The
first is not resting on your laurels. Grove calls it a
"guardian attitude" that he attempts to nurture in
himself and in Intel's employees to fend off threats
from outside the company. Paranoia in business is
also typically defined as paying very close attention
to the fine points. "You need to be detail-oriented
about the most important things in your business,"
says Lakhani. "That means not only making sure
you're working in your business but that you're there
every day, paying attention to your customers. rr
14
As an example of paranoia's value in practice,

Lakhani recalls when sales began slowly slumping
at a retail store he once owned. He could have dis-
missed it as a mere blip. , Instead, he worried and
watched until he spotted a concrete cause. "It
turned out one of my employees had developed a
negative attitude, and it was affecting my business,"
Lakhani says. "As soon as I let him go, sales went
back up."
The main focuses of most entrepreneurs' paranoia,
however, are not so much everyday internal details as
major competitive threats and missed opportunities.
Situations in which competition and opportunity are
both at high levels are called "strategic inflection
points" by Grove, and it is during these times, typi-
cally when technology is changing, that his paranoia
is sharpest.
Paranoia is frequently a welcome presence at ma-
jor client presentations for Katharine Paine, founder
and CEO of The Delahaye Group Inc. In the past,
twinges of seemingly unfounded worry have caused
Paine to personally attend sales pitches where she
learned of serious problems with the way her firm was
doing business, she says. The head of the 50-person
Portsmouth, New Hampshire, marketing evaluation
research firm traces her paranoid style to childhood
days spent pretending to be an Indian tracking
quarry through the forest. When she makes mental
checklists about things that could go wrong or op-
portunities that could be missed, she's always keep-
ing an eye out for the business equivalent of a bent
twig. "If you are paranoid enough, if you're good
enough at picking up all those clues, you don't have
to just react," says Paine, "you get to proact and be
slightly ahead of the curve."

PARANOID PARAMETERS
There is, of course, such a thing as being too para-
noid. "There are times when it doesn't make any
sense," acknowledges Lakhani. Focusing on details to
the point of spending $500 in accounting fees to find
a $5 error is one example of misplaced paranoia.
Worrying obsessively about what every competitor is
doing or what every potential customer is thinking is
also a warning sign, he says. Lack of balance with in-
terests outside the business may be another. "If your
whole life is focused around your work, and that's
Emrep""'"''h;p, E;ghth Ed•;o, I
--··---··------------------·-- ·---- ·--·--- -·---------- ·- ---- --- ·- -· -
------- ----- -·-- ------- ---- ----~
the only thing you're thinking about 24 hours a day,
that becomes detrimental," Lakhani says.
For Paine, failing to act is a sign that you're going
past beneficial paranoia and into hurtful fear. "Fear
for most of us results in inaction-absolute death for
an entrepreneur," she says. "If we feared the loss of a
paycheck or feared entering a new market, none of
our businesses would have gotten off the ground."
All this may be especially true for small-business
owners. While paranoia may be appropriate for
heads of far-flung enterprises, some say entrepre-
neurs are already too paranoid. It's all too easy for
entrepreneurs to take their desire for independence
and self-determination and turn it into trouble, says
Robert Barbato, director of the Small Business Insti-

tute at the Rochester Institute of Technology in
Rochester, New York. Typically, entrepreneurs take
the attitude that "nobody cares as much about this
business as I do" and exaggerate it to the point of
hurtful paranoia toward employees and even cus-
tomers, he says. "They're seeing ghosts where ghosts
don't exist," warns Barbato.
That's especially risky when it comes to dealing with
employees. Most people-not just entrepreneurs-
do their work for the sense of accomplishment,
not because they are plotting to steal their em-
ployer's success, Barbato says. He acknowledges this
may be a difficult concept for competition-crazed
entrepreneurs-especially those who have never
themselves been employees-to understand. "People
who own their own business are not necessarily used
to moving up the ranks," Barbato notes. Entrepre-
neurs must learn to trust and delegate if their busi-
nesses are to grow.
PRACTICAL PARANOIA
No matter how useful it is, paranoia may be too
loaded a label for some entrepreneurs. If so, critical
evaluation or critical analysis are the preferred terms of
Stephen Markowitz, director of governmental and
political relations of the Small Business Association of
Delaware Valley, a 5,000-member trade group. The dis-
tinction is more than name-deep. "When I say 'critically
evaluate,' that means look at everything," Markowitz
explains. "If you're totally paranoid, the danger is not
being able to critically evaluate everything."
For example, Markowitz says a small retailer
threatened by the impending arrival of a superstore

in the market would be better served by critically
evaluating the potential for benefit as well as harm,
instead of merely worrying about it. "If you're para-
noid," he says, "you're not going to critically evaluate
how it might help you."
Whatever name it goes by, few entrepreneurs
are likely to stop worrying anytime soon. In fact,
experience tends to make them more confirmed in
their paranoia as they go along. Paine recalls the
time a formless fear led her to insist on going to a
client meeting where no trouble was expected. She
lost the account anyway. "The good news is, my
paranoia kicked in," she says. "The bad news is, it
was too late. That made me much more paranoid in
the future."
ADVICE TO AN ENTREPRENEUR
A friend who has just become an entrepreneur has
read the above article and comes to you for advice:
1. I worry about my business; does that mean that I
am paranoid?
2. What are the benefits of paranoia and what are
the costs?
3. How do I know I have the right level of paranoia
to effectively run the business and not put me in
the hospital with a stomach ulcer?
4. Won't forcing myself to be more paranoid take
the fun out of being an entrepreneur?
Source: Reprinted with permission of Entrepreneur Media, Inc.,
"How Smart Entrepreneurs Harness the Power of Paranoia," by

Mark Henricks, March 1997, Entrepreneur magazine:
www.entrepreneur.com.
connection tasks Tasks
designed to stimulate
entrepreneurs to think
about the current situation
in terms of similarities to
and differences from
situations previously
faced and solved
questions are more likely to include: What is this market all
about? What is this tech-
nology all about? What do we want to achieve by creating this
new firm? What are the
key elements to effectively pursuing this opportunity?
2. Connection tasks are designed to stimulate entrepreneurs to
think about the current
situation in terms of similarities to and differences from
situations previously faced and
solved. In other words, these tasks prompt the entrepreneur to
tap into his or her
knowledge and experience without overgeneralizing. Generally,
connection tasks
focus on questions like: How is this problem similar to
problems I have already

15
21
22 I '"'""'"'"""'' ~·-· --'"·~--- -t---~· --··- ·--- --- ·---· ---- ·-- -·--
·- --- -· ----- ----------- -· -------- ----·----- ·-----------·· ----------·
·-· --- --------- ---------------------- -
I
TABLE 1.2 Mike Haynie's "Measure of Adaptive Cognition"
How Cognitively Flexible Are You? On a scale of 1 to 10,
where 1 is "not very much like me,"
and 10 is "very much like me," how do you rate yourself on the
following statements?
Goal Orientation
I often define goals for myself.
I understand how accomplishment
of a task relates to my goals.
I set specific goals before
I begin a task.
I ask myself how well I've
accomplished my goals once
I've finished.
When performing a task, I
frequently assess my progress

against my objectives.
Metacognitive Knowledge
I think of several ways to solve a
problem and choose the best one.
I challenge my own assumptions
about a task before I begin.
I think about how others may react
to my actions.
I find myself automatically
employing strategies that have
worked in the past.
I perform best when I already
have knowledge of the task.
I create my own examples to make
information more meaningful.
I try to use strategies that have
worked in the past.
I ask myself questions about the
task before I begin.
I try to translate new information
into my own words.
I try to break problems down into
smaller components.
I focus on the meaning and

significance of new information.
Metacognitive Experience
I think about what I really need
to accomplish before I begin a task.
I use different strategies depending
on the situation.
I organize my time to best
accomplish my goals.
Not very much-1 2 3 4 56 7 8 9 10--Very much
like me like me
like me like me
Not very much-1 2 3 4 5 6 7 8 9 10--Very much
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me

like me like me
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me

I am good at organizing
information.
I know what kind of information is
most important to consider when
faced with a problem.
I consciously focus my attention on
important information.
My "gut" tells me when a given
strategy I use wi ll be most effective.
I depend on my intuition to help
me formulate strategies.
Metacognitive Choice
I ask myself if I have considered all
the options when solving a problem.
I ask myself if there was an easier
way to do things after I finish a task.
I ask myself if I have considered all
the options after I solve a problem.
I re-evaluate my assumptions when
I get confused.
I ask myself if I have learned as

much as I could have after I finish
the task.
Monitoring
I periodically review to help me
understand important relationships.
I stop and go back over information
that is not clear.
I am aware of what strategies I use
when engaged in a given task.
I find myself analyzing the
usefulness of a given strategy while
engaged in a given task.
I find myself pausing regularly to
check my comprehension of the
problem or situation at hand.
I ask myself questions about how
well I am doing while I am
performing a novel task. I stop and
re-read when I get confused.
Not very much-1 2 3 4 5 6 7 8 9 10-Very much
like me like me
Not very much-1 2 3 4 56 7 8 9 10-Very much
like me like me
like me like me

like me like me
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me
like me like me

like me like me
Result-A higher score means that you are more aware of the
way that you think about how you make decisions and are there-
fore more likely to be cognitively flexible.
Source: M. Haynie and D. Shepherd, "A Measure of Adaptive
Cognition for Entrepreneurship Research," Entrepreneurship,
Theory and Practice 33, no. 3 (2009), pp. 695-714.
solved? Why? How is this problem different from what I have
already solved? Why?
Specific to entrepreneurs, the questions are more likely to
include: How is this new
environment similar to others in which I have operated? How is
it different? How is
this new organization similar to the established organizations I
have managed? How
is it different?
strategic tasks Tasks
about which strategies are
appropriate for solving

the problem (and why) or
pursuing the opportunity
(and how)
reflection tasks Tasks
about their understanding
and feelings as they
progress through the
3. Strategic tasks are designed to stimulate entrepreneurs to
think about which
strategies are appropriate for solving the problem (and why) or
pursuing the op-
portunity (and how). These tasks prompt them to think about the
what, why, and
how of their approach to the situation. Generally, these
questions include: What
strategy/tactic/principle can I use to solve this problem? Why is
this strategy/
tactic/principle the most appropriate one? How can I organize
the information to
solve the problem? How can I implement the plan? Specific to
entrepreneurs, the
questions are likely to include: What changes to strategic

position, organizational
structure, and culture will help us manage our newness? How
can the implemen-
tation of this strategy be made feasible?
4. Reflection tasks are designed to stimulate entrepreneurs to
think about their under-
standing and feelings as they progress through the
entrepreneurial process. These tasks
prompt entrepreneurs to generate their own feedback (create a
feedback loop in their
solution process) to provide the opportunity to change.
Generally, reflection questions
include: What am I doing? Does it make sense? What
difficulties am I facing? How do
I feel? How can I verify the solution? Can I use another
approach for solving the task?
Specific to the entrepreneurial context, entrepreneurs might ask:
What difficulties will
we have in convincing our stakeholders? Is there a better way to
implement our strat-
egy? How will we know success if we see it?
Entrepreneurs who are able to increase cognitive adaptability
have an improved ability
to (1) adapt to new situations-i.e., it provides a basis by which a
person's prior experience
and knowledge affect learning or problem solving in a new
situation; (2) be creative-i.e.,
it can lead to original and adaptive ideas, solutions, or insights;
and (3) communicate one's
reasoning behind a particular response.22 We hope that this
section of the book has not only·
provided you a deeper understanding of how entrepreneurs can
think and act with great
flexibility, but also an awareness of some techniques for

incorporating cognitive adaptabil-
ity in your life.
We have discussed how entrepreneurs make decisions in
uncertain environments and how
one might develop an ability to be more cognitively flexible. It
is important to note that
entrepreneurs operate in such uncertain environments because
that is where the oppor-
tunities for new entry are to be found and/or generated. There is
the possibility that op-
portunities exist in more stable environments, but even in this
situation the entrepreneur's
new entry may create industry instability and uncertainty. Given
the inherent uncertainty
in entrepreneurial action, there is the possibility that an
entrepreneur will experience fail-
ure. Failure can be valuable if the entrepreneur is able to learn
from it. We now investigate
the process of learning from business failure.
Learning from Business Failure23
Businesses fail. In 2008, a total of 6,513 U.S. firms filed for
Chapter 11 bankruptcy
(Chapter 11 provides for a business to continue operations while
formulating a plan tore-
pay its creditors) and 23,372 U.S. firms filed for Chapter 7
bankruptcy (Chapter 7 is de-
signed to allow individuals to keep certain exempt property
while the remaining property
is sold to repay creditors) (www.uscourts.gov). Business failure
occurs when a fall in rev-
enue and/or a rise in expense is of such magnitude that the firm
becomes insolvent and is
unable to attract new debt or equity funding; consequently, it

cannot continue to operate
under the current ownership and management. Projects also fail,
such as failure of a new
product development effort, the entry into a new market, or an
alliance with a former
I
Entrepreneurship, Eighth Edition I 25 --------- -- ---· -------- -··
. ·---·-·-- --- ·-· -- t- ----
competitor. Failure is particularly common among
entrepreneurial firms because the
newness that is the source of an opportunity is also a source of
uncertainty and changing
conditions.
Although there are many causes of failure, the most common is
insufficient experi-
ence. That is, entrepreneurs who have more experience will
possess the knowledge to
perform more effectively the roles and tasks necessary for
success. This experience need
not come solely from success. In fact, it appears that we may
learn more from our fail-
ures than our successes.24
A leading entrepreneurship scholar, Rita McGrath, has argued
that because entrepre-
neurs typically seek success and try to avoid failure for their
projects, errors are intro-

duced that can not only inhibit the learning and interpretation
processes but also make
project failure more likely or expensive than necessary. She
proposes that there are ben-
efits to be gained from the pursuit of risky opportunities, even
if that pursuit increases
the potential for failure. This entrepreneurial process of
experimentation generates
improvements in technologies. 25 Although Professor McGrath
focuses on the failure
of projects within a firm, it appears that the process of learning
from failure also
benefits society through the application of that knowledge to
subsequent businesses.
Other businesses can learn from an entrepreneur's mistake and
that learning can help
our economy.
Does failure always lead to learning? Perhaps, but it would
seem that the issue is more
complex. The motivation for managing one's own business or
the creation of a new project
at work is typically not simply one of personal profit but also
loyalty to a product, loyalty
to a market and customers, personal growth, and the need to
prove oneself.26 Some entre-
preneurs use their ventures to "create a product that flows from
their own internal desires
and needs. They create primarily to express subjective
conceptions of beauty, emotion, or
some aesthetic ideal."27 For members of a family business, the
firm may not only be a
source of income but also a context for family activity and the
embodiment of family pride
and identity. This suggests that the loss of a business is likely
to generate a negative emo-

tional response from the entrepreneur. 28
One entrepreneur that I know exhibited a number of worrying
emotions when his fam-
ily business failed. There was numbness and disbelief that this
business he had created
20-odd years ago was no longer alive. There was some anger
toward the economy, competi-
tors, and debtors, but even stronger than anger were his feelings
of guilt and self-blame. He
felt guilty that he had caused the failure of the business, that it
could no longer be passed
on to his children, and that as a result he had failed not only as
a businessperson but also as
a father. These feelings caused him distress and anxiety. He felt
the situation was hopeless,
and he became withdrawn and at times depressed. These are all
strong negative emotions.
After the failure of their businesses or projects, it is likely that
most entrepreneurs feel a
negative emotional response to that loss.
This negative emotional reaction can interfere with
entreprenurs' ability to learn from
the failure and quite possibly their motivation to try again. For
entrepreneurs, learning from
failure occurs when they can use the information available
about why the venture failed
(feedback information) to revise their existing knowledge of
how to manage their ventures
more effectively (entrepreneurial knowledge)- that is, revise
assumptions about the conse-
quences of previous assessments, decisions, actions, and
inactions. For example, Ravi
Kalakota has learned a number of lessons from the loss of his
business, Hsupply.com, such

as, "Don't let venture capitalists hijack your vision," "Don't
rapidly burn through capital to
achieve short-term growth," and "Don't underestimate the speed
others will imitate your
products and services."29
26 1- __ Eo<repreo'""h;p _
loss-orientation An
approach to negative
emotions that involves
working through, and
processing, some aspect
of the loss experience
and, as a result of this
process, breaking
emotional bonds to the
object lost
restoration-orientation
An approach to negative
emotions based on both

avoidance and a
proactiveness toward
secondary sources of
stress arising from a
major loss
Indeed, negative emotion(s) have been found to interfere with
individuals' allocation of
attention in the processing of information. Such interference
negatively impacts their abil-
ity to learn from negative events. 3° For the entrepreneur, this
could mean focusing atten-
tion on the day that the business closed (i.e., dwelling on
announcements to employees,
buyers, and suppliers, as well as handing over the office keys to
a liquidator), rather than
allocating sufficient attention to feedback information, such as
previous actions and/or
inactions that caused the deterioration in business performance
and ultimately the loss of
the business.
Recovery and Learning Process
An individual has emotionally recovered from the failure when
thoughts about the events
surrounding, and leading up to, the loss of the business no
longer generate a negative emo-
tional response. The two primary descriptions of the process of
recovering from feelings
arising from failure are classifiable as either loss-oriented or
restoration-oriented.

Loss-orientation refers to working through, and processing,
some aspect of the loss
experience and, as a result of this process, breaking emotional
bonds to the object lost.
This process of constructing a series of accounts about the loss
gradually provides the
loss with meaning and eventually produces a changed viewpoint
of the self and the
world. Changing the way that an event is interpreted can allow
an entrepreneur to regu-
late emotions so that thoughts of the event no longer generate
negative emotions.
Entrepreneurs with a loss-orientation might seek out friends,
family, or psychologists to
talk about their negative feelings. But they may also focus their
thoughts on the time
spent in creating and nurturing the business and may ruminate
about the circumstances
and events surrounding the loss. It appears that such thoughts
could evoke a sense of
yearning for the way things used to be or foster a sense of relief
that the events sur-
rounding the loss (e.g., arguing with creditors, explaining to
employees, family, and
friends the business has failed) are finally over. While these
feelings of relief and pain
wax and wane over time, in the early periods after the failure,
painful memories are
likely to dominate. 31
Restoration-orientation is based on both avoidance and a
proactiveness toward second-
ary sources of stress arising from failure. For avoidance, it is
possible that entrepreneurs
can distract themselves from thinking about the loss of the
business or project to speed re-

covery. For the entrepreneur, founding a new venture might
enhance recovery from the neg-
ative emotions over the loss of the previous business (although
there is the possibility that
the same mistakes will be replicated because these
entrepreneurs have not sufficiently
learned from their experience).
A restoration-orientation is not simply about avoidance,
however; it also involves the
way that an entrepreneur attends to other aspects of his or her
life (e.g., coping with daily
life, learning new tasks). It refers to being proactive toward
secondary sources of stress
instead of being concerned with the loss itself. Such activities
enable entrepreneurs to dis-
tract themselves from thinking about the loss while
simultaneously maintaining essential
activities necessary for restructuring aspects of their lives. This
may apply to the entre-
preneur, for whom the loss of the business itself generates a
negative emotional response
while causing the loss of income, social status, and positive
perceptions of self. For
example, an entrepreneur must reorganize his life to cope
without the business. It might
be necessary to apply for jobs, join the unemployment line,
and/or sell the house and
move to a less expensive neighborhood (requiring the children
to change schools). There
might also be other stressors, such as responding to questions
such as: "What do you do
for a living?" or "How is your business going?" In addressing
these secondary sources of

dual process for copi11g
witll11egative emotio11s
Involves oscillation
between a loss-orientation
and restoration orientation
stress, the entrepreneur is able to eventually reduce the negative
emotions associated with
thoughts of the events surrounding the loss of the business.
A Dual Process for Learning from Failure
Which process of recovery is most effective in promoting
learning from the experience? It is
not an "either/or" choice between the two orientations. Both
loss-oriented and restoration-
oriented coping styles are likely to have different costs. A loss-
orientation involves confronta-
tion, which is physically and mentally exhausting, whereas a
restoration-orientation involves
suppression, which requires mental effort and presents
potentially adverse consequences for
health. Oscillation between the two orientations enables an
entrepreneur to obtain the bene-
fits of each and to minimize the costs of maintaining one for too
long-this dual process
speeds the recovery process. 32 Speeding the recovery process
is important because it more
quickly reduces the emotional interference with learning.

For example, starting with a loss-orientation provides an
individual the ability to first
focus on aspects of the loss experience and begin processing
information about the busi-
ness loss as well as breaking the emotional bonds to the failed
business or project. When
the entrepreneur's attention begins to shift from the event to
aspects of the emotions
themselves, then learning is likely reduced by emotional
interference and the entrepreneur
should switch to a restoration-orientation. Switching to a
restoration-orientation en-
courages individuals to think about other aspects of their lives.
It also breaks the cycle
of continually thinking about the symptoms arising from the
failure; such thoughts can
increase negative feelings. 33 This restoration-orientation also
provides the opportunity
to address secondary causes of stress, which may reduce the
emotional significance of
the failure. When information processing capacity is no longer
focused on the symp-
toms, the entrepreneur can shift back to a loss-orientation and
use his or her information
processing capacity to generate further meaning from the loss
experience and also fur-
ther reduce the emotional significance of the loss of the
business . Oscillation should
continue until the entrepreneur has emotionally recovered and
been able to fully learn
from the experience.
The dual process of learning from failure has a number of
practical implications. First,
knowledge that the feelings and reactions being experienced by
the entrepreneur are nor-

mal for someone dealing with such a loss may help to reduce
feelings of shame and em-
barrassment. This in turn might encourage the entrepreneur to
articulate her feelings , pos-
sibly speeding the recovery process. Second, there are
psychological and physiological
outcomes caused by the feelings of loss. Realizing that these are
"symptoms" can reduce
secondary sources of stress and may also assist with the choice
of treatment. Third, there is
a process of recovery to learn from failure, which offers
entrepreneurs some comfort that
their current feelings of loss, sadness, and helplessness will
eventually diminish. Fourth,
the recovery and learning process can be enhanced by some
degree of oscillation between
a loss- and a restoration-orientation. Finally, recovery from loss
offers an opportunity to
increase one's knowledge of entrepreneurship. This provides
benefits to the individual and
to society.
ETHICS AND SOCIAL RESPONSIBILITY OF
ENTREPRENEURS
The life of the entrepreneur is not easy. An entrepreneur must
take risks with his or her own
capital to sell and deliver products and services while
expending greater energy than the
average businessperson to innovate. In the face of daily
stressful situations and other diffi-
culties, the possibility exists that the entrepreneur will establish
a balance between ethical
28 _l Entrepreneurship

business ethics The
study of behavior and
morals in a business
situation
exigencies, economic expediency, and social responsibility- a
balance that differs from the
point where the general business manager takes his or her moral
stance. 34
A manager's attitudes concerning corporate responsibility are
related to the organiza-
tional climate perceived to be supportive of laws and
professional codes of ethics. On the
other hand, entrepreneurs with a relatively new company who
have few role models usually
develop an internal ethical code. Entrepreneurs tend to depend
on their own personal value
systems much more than other managers do when determining
ethically appropriate courses
of action.
Although drawing more on their own value system,
entrepreneurs have been shown
to be particularly sensitive to peer pressure and general social
norms in the community,
as well as pressures from their competitors. The differences
between entrepreneurs in
different types of communities and in different countries reflect,
to some extent, the
general norms and values of the communities and countries

involved. This is clearly the
case for metropolitan as opposed to nonmetropolitan locations
within a single country.
Internationally, there is evidence to this effect about managers
in general. U.S. man-
agers seem to have more individualistic and less communitarian
values than their
German and Austrian counterparts.
The significant increase in the number of internationally
oriented businesses has im-
pacted the increased interest in the similarities and differences
in business attitudes and
practices in different countries. This area has been explored to
some extent within the con-
text of culture and is now beginning to be explored within the
more individualized concept
of ethics. The concepts of culture and ethics are somewhat
related. Whereas ethics refers to
the "study of whatever is right and good for humans," business
ethics concerns itself with
the investigation of business practices in light of human values.
Ethics is the broad field of
study exploring the general nature of morals and the specific
moral choices to be made by
the individual in his or her relationship with others.
A central question in business ethics is, "For whose benefit and
at whose expense should
the firm be managed?"35 In addressing this question we focus
on the means of ensuring that
resources are deployed fairly between the firm and its
stakeholders- the people who have
a vested interest in the firm, including employees, customers,
suppliers, and society itself.
If resource deployment is not fair, then the firm is exploiting a

stakeholder.
Entrepreneurship can play a role in the fair deployment of
resources to alleviate the
exploitation of certain stakeholders. Most of us can think of
examples of firms that have
benefited financially because their managers have exploited
certain stakeholders-receiving
more value from them than they supply in return. This
exploitation of a stakeholder
group can represent an opportunity for an entrepreneur to more
fairly and efficiently re-
deploy the resources of the exploited stakeholder. Simply
stated, where current prices
do not reflect the value of a stakeholder's resources, an
entrepreneur who discovers the
discrepancy can enter the market to capture profit. In this way
the entrepreneurial
process acts as a mechanism to ensure a fair and efficient
system for redeploying the
resources of a "victimized" stakeholder to a use where value
supplied and received is
equilibrated. 36
Therefore, while there is evidence that some use the
entrepreneurial process to exploit
others for profit, it is important to understand that the
entrepreneurial process can be
an important means of helping exploited stakeholders and at the
same time setting up a
viable business. Think of the entrepreneurial process as a tool
that can be used effectively
to achieve outcomes for the benefit of others (and the
entrepreneur) rather than to the
detriment of others. Some aspects of business ethics are
indicated in the Ethics box in

each chapter. Ethics is not only a general topic for conversation
but also a deep concern
of businesspeople.
'"'"'""'""h;p, E;gh<h Ed;t;oo I 29 ----·-----···----~----- ---·-- -----
------------ ----·---- ------- --- ----- --- ----- ------ -- ~----- - --~
$ ETHICS
COMPANY'S CODE OF ETHICS
The financial scandals of 2002 [and 2008] have already
led to increased action by legislators and associations,
and many companies are beginning to develop a code
of ethics for all employees.
There are a number of advantages to implement-
ing a code of ethics. The more your employees are
aware of proper conduct, the more likely they are to
do the right thing. They'll better understand their re-
sponsibilities and expectations and assume the ap-
propriate level of accountability when identifying
and managing business risks. A code of ethics is more
than just a formal document outlining related poli-
cies. It's about integrating positive values throughout
an organization. Here are some key components to
an effective program:
Leaders Set the Example: Employees of-
ten model their own behavior after executives, man-
agers, and others who've succeeded in the company.
Therefore, everyone at every level must adhere to the
firm's guidelines. What seems like a small action-
discussing confidential financial information with a
colleague, for instance-can have a ripple effect

throughout all staff. If the members of senior man-
agement do not follow the highest ethical standards
at all times, they shouldn't be surprised when those
who report to them fail to do so.
Ethics Is a Core Value: Companies known
for their ethical business practices make ethics a key el-
ement of their corporate culture. Conducting yourself
with integrity is considered as important as bottom-
line results. Ethical standards are applied any time a
decision is made or an action is taken, not just dur-
ing controversial situations. A recent survey by our
company found that more organizations are taking
ethics into account when hiring employees. Fifty-
eight percent of chief financial officers polled said
the qualities that impress them most about appli-
cants, aside from ability and willingness to do the
job, are honesty and integrity. That's a substantial in-
crease from only 32 percent in 1997.
Employees Feel Safe to Share Con-
cerns: The work environment must be one in
which people feel they can deliver bad news to man-
agement without fear of repercussions. In an ethics-
driven company, staff members can report any type
of wrongdoing-whether it is false information on
an expense report or major financial fraud-and feel
confident they will not suffer negative career conse-
quences. Once supervisors are made aware of a po-
tential problem, they need to take immediate action.
Failure to follow through on even minor issues can
undermine the success of an ethics program.
Having a code of ethics will not prevent every cri-
sis, but it will ensure that staff members have a clear

understanding of expectations. Collaborate with em-
ployees on defining the rules, and make sure every-
one is aware of the requirements. Then take steps to
instill core values throughout the organization. With
regular reinforcement, ethics will guide every deci-
sion your team makes and become a central element
in the way your company conducts business.
Source: From Max Messmer, "Does Your Company Have a Code
of
Ethics?" Strategic Finance, April2003. Excerpted with
permission
from Strategic Finance published by the Institute of
Management
Accountants, Montvale, NJ. For more information about reprints
from Strategic Finance, contact PARS International Corp. at
212/221-9595.
ROLE OF ENTREPRENEURSHIP IN ECONOMIC
DEVELOPMENT
The role of entrepreneurship in economic development involves
more than just increasing
per capita output and income; it involves initiating and
constituting change in the structure
of business and society. This change is accompanied by growth
and increased output,
which allows more wealth to be divided by the various
participants. What in an area facil-
itates the needed change and development? One theory of
economic growth depicts inno-
vation as the key, not only in developing new products (or
services) for the market but also
in stimulating investment interest in the new ventures being
created. This new investment
works on both the demand and the supply sides of the growth
equation; the new capital cre-

ated expands the capacity for growth (supply side), and the
resultant new spending utilizes
23
~-------------------------------------------------------------------------
-----------------------------~
30 I '"'""""'"""'· -~--'---·~~ ·--~·-- ---- ·---- ----
product-evolution
process The process
for developing and
commercializing an
innovation
the new capacity and output (demand side). This is reflected in
the product-evolution
process, a process through which innovation is developed and
commercialized through
entrepreneurial activity, which in turn stimulates economic
growth.
The product-evolution process, illustrated in Figure 1.1 as a
cornucopia, the traditional
symbol of abundance, begins with knowledge in the base
technology and science-such

FIGURE 1.1 Product Evolution
Science
/
Technologv / ,. ,
Thermodynamics
Electronic
,6 ~
I Industry 1
~ ( v-:;
Q; I~ ~
I B I o o ' ~ 0
' / 0
', /<..~ ' ............ ,,, _____ -r--- ~
G"tfeellog I
1
IJj Knowledge
Vision o ..
Recognition of social need Ill Iterative synthesis leading to V
Industrial phase
invention (pressing toward invention)
II Initiation of technological innovation
IV Development phase

iterative synthesis The
intersection of knowledge
and social need that starts
the product development
process
ordinary innovations
New products with little
technological change
technological
innovations New
products with significant
technological
advancement
breakthrough
innovatio11s New
products with some
technological change
IN REVIEW

SUMMARY
Eo<repre"'""h;p, E;ghth Ed;tioo I
-- ---- ----- ----- - -~--
as thermodynamics, fluid mechanics, or electronics-and ends
with products or services
available for purchase in the marketplace.37 The critical point
in the product-evolution
process is the intersection of knowledge and a recognized social
need, which begins the
product development phase. This point, called iterative
synthesis, often fails to evolve into
a marketable innovation and is where the entrepreneur needs to
concentrate his or her
efforts. The lack of expertise in this area-matching the
technology with the appropriate
market and making the needed adjustments-is an underlying
problem in any technology
transfer.
The innovation can, of course, be of varying degrees of
uniqueness. Most innovations
introduced to the market are ordinary innovations, that is, with
little uniqueness or tech-
nology. As expected, there are fewer technological innovations
and breakthrough innovations,
with the number of actual innovations decreasing as the
technology involved increases.
Regardless of its level of uniqueness or technology, each
innovation (particularly the latter
two types) evolves into and develops toward commercialization
and generates economic

wealth.
Entrepreneurship has assisted in revitalizing areas of the inner
city. Individuals in inner-
city areas can relate to the concept and see it as a possibility for
changing their present sit-
uation. One model project in New York City changed a
depressed area into one that now
has many small entrepreneurial companies.
The definition of an entrepreneur has evolved over time as the
world's economic struc-
ture has changed and become more complex. In this text,
entrepreneurship is defined
as the process of creating something new with value by devoting
the necessary time
and effort; assuming the accompanying financial, psychological,
and social risks and
uncertainties; and receiving the resultant rewards of monetary
and personal satisfac-
tion and independence.
The entrepreneur then goes through the entrepreneurial process,
which involves
finding, evaluating, and developing opportunities for creating a
new venture. Each
step is essential to the eventual success of the new venture and
is closely related to the
other steps. There are both formal and informal mechanisms for
identifying business
opportunities. Although formal mechanisms are generally found
within a more estab-
lished company, most entrepreneurs use informal sources for
their ideas, such as being
sensitive to the complaints and chance comments of friends and
associates. Once the

opportunity is identified, the evaluation process begins. Basic to
the screening process
is understanding the factors that create the opportunity:
technology, market changes,
competition, or changes in government regulations. From this
base, the market size
and time dimension associated with the idea can be estimated. It
is important that the
idea fit the personal skills and goals of the entrepreneur, and
that the entrepreneur
have a strong desire to see the opportunity brought to fruition.
In the process of eval-
uating an opportunity, the required resources should be clearly
defined and obtained
at the lowest possible cost.
31
. 32 I '"'"P""'""hip --·--4·------··----·-··---·---·--· ------------ -----
--------·---- -·------··-- ---·--------------
This process requires that the individual and the firm have an
entrepreneurial mind-
set. We started our discussion of this mind-set with the concept
of effectuation, which
challenges traditional notions of the way that entrepreneurs
think about their tasks.
Although entrepreneurs think about some tasks in a causal way,
they also are likely to
think about some tasks effectually (and some entrepreneurs
more so than other en-
trepreneurs) . Rather than starting with the desired outcome in

mind and then focus-
ing on the means to achieving that outcome, entrepreneurs
sometimes approach tasks
by looking at what they have-their means-and selecting among
possible outcomes.
Who is to say whether the "causal chef" who starts with a menu
or the "effectual
chef" who starts with what is in the cupboard produces the best
meal? But we can say
that some expert entrepreneurs think effectually about
opportunities.
Thinking effectually helps entrepreneurs make decisions in
uncertain environments.
When dealing with uncertainty, entrepreneurs must remain
flexible in the way that
they think and in their actions. In this chapter we introduced the
notion of cognitive
flexibility and emphasized that it is something that can be
measured and learned. By
asking questions related to comprehension, connection, strategy,
and reflection, en-
trepreneurs can maintain an awareness of their thought process
and in doing so de-
velop greater cognitive adaptability.
Despite the way that he or she thinks (causally or effectually)
and despite being cog-
nitively flexible, an entrepreneur's firm or project may still fail.
Failure represents an
opportunity to learn, but that learning is typically not automatic
or instantaneous.
Rather, learning from failure is difficult because failure causes
a major loss to the
entrepreneur. Most are likely to feel bad, which interferes with
the learning process.

Entrepreneurs who are able to recover from their negative
emotional reaction to the
loss more quickly will be in a better position to learn from the
experience. The good
news is that there is something that entrepreneurs can do to
enhance their recovery
and learning process. By using a dual process that oscillates
between a loss- and a
restoration-orientation, entrepreneurs can maximize their
processing of information
and minimize the emotional interference to that process.
Obviously, the feelings asso-
ciated with failure are more complicated than we have presented
here, but there are
benefits to be gained in simply knowing that it is natural to feel
bad when something
important is lost, that most people recover, and that there is a
process that can enhance
that recovery.
The study of entrepreneurship has relevance today, not only
because it helps entre-
preneurs better fulfill their personal needs but because of the
economic contribution
of the new ventures. More than increasing national income by
creating new jobs, en-
trepreneurship acts as a positive force in economic growth by
serving as the bridge
between innovation and the marketplace. The study of
entrepreneurship and the ed-
ucation of potential entrepreneurs are essential parts of any
attempt to strengthen
this link so essential to a country's economic well-being.
RESEARCH TASKS

c 1. Speak to people from five different countries and ask what
entrepreneurship means to them and how their national culture
helps and/or hinders entrepreneurship.
2. Ask an entrepreneur about his business today and ask him to
describe the
decisions and series of events that led the business from start-up
to its current
form. Would you classify this process as causal, effectual, or
both?
'"'"'""'"ohtp, Eighth Edotoo I 33 - ·-----·------·-----------~------·-
--------·- -·----------·- ----- ·------------------------+------
3. Ask two entrepreneurs and five students (not in this class) to
fill out Mike Haynie's
"Measure of Adaptive Cognition" (see Table 1.2). How do you
rate relative to the
entrepreneurs? Relative to your fellow students?
4. When conducting a homework exercise for another class
(especially a case
analysis), ask yourself comprehension questions, connection
questions, strategy
questions, and reflection questions. What impact did this have
on the outcome of
the task?
5. What impact does entrepreneurship have on your local, state
(or province), and
national economies? Use data to back up your arguments.

CLASS DISCUSSION
1. List the content that you believe is necessary for an
entrepreneurship course. Be
prepared to justify your answer.
2. Do you really think that entrepreneurs think effectually?
What about yourself-do
you sometimes think effectually? In what ways is it good? Then
why are we taught
in business classes to always think causally? Are there
particular problems or tasks
in which thinking causally is likely to be superior to
effectuation? When might
effectuation be superior to causal thinking?
3. To be cognitively flexible seems to require that the
entrepreneur continually
question himself or herself. Doesn't that create doubt that can
be seen by
employees and financiers such that success actually becomes
more difficult to
achieve? Besides, although flexibility is a good thing, if the
firm keeps changing
based on minor changes in the environment, the buyers are
going to become
confused about the nature of the firm. Is adaptation always a
good thing?
4. Do you believe that ethics and social responsibility should be
part of an
entrepreneurship course, or did the textbook authors just include
a section on
it to be "politically correct"?

5. What is the role of government in entrepreneurship? To what
extent should it
help protect people from entrepreneurship? Should it simply get
out of the way
and leave the market to reward or punish inappropriate
behavior? Given your
answers to these questions, what specific steps should the
government take or
what steps has it taken that should be reversed?
6. What excites you about being an entrepreneur? What are your
major concerns?
SELECTED READINGS
Baron, Robert. (1998). Cognitive Mechanisms in
Entrepreneurship: Why and When
Entrepreneurs Think Differently Than Other People. Journal of
Business Venturing,
vol. 13, no. 4, pp. 275-95.
In this conceptual article, the author presents information on a
study that examined
the possible differences in the thinking of entrepreneurs and
other people. This pa-
per offers a number of implications of a cognitive perspective
for entrepreneurship
research.
Busenitz, lowell; and Jay Barney. (1997). Differences between
Entrepreneurs and
Managers in Large Organizations: Biases and Heuristics in
Strategic Decision Making.
Journal of Business Venturing, vol. 12, no. 1, pp. 9-30.

34 ~. Entrepreneurship
In this article the authors explore the differences in the
decision-making processes
between entrepreneurs and managers in large organizations. In
particular they
focus on a number of biases, such as the overconfidence bias,
but also point out
some benefits from the use of biases and heuristics.
Gaglio, Connie Marie; and Jerome Katz. (2001). The
Psychological Basis of Oppor-
tunity Identification: Entrepreneurial Alertness. Small Business
Economics, vol. 16,
pp. 95-111.
In this article the authors describe a model of entrepreneuri;:JI
alertness and propose
a research agenda for understanding opportunity identification.
They investigate
the origin of the entrepreneurial alertness concept and the
notion of the psycho-
logical schema of alertness.
Gifford, Sharon. (1998). Limited Entrepreneurial Attention and
Economic Develop-
ment. Small Business Economics, vol. 10, no. 1, pp. 17-30.
Economic development depends on the allocation of
entrepreneurial resources to
efforts to discover new profit opportunities. Limited
entrepreneurial attention is
allocated between maintaining current activities and starting

new activities. The
problem of allocating limited entrepreneurial attention in a
variety of contexts is
addressed.
Hayton, James C.; Gerard George; and Shaker A. Zahra.
(Summer 2002). National Cul-
ture and Entrepreneurship: A Review of Behavioral Research.
Entrepreneurial Theory
and Practice, pp. 33-52.
The article reviews and synthesizes the findings of 21 empirical
studies that examine
the association between national cultural characteristics and
aggregate measures of
entrepreneurship, individual characteristics of entrepreneurs,
and aspects of corpo-
rate entrepreneurship.
Hitt, Michael; Barbara Keats; and Samuel DeMarie. (1998).
Navigating in the New Com-
petitive Landscape: Building Strategic Flexibility and
Competitive Advantage in the
21st Century. Academy of Management Executive, vol. 12, pp.
22-43.
The article cites the importance of building strategic flexibility
and a competitive
advantage for organizations to survive in the face of emerging
technical revolution
and increasing globalization. The nature of the forces in the new
competitive land-
scape requires a continuous rethinking of current strategic
actions, organization
structure, communication systems, corporate culture, asset
deployment, and invest-

ment strategies-in short, every aspect of a firm's operation and
long-term health.
Ireland, R. Duane; and Michael Hitt. (1999). Achieving and
Maintaining Strategic Com-
petitiveness in the 21st Century: The Role of Strategic
Leadership. Academy of Man-
agement Executive, vol. 13, pp. 43-55.
In this article the authors acknowledge that effective strategic
leadership practices
can help firms enhance performance while competing in
turbulent and unpre-
dictable environments. They then describe six components of
effective strategic
leadership. When the activities called for by these components
are completed suc-
cessfully, the firm's strategic leadership practices can become a
source of compet-
itive advantage. In turn, use of this advantage can contribute
significantly to
achieving strategic competitiveness and earning above-average
returns in the
next century.
Keh, Hean; Maw Der Foo; and Boon Chong lim. (2002).
Opportunity Evaluation under
Risky Conditions: The Cognitive Processes of Entrepreneurs.
Entrepreneurship: Theory
& Practice, vol. 27, pp. 125-48.
This study uses a cognitive approach to examine opportunity
evaluation, as the per-
ception of opportunity is essentially a cognitive phenomenon.
The authors present

'"'"'""'""h;p, E;gh<h EdWoo I 35
·------- -- - ----- -· ------ --~---~~
a model that consists of four independent variables
(overconfidence, belief in the
law of small numbers, planning fallacy, and illusion of control),
a mediating variable
(risk perception), two control variables (demographics and risk
propensity), and
the dependent variable (opportunity evaluation). They find that
illusion of control
and belief in the law of small numbers are related to how
entrepreneurs evaluate
opportunities. Their results also indicate that risk perception
mediates opportunity
evaluation.
McGrath, Rita. (1999). Falling Forward: Real Options
Reasoning and Entrepreneurial
Failure. Academy of Management Review, vol. 24, pp. 13-30.
Although failure in entrepreneurship is pervasive, theory often
reflects an equally
pervasive antifailure bias. Here, the author uses real options
reasoning to develop a
more balanced perspective of the role of entrepreneurial failure
in wealth creation,
which emphasizes managing uncertainty by pursuing high-
variance outcomes but
investing only if conditions are favorable. This can increase
profit potential while

containing costs. The author also offers propositions that
suggest how gains from
entrepreneurship may be maximized and losses mitigated.
McGrath, Rita; and lan MacMillan. (2000). The Entrepreneurial
Mindset: Strategies for
Continuously Creating Opportunity in an Age of Uncertainty.
Cambridge, MA: Harvard
Business School Press.
In this book the authors provide tips on how to achieve an
entrepreneurial mind-
set. For example, they discuss the need to focus beyond
incremental improvements
to entrepreneurial actions, assess a business's current
performance to establish the
entrepreneurial framework, and formulate challenging goals by
using the compo-
nents of the entrepreneurial framework.
McMullen, JefferyS.; and Dean Shepherd. (2006).
Entrepreneurial Action and the Role
of Uncertainty in the Theory of the Entrepreneur. Academy of
Management Review,
vol. 31, pp. 132-52.
By considering the amount of uncertainty perceived and the
willingness to
bear uncertainty concomitantly, the authors provide a
conceptual model of
entrepreneurial action that allows for examination of
entrepreneurial action
at the individual level of analysis while remaining consistent
with a rich legacy
of system-level theories of the entrepreneur. This model not
only exposes limita-

tions of existing theories of entrepreneurial action but also
contributes to a
deeper understanding of important conceptual issues, such as
the nature of op-
portunity and the potential for philosophical reconciliation
among entrepre-
neurship scholars.
Mitchell, Ron; Lowell Busenitz; Theresa Lant; Patricia
McDougall; Eric Morse; and
Brock Smith. (2002). Toward a Theory of Entrepreneurial
Cognition: Rethinking the
People Side of Entrepreneurship Research. Entrepreneurship:
Theory & Practice, vol. 27,
no. 2, pp. 93-105.
In this article the authors reexamine "the people side of
entrepreneurship" by sum-
marizing the state of play within the entrepreneurial cognition
research stream,
and by integrating the five articles accepted for publication in a
special issue focus-
ing on this ongoing narrative. The authors propose that the
constructs, variables,
and proposed relationships under development within the
cognitive perspective
offer research concepts and techniques that are well suited to
the analysis of
problems that require better explanations of the distinctly
human contributions to
entrepreneurship.
Sarasvathy, Saras. (2001). Causation and Effectuation: Toward
a Theoretical Shift
from Economic Inevitability to Entrepreneurial Contingency.
Academy of Management

Review, vol. 26, no. 2, pp. 243-64.
36 I '"'"'''"'""h;p --+---- - --------- -------- --- ----------
In this article, the author argues that an explanation for the
creation of artifacts
such as firms/organizations and markets requires the notion of
effectuation. Causa-
tion rests on a logic of prediction, effectuation on the logic of
control. The author
illustrates effectuation through business examples and realistic
thought experi-
ments, examines its connections with existing theories and
empirical evidence, and
offers a Jist of testable propositions for future empirical work.
Sarasvathy, Saras. (2006). Effectuation: Elements of
Entrepreneurial Expertise.
Cheltenham, UK: Edward Elgar Publishers.
This book gives the history of the development of effectuation
and provides
provocative new applications and future research directions.
Sarasvathy, Saras. www.effectuation.org.
This Web site provides an up-to-date collection of works on
effectuation.
Shepherd, Dean. (2003). Learning from Business Failure:
Propositions about the Grief
Recovery Process for the Self-Employed. Academy of
Management Review, vol. 28,

pp. 318-29.
In this paper the author uses the psychological literature on
grief to explore the
emotion of business failure, suggesting that the Joss of a
business from failure can
cause the self-employed to feel grief-a negative emotional
response that inter-
feres with the ability to learn from the events surrounding that
loss. The author
discusses how a dual process of grief recovery maximizes the
learning from busi-
ness failure.
Shepherd, Dean. (2004). Educating Entrepreneurship Students
about Emotion and
Learning from Failure. Academy of Management Learning &
Education, vol. 3,
pp. 274-88.
In this article the author offers suggested changes to pedagogy
to help students
manage the emotions of learning from failure and discusses
some of the challenges
associated with measuring the implications of these proposed
changes. The author
then expands his scope to explore the possibility of educating
students on how to
manage their emotions to avoid failure and, more generally,
improve their emo-
tional intelligence, and how organizations can improve their
ability to help individ-
uals regulate their emotions.
Shepherd, Dean. (2009a). Grief Recovery from the Loss of a
Family Business: A Multi-

and Meso-Level Theory. Journal of Business Venturing, vol. 24,
pp. 81-97.
In this article the author develops a multi- and meso-level
theory of grief recovery
time from the loss of a family business. The multi-level aspect
of the model suggests
how primarily micro theories of grief and sense making can help
explain grief re-
covery time at the family group level. The meso-level aspect of
the model provides
insight into recovery from the loss of a family business by
proposing how grief dy-
namics interact at the individual/eve/ through emotional
intelligence and the fam-
ily group level through emotional capability. By supplementing
theories of grief
with those of sense making, the model provides a deeper
understanding of the
grief recovery process. This model has implications for scholars
and practical impli-
cations for family business members and the family unit.
Shepherd, Dean. (2009b). From Lemons to Lemonade: Squeeze
Every Last Ounce of
Success Out of Your Mistakes. Philadelphia, PA: Wharton
School Publishing.
As the author states: Face it. Everyone fails, at least sometimes.
Especially nowadays.
It's what you do next that makes all the difference. That's where
this book comes in.
This book helps you learn all you can from your failure, instead
of letting it defeat
you. You'll discover proven techniques for managing the
emotional trauma of fail-

ure . . . objectively understanding what actually happened . ..
and applying those
lessons quickly and effectively, so you can transform
yesterday's failure into tomor-
row's triumph!
END NOTES
'"'"'""'""h;p, Bgh<h Ed;,;oo I
- - --- -- - ------ ------ --- -------- -- ~
1. Karl Vesper, New Venture Strategies (Englewood Cliffs, NJ:
Prentice Hall,
1980), p. 2.
2. Albert Shapero, Entrepreneurship and Economic
Development (Wisconsin:
Project ISEED, LTD, The Center for Venture Management,
Summer 1975),
p. 187.
3. Robert C. Ronstadt, Entrepreneurship (Dover, MA: Lord
Publishing Co., 1984),
p. 28.
4. This definition is modified from the definition first
developed for the woman
entrepreneur. See Robert D. Hisrich and Candida G. Brush, The
Woman
Entrepreneur: Starting, Financing, and Managing a Successful
New Business

(Lexington, MA: Lexington Books, 1985), p. 18.
5. L. V. Mises, Human Action: A Treatise on Economics, 4th
rev. ed. (San Francisco,
CA: Fox & Wilkes, 1949).
6. See T. M. Amabile, "Entrepreneurial Creativity through
Motivational Synergy,"
Journal of Creative Behavior 31 (1997), pp. 18-26; J. A.
Schumpeter, The
Theory of Economic Development (New Brunswick: Transaction
Pub-
lishers, 1934); and W. B. Gartner, "What Are We Talking about
When We
Talk about Entrepreneurship?" Journal of Business Venturing 5
(1990),
pp. 15-29.
7. J. S. McMullen and D. A. Shepherd, "Toward a Theory of
Entrepreneurial
Action: Detecting and Evaluating Opportunities," Academy of
Management
Review 31 (2006), pp. 132-52.
8. A version of this process can be found in Howard H.
Stevenson, Michael J.
Roberts, and H. Irving Grousbeck, New Business Ventures and
the Entrepreneur
(Burr Ridge, IL: Richard D. Irwin, 1985), pp. 16-23.
9. S. Sarasvathy, "Causation and Effectuation: Toward a
Theoretical Shift from
Economic Inevitability to Entrepreneurial Contingency,"
Academy of Manage-
ment Review 26 (2001), p. 245.

10. H. A. Simon, "Theories of Decision Making in Economics
and Behavioral
Science," American Economic Review 49 (1959), pp. 253-83.
11. Sarasvathy, " Causation and Effectuation," pp. 245-47.
12. M. A. Hitt, "The New Frontier: Transformation of
Management for the New
Millennium," Organizational Dynamics 28, no. 3 (2000), pp. 7-
17.
13. R. D. Ireland, M.A. Hitt, and D. G. Sirmon, "A Model of
Strategic Entre-
preneurship: The Construct and Its Dimensions," Journal of
Management 29
(2003), pp. 963-90; and Rita McGrath and lan MacMillan, The
Entrepre-
neurial Mindset: Strategies for Continuously Creating
Opportunity in
an Age of Uncertainty (Cambridge, MA: Harvard Business
School Press,
2000).
14. Ireland, Hitt, and Sirmon, "A Model of Strategic
Entrepreneurship."
15. M.A. Hitt, B. W. Keats, and S. M. DeMarie, "Navigating in
the New Competi-
tive Landscape: Building Strategic Flexibility and Competitive
Advantage in
the 21st Century," Academy of Management Executive 12
(1998), pp. 22-43
(from page 26).
16. M. Haynie, D. A. Shepherd, E. Mosakowski, and C. Earley,
"A Situated

Metacognitive Model of the Entrepreneurial Mindset," Journal
of Business
Venturing (2009); and M. Haynie and D. A. Shepherd, "A
Measure of Adaptive
Cognition for Entrepreneurship Research," Entrepreneurship:
Theory and
Practice (2009).
17. Haynie and Shepherd (2009).
18. G. Schraw and R. Dennison, "Assessing Metacognitive
Awareness," Contempo-
rary Educational Psychology 19 (1994), pp. 460-75.
37
l . 38 1 Entrepreneurship
...... _.........:,:. --·-· ·-··---,-------- ----·- ·- ----- ---··- .•... --· --·
--- ------ ··--·- -·---·- ------- ·--- -------·- ----· -·-----------------
··-- -·----·····-··--------- ---·····--
19. A. Brown, "Metacognition and Other Mechanisms," in F. E.
Weinert and
R. H. Kluwe (eds.), Metacognition, Motivation, and
Understanding (Hillsdale,
NJ: Lawrence Erlbaum Associates, 1987).
20. E. Guterman, "Toward a Dynamic Assessment of Reading:
Applying Metacogni-
tive Awareness Guiding to Reading Assessment Tasks," Journal
of Research in
Reading 25, no. 3 (2002), pp. 283-98.

21. Z. R. Mevarech and B. Kramarski, "The Effects of
Metacognitive
Training versus Worked-out Examples on Students'
Mathematical
Reasoning," British Journal of Educational Psychology 73, no. 4
(2003),
pp. 449-71; and D. Shepherd, M. Haynie, and J. McMullen
(working
paper), "Teaching Management Students Metacognitive
Awareness:
Enhancing Inductive Teaching Methods and Developing
Cognitive
Adaptability."
22. Mevarech and Kramarski, "The Effects of Metacognitive
Training."
23. Based on D. A. Shepherd, "Learning from Business Failure:
Propositions
about the Grief Recovery Process for the Self-Employed,"
Academy of
Management Review 28 (2003) pp. 318-29. See also D. A.
Shepherd, "Grief
Recovery from the Loss of a Family Business: A Multi- and
Meso-Level
Theory," Journal of Business Venturing, 24 (2009), pp. 81-97.
D. A.
Shepherd, J. G. Covin, and D. F. Kuratko, "Project Failure from
Corporate
Entrepreneurship: Managing the Grief Process," Journal of
Business Venturing
(2009), in press.
24. S. B. Sitkin, "Learning through Failure: The Strategy of
Small Losses," Research

in Organizational Behavior 14 (1992), pp. 231-66.
25. R. McGrath, "Falling Forward: Real Options Reasoning and
Entrepre-
neurial Failure," Academy of Management Review 24 (1999),
pp. 13-30.
26. A. V. Bruno, E. F. McQuarrie, and C. G. Torgrimson, "The
Evolution of New
Technology Ventures over 20 Years: Patterns of Failure,
Merger, and Survival,"
Journal of Business Venturing 7 (1992), pp. 291-302.
27. B. Cova and C. Svanfeldt, "Societal Innovations and the
Postmodern Aestheti-
cization of Everyday Life," International Journal of Research in
Marketing 10
(1993), pp. 297-310 (quote from page 297).
28. Interviews with employees of organizations that have died
reveal negative
emotions such as those associated with grief. SeeS. G. Harris
and R. I. Sutton,
"Functions of Parting Ceremonies in Dying Organizations,"
Academy of
Management Journal 29 (1986), pp. 5-30.
29. A. Gilbert, "Lessons Learned from Failure," Information
Week 817 (2000),
p. 111.
30. G. H. Bower, "How Might Emotions Affect Learning?" inS.
Christianson (ed.),
The Handbook of Emotion and Memory: Research and Theory
(Hillsdale, NJ:
Lawrence Erlbaum, 1992), pp. 3-31; and A. Wells and G.

Matthews, Attention
and Emotion: A Clinical Perspective (Hove, UK: Lawrence
Erlbaum Associates
Ltd., 1994).
31. M.S. Stroebe and H. Schut, "The Dual Process of Coping
with Bereavement:
Rationale and Description," Death Studies 23 (1999), pp. 197-
224.
32. Stroebe and Schut, "The Dual Process of Coping."
33. S. Nolen-Hoeksema, "Responses to Depression and Their
Effects on the Dura-
tion of the Depressive Episode," Journal of Abnormal
Psychology 100 (1991 ),
pp. 569-82.
34. For summary of the research on ethics in entrepreneurship,
see the papers
published as part of the Ruffin Lecture Series of 2002 by the
Business Ethics
Society of The Darden School, University of Virginia.
Entrepreneurship, Eighth Edition +I 39
----- - -· ---··-· -- --·-·- ---·---- -- --·-· ---·----
35. R. E. Freeman, "A Stakeholder Theory of the Modern
Corporation," in T. C.
Beauchamp and N. E. Bowie (eds.), Ethical Theory and
Business (Englewood

Cliffs, NJ: Prentice Hall, 1994), pp. 66-76 (quote from p. 67).
36. S. Venkataraman, "Stakeholder Value Equilibration and the
Entrepreneurial
Process," in R. E. Freeman and S. Venkataraman (eds.), Ethics
and Entrepre-
neurship-The Ruffin Series, Volume 3 (2002).
37. This process is discussed in Yao Tzu Li, David G. Jansson,
and Ernest G.
Cravalho, Technological Innovation in Education and Industry
(New York:
Van Nostrand Reinhold, 1980), pp. 6-12.
Learning Resources
Please read and view this week's Learning Resources before you
complete the Discussion.
Reading
· Course Text: Hisrich, R.D., Peters, M.P., & Shepherd, D.A.
(2013). Entrepreneurship (Laureate Custom ed.). New York:
McGraw-Hill Irwin.
Chapter 1, "Entrepreneurship and the Entrepreneurial Mind-Set"
In this chapter, you will be introduced to the concept of
entrepreneurship and the nature of entrepreneurs. You will also
examine the process behind entrepreneurship and its role in
economic development.
Focus on the definitions provided throughout the chapter.
Review and think about the examples and anecdotes provided in
the chapter that illustrate the major ideas being conveyed.
Reflect on two or three famous entrepreneurs with whom you

are familiar. What characteristics did these individuals have in
common?
Chapter 2, "Entrepreneurial Intentions and Corporate
Entrepreneurship"
In this chapter, you will examine the importance of backgrounds
and characteristics of entrepreneurs, including education,
personal values, age, and work history. Role models are very
important to the development of many entrepreneurs, and you
will discover how different support networks can assist those
individuals who desire to pursue entrepreneurship as a career.
You will learn about the entrepreneurial intentions within
existing organizations and examine the causes for interest in
corporate entrepreneurship. Lastly, you will cover the process
of establishing corporate entrepreneurship within an
organization by exploring examples of companies that have
attempted to do so.
Consider the individuals that have affected your decision to go
into your chosen career field. Why do you think role models
have such an impact on a person's decision to become an
entrepreneur?
Chapter 6, "Protecting the Idea and Other Legal Issues for the
Entrepreneur"
In this chapter, you will identify and distinguish the intellectual
property assets of new ventures. You will also examine the
nature of patents, including the rights they provide and the
process it takes to file for a patent. Patents, trademarks, and
copyrights are important vehicles that protect assets that have
been developed and are needed by entrepreneurs when starting

new ventures. You will also learn of procedures that can protect
a venture's trade secrets. Finally, the implication of new
legislation, issues related to contacts, insurance, product safety,
and liability will be discussed.
Reflect on the extent to which a government currently may be
involved with the creation and enforcement of safety laws. Who
do you feel should have more decision making authority
regarding safety laws, government or private organizations?
INSTRUCTIONS – ANNOTATED BIBLIORGRAPHY ( PART
One)
Now it's time to begin (two) major writing assignments: 1.) the
Focused Annotated Bibliography and 2.) the Research Paper
assignments. The Focused Annotated Bibliography is the
research for the final research paper; therefore, you need to
provide a "focus," a purpose statement that will become your
thesis for the paper. Make sure you use correct MLA style for
both papers. Directions for both assignments are in the course
content; I suggest that you read all directions, example, etc.
before beginning the bibliography assignment. Also read "How
to Write about Literature" and "How to do Research" in the
course content.
Requirements Specific directions, guides and examples are in
Unit One: “Course Resources” in the Content. Read Unit One
before beginning this assignment. Due Date: Check the course
calendar in the Syllabus and Start Items in the course content
The annotated bibliography has two sections: the Purpose
Statement/Introduction and Citations/Annotations (you must
have at least 6 to 8 citations and annotations); please note that
your primary source is NOT listed in the Annotated

Bibliography but will be listed in the Works Cited page of your
research paper.
Roman; do not use Courier
Written in Standard English, free of grammatical and
mechanical errors
All sources are scholarly critical articles or books. Some of
the best databases to search are: JSTOR, MLA, and Literary
Reference Center. If an article is not available in our library,
use interlibrary loan. You can order interlibrary loan articles
through our library – you can do this online on the library’s
website. Articles will be delivered to your email address.
A word of caution: do not use non-scholarly sources or any
online sources, especially Wikipedia or Sparknotes. If you rely
on these sources, you will fail the assignment.
Do not use online bibliography help, services that supposedly
put your citations in correct MLA style – these sources are not
accurate. You are responsible for understanding and
implementing correct MLA style in your citations and in your
papers.
Focused Annotated Bibliography Assignment Directions
First read the handout on how to write an annotated
bibliography. After you have read the handout, decide on a
“FOCUS” for your bibliography. The focus will be determined
by the purpose or focus of your research paper. In other words,
your annotated bibliography is a preparation for your research
paper. Format The focused annotated bibliography has Two
Sections:
(1) The purpose statement: one to two full paragraphs in
length, explaining why you are doing research; serves as an
introduction to your bibliography.
(2) Citations and annotations: five to six citations; each with an
annotation. Requirements

The annotated bibliography must have the two required
sections: the Purpose Statement/Introduction and
Citations/Annotations (you must have at least 5 to 6 citations
and annotations); please note that your primary source is NOT
listed in the Annotated Bibliography but will be listed in the
Works Cited page of your research paper.
Roman; do not use Courier
Written in Standard English, free of grammatical and
mechanical errors
Make sure you use scholarly critical articles or books. Some of
the best databases to search are: JSTOR, MLA, and Literary
Reference Center. If an article is not available in our library,
use interlibrary loan. You can order interlibrary loan articles
through our library – you can do this online on the library’s
website. Articles will be delivered to your email address.
A word of caution: do not use non-scholarly sources,
especially online sources such as Wikipedia or Sparknotes. I
will deduct points if any of these sources are used. If you have
relied heavily on one or more of these sources, you will fail the
assignment.
If you plagiarize this assignment, you will receive a zero for
the assignment and will fail the course.
SHILOH by Bobbie Ann Mason
CONTEMPOARY SOUTHERN LITERATURE
SHILOH Bobbie Ann Mason 1980, 1982 Leroy Moffitt's wife,
Norma Jean, is working on her pectorals. She lifts three-pound
dumbbells to warm up, then progresses to a twenty-pound
barbell. Standing with her legs apart, she reminds Leroy of
Wonder Woman. "I'd give anything if I could just get these
muscles to where they're real hard," says Norma Jean. "Feel this
arm. It's not as hard as the other one." "That's 'cause you're
right-handed," says Leroy, dodging as she swings the barbell in

an arc. "Do you think so?" "Sure." Leroy is a truck driver. He
injured his leg in a highway accident four months ago, and his
physical therapy, which involves weights and a pulley,
prompted Norma Jean to try building herself up. Now she is
attending a body-building class. Leroy has been collecting
temporary disability since his tractor-trailer jackknifed in
Missouri, badly twisting his left leg in its socket. He has a steel
pin in his hip. He will probably not be able, to drive his rig
again. It sits in the backyard, like a gigantic bird that has flown
home to roost. Leroy has been home in Kentucky for three
months, and his leg is almost healed, but the accident frightened
him and he does not want to drive any more long hauls. He is
not sure what to do next. In the meantime, he makes things from
craft kits. He started by building a miniature log cabin from
notched Popsicle sticks. He varnished it and placed it on the TV
set, where it remains. It reminds him of a rustic Nativity scene.
Then he tried string art (sailing ships on black velvet), a
macramé owl kit, a snap-together B-17 Flying Fortress, and a
lamp made out of a model truck, with a light fixture screwed in
the top of the cab. At first the kits were diversions, something
to kill time but now he is thinking about building a full-scale
log house from a kit. It would be considerably cheaper than
building a regular house, and besides, Leroy has grown to
appreciate how things are put together. He has begun to realize
that in all the years he was on the road he never took time to
examine anything. He was always flying past scenery. "They
won't let you build a log cabin in any of the new subdivisions,"
Norma Jean tells him. "They will if I tell them it's for you," he
says, teasing her. Ever since they were married, he has promised
Norma Jean he would build her a new home one day. They have
always rented, and the house they live in is small and
nondescript. It does not even feel like a home, Leroy realizes
now. Norma Jean works at the Rexall drugstore, and she has
acquired an amazing amount of information about cosmetics.
When she explains to Leroy the three stages of complexion care,
involving creams, toners, and moisturizers, he thinks happily of

other petroleum products—axle grease, diesel fuel. This is a
connection between him and Norma Jean. Since he has been
home, he has felt unusually tender about his wife and guilty
over his long absences. But he can't tell what she feels about
him. Norma Jean has never complained about his traveling; she
has never made hurt remarks, like calling his truck a "widow-
maker." He is reasonably certain she has been faithful to him,
but he wishes she would celebrate his permanent homecoming
more happily. Norma Jean is often startled to find Leroy at
home, and he thinks she seems a little disappointed about it.
Perhaps he reminds her too much of the early days of their
marriage, before he went on the road. They had a child who died
as an infant, years ago. They never speak about their memories
of Randy, which have almost faded, but now that Leroy is home
all the time, they sometimes feel awkward around each other,
and Leroy wonders if one of them should mention the child. He
has the feeling that they are waking up out of a dream
together— that they must create a new marriage, start afresh.
They are lucky they are still married. Leroy has read that for
most people losing a child destroys the marriage—or else he
heard this on Donahue. He can't always remember where he
learns things anymore. At Christmas, Leroy bought an electric
organ for Norma Jean. She used to play the piano when she was
in high school. "It don't leave you," she told him once. "It's like
riding a bicycle." The new instrument had so many keys and
buttons that she was bewildered by it at first. She touched the
keys tentatively, pushed some buttons, then pecked out
"Chopsticks." It came out in an amplified fox-trot rhythm, with
marimba sounds. "It's an orchestra!" she cried. The organ had a
pecan-look finish and eighteen preset chords, with optional
flute, violin, trumpet, clarinet, and banjo accompaniments.
Norma Jean mastered the organ almost immediately. At first she
played Christmas songs. Then she bought The Sixties Songbook
and learned every tune in it, adding variations to each with the
rows of brightly colored buttons. "I didn't like these old songs
back then," she said. "But I have this crazy feeling I missed

something." "You didn't miss a thing," said Leroy. Leroy likes
to lie on the couch and smoke a joint and listen to Norma Jean
play "Can't Take My Eyes Off You" and "I'll Be Back." He is
back again. After fifteen years on the road, he is finally settling
down with the woman he loves. She is still pretty. Her skin is
flawless. Her frosted curls resemble pencil trimmings. Now that
Leroy has come home to stay, he notices how much the town
has changed. Subdivisions are spreading across western
Kentucky like an oil slick. The sign at the edge of town says
"Pop: 11,500"—only seven hundred more than it said twenty
years before. Leroy can't figure out who is living in all the new
houses. The farmers who used to gather around the courthouse
square on Saturday afternoons to play checkers and spit tobacco
juice have gone. It has been years since Leroy has thought about
the farmers, and they have disappeared without his noticing.
Leroy meets a kid named Stevie Hamilton in the parking lot at
the new shopping center. While they pretend to be strangers
meeting over a stalled car, Stevie tosses an ounce of marijuana
under the front seat of Leroy's car. Stevie is wearing orange
jogging shoes and a T-shirt that says CHATTAHOOCHEE
SUPER-RAT. His father is a prominent doctor who lives in one
of the expensive subdivisions in a new white-columned brick
house that looks like a funeral parlor. In the phone book under
his name there is a separate number, with the listing
"Teenagers." "Where do you get this stuff?" asks Leroy. "From
your pappy?" "That's for me to know and you to find out,"
Stevie says. He is slit-eyed and skinny. "What else you got?"
"What you interested in?" "Nothing special. Just wondered."
Leroy used to take speed on the road. Now he has to go slowly.
He needs to be mellow. He leans back against the car and says,
"I'm aiming to build me a log house, soon as I get time. My
wife, though, I don't think she likes the idea." "Well, let me
know when you want me again," Stevie says. He has a cigarette
in his cupped palm, as though sheltering it from the wind. He
takes a long drag, then stomps it on the asphalt and slouches
away. Stevie's father was two years ahead of Leroy in high

school. Leroy is thirty-four. He married Norma Jean when they
were both eighteen, and their child Randy was born a few
months later, but he died at the age of four months and three
days. He would be about Stevie's age now. Norma Jean and
Leroy were at the drive-in, watching a double feature (Dr.
Strangelove and Lover Come Back), and the baby was sleeping
in the back seat. When the first movie ended, the baby was
dead. It was the sudden infant death syndrome. Leroy
remembers handing Randy to a nurse at the emergency room, as
though he were offering her a large doll as a present. A dead
baby feels like a sack of flour. "It just happens sometimes," said
the doctor, in what Leroy always recalls as a nonchalant tone.
Leroy can hardly remember the child anymore, but he still sees
vividly a scene from Dr. Strangelove in which the President of
the United States was talking in a folksy voice on the hot line to
the Soviet premier about the bomber accidentally headed toward
Russia. He was in the War Room, and the world map was lit up.
Leroy remembers Norma Jean standing catatonically beside him
in the hospital and himself thinking: Who is this strange girl?
He had forgotten who she was. Now scientists are saying that
crib death is caused by a virus. Nobody knows anything, Leroy
thinks. The answers are always changing. When Leroy gets
home from the shopping center, Norma Jean's mother, Mabel
Beasley, is there. Until this year, Leroy has not realized how
much time she spends with Norma Jean. When she visits, she
inspects the closets and then the plants, informing Norma Jean
when a plant is droopy or yellow. Mabel calls the plants
"flowers," although there are never any blooms. She always
notices if Norma Jean's laundry is piling up. Mabel is a short,
overweight woman whose tight, brown-dyed curls look more
like a wig than the actual wig she sometimes wears. Today she
has brought Norma Jean an off-white dust ruffle she made for
the bed; Mabel works in a customupholstery shop. "This is the
tenth one. I made this year," Mabel says. "I got started and
couldn't stop." "It's real pretty," says Norma Jean. "Now we can
hide things under the bed," says Leroy, who gets along with his

mother-in-law primarily by joking with her. Mabel has never
really forgiven him for disgracing her by getting Norma Jean
pregnant. When the baby died, she said that fate was mocking
her. "What's that thing?" Mabel says to Leroy in a loud voice,
pointing to a tangle of yarn on a piece of canvas. Leroy holds it
up for Mabel to see. "It's my needlepoint," he explains. "This is
a Star Trek pillow cover." "That's what a woman would do,"
says Mabel. "Great day in the morning!" "All the big football
players on TV do it," he says. "Why, Leroy, you're always
trying to fool me. I don't believe you for one minute. You don't
know what to do with yourself—that's the whole trouble;
Sewing!" "I'm aiming to build us a log house," says Leroy
"Soon as my plans come." "Like heck you are," says Norma
Jean. She takes Leroy's needlepoint and shoves it into a drawer.
"You have to find a job first. Nobody can afford to build now
anyway." Mabel straightens her girdle and says, "I still think
before you get tied down y'all ought to take a little run to
Shiloh." "One of these days, Mama," Norma Jean says
impatiently. Mabel is talking about Shiloh, Tennessee. For the
past few years, she has been urging Leroy and Norma jean to
visit the Civil War battleground there. Mabel went there on her
honeymoon—the only real trip she ever took. Her husband died
of a perforated ulcer when Norma Jean was ten, but Mabel, who
was accepted into the United Daughters of the Confederacy in
1975, is still preoccupied with going back to Shiloh. "I've been
to kingdom come and back in that truck out yonder," Leroy says
to Mabel, "but we never yet set foot in that battleground. Ain't
that something? How did I miss it?" "It's not even that far,"
Mabel says. After Mabel leaves, Norma Jean reads to Leroy
from a list she has made. "Things you could do," she announces.
"You could get a job as a guard at Union Carbide, where they'd
let you set on a stool. You could get on at the lumberyard. You
could do a little carpenter work, if you want to build so bad.
You could—" "I can't do something where I'd have to stand up
all day." "You ought to try standing up all day behind a
cosmetics counter. It's amazing that I have strong feet, coming

from two parents that never had strong feet at all." At the
moment Norma Jean is holding on to the kitchen counter,
raising her knees one at a time as she talks. She is wearing two-
pound ankle weights. "Don't worry," says Leroy. "I'll do
something." "You could truck calves to slaughter for somebody.
You wouldn't have to drive any big old truck for that." "I'm
going to build you this house," says Leroy. I want to make you
a real home." "I don't want to live in any log cabin." "It's not a
cabin. It's a house." "I don't care. It looks like a cabin." "You
and me together could lift those logs. It's just like lifting
weights." Norma Jean doesn't answer. Under her breath, she is
counting. Now she is marching through the kitchen. She is
doing goose steps. Before his accident, when Leroy came home
he used to stay in the house with Norma Jean, watching. TV in
bed and playing cards. She would cook fried chicken, picnic
ham, chocolate pie—all his favorites. Now he is home alone
much of the time. In the mornings, Norma Jean disappears,
leaving a cooling place in the bed. She eats a cereal called Body
Buddies, and she leaves the bowl on the table, with the soggy
tan balls floating in a milk puddle. He sees things about Norma
Jean that he never realized before. When she chops onions, she
stares off into a corner, as if she can't bear to look. She puts on
her house slippers almost precisely at nine o'clock every
evening and nudges her jogging shoes under the couch. She
saves bread heels for the birds. Leroy watches the birds at the
feeder. He notices the peculiar way goldfinches fly past the
window. They close their wings, then fall, then spread their
wings to catch and lift themselves. He wonders if they close
their eyes when they fall. Norma Jean closes her eyes when they
are in bed. She wants the lights turned out. Even then, he is sure
she closes her eyes. He goes for long drives around town. He
tends to drive a car rather carelessly. Power steering and an
automatic shift make a car feel so small and inconsequential
that his body is hardly involved in the driving process. His
injured leg stretches out comfortably. Once or twice he has
almost hit something, but even the prospect of an accident

seems minor in a car. He cruises the new subdivisions, feeling
like a criminal rehearsing for a robbery. Norma Jean is probably
right about a log house being inappropriate here in the new
subdivisions. All the houses look grand and complicated. They
depress him. One day when Leroy comes home from a drive he
finds Norma Jean in tears. She is in the kitchen making a potato
and mushroom-soup casserole, with grated-cheese topping. She
is crying because her mother caught her smoking. "I didn't hear
her coming. I was standing here puffing away pretty as you
please," Norma Jean says, wiping her eyes. "I knew it would
happen sooner or later," says Leroy, putting his arm around her.
"She don't know the meaning of the word 'knock,"' says Norma
Jean. "It's a wonder she hadn't caught me years ago." "Think of
it this way," Leroy says. "What if she caught me with a joint?"
"You better not let her!" Norma Jean shrieks. "I'm warning you,
Leroy Moffitt!" "I'm just kidding. Here, play me a tune. That'll
help you relax.” Norma Jean puts the casserole in the oven and
sets the timer. Then she plays a ragtime tune, with horns and
banjo, as Leroy lights up a joint and lies on the couch, laughing
to himself about Mabel's catching him at it. He thinks of Stevie
Hamilton-a doctor's son pushing grass. Everything is funny. The
whole town seems crazy and small. He is reminded of Virgil
Mathis, a boastful policeman Leroy used to shoot pool with.
Virgil recently led a drug bust in a back room at a bowling
alley, where he seized ten thousand dollars' worth of marijuana.
The newspaper had a picture of him holding up the bags of grass
and grinning widely. Right now, Leroy can imagine Virgil
breaking down the door and arresting him with a lungful of
smoke. Virgil would probably have been alerted to the scene
because of all the racket Norma Jean is making. Now she sounds
like a hard-rock band. Norma Jean is terrific. When she
switches to a Latin-rhythm version of "Sunshine Superman,"
Leroy hums along. Norma Jean's foot goes up and down, up and
down. "Well, what do you think?" Leroy says, when Norma Jean
pauses to search through her music. "What do I think about
what?" His mind has gone blank. Then he Says, "I'll sell my rig

and build us a house." That wasn't what he wanted to say. He
wanted to know what she thought—what she really thought—
about them. "Don't start in on that again," says Norma Jean. She
begins playing "Who'll Be the Next in Line?" Leroy used to tell
hitchhikers his whole life story—about his travels, his
hometown, the baby. He would end with a question: "Well, what
do you think?" It was just a rhetorical question. In time, he had
the feeling that he'd been telling the same story over and over to
the same hitchhikers. He quit talking to hitchhikers when he
realized how his voice sounded—whining and self-pitying, like
some teenage-tragedy song. Now Leroy has the sudden impulse
to tell Norma Jean about himself, as if he had just met her. They
have known each, other so long they have forgotten a lot about
each other. They could become reacquainted. But when the oven
timer goes off and she runs to the kitchen, he forgets why he
wants to do this. The next day, Mabel drops by. It is Saturday
and Norma Jean is cleaning. Leroy is studying the plans of his
log house, which have finally come in the mail. He has them
spread out on the table—big sheets of stiff blue paper, with
diagrams and numbers printed in white. While Norma Jean runs
the vacuum, Mabel drinks coffee. She sets her coffee cup on a
blueprint. "I’m just waiting for time to pass," she says to Leroy,
drumming her fingers on the table. As soon as Norma Jean
switches off the vacuum, Mabel says in a loud voice, "Did you
hear about the datsun dog that killed the baby?" Norma Jean
syas, “That is “dachshund.’” “They put the dog on trial. It
chewed the baby’s legs off. The mother was in the next room all
the time." She raises her voice. "They thought it was neglect."
Norma Jean is holding her ears. Leroy manages to open the
refrigerator and get some Diet Pepsi to offer Mabel. Mabel still
has some coffee and she waves away the Pepsi. "Datsuns are
like that," Mabel says. "They're jealous dogs. They'll tear a
place to pieces if you don't keep an eye on them." "You better
watch out what you're saying, Mabel," says Leroy. "Well, facts
is facts." Leroy looks out the window at his rig. It is like a huge
piece of furniture gathering dust in the backyard. Pretty soon it

will be an antique. He hears the vacuum cleaner. Norma Jean
seems to be cleaning the living room rug again. Later, she says
to Leroy, "She just said that about the baby because she caught
me smoking. She's trying to pay me back." "What are you
talking about?" Leroy says, nervously shuffling blueprints.
"You know good and well," Norma Jean says. She is sitting in a
kitchen chair with her feet up and her arms wrapped around her
knees. She looks small and helpless. She says, "The very idea,
her bringing up a subject like that! Saying it was neglect." "She
didn't mean that," Leroy says. "She might not have thought she
meant it. She always says things like that. You don't know how
she goes on." "But she didn't really mean it. She was just
talking." Leroy opens a king-sized bottle of beer and pours it
into two glasses, dividing it carefully. He hands a glass to
Norma Jean and she takes it from him mechanically. For a long
time, they sit by the kitchen window watching the birds at the
feeder. Something is happening. Norma Jean is going to night
school. She has graduated from her sixweek body-building
course and now she is taking an adult-education course in
composition at Paducah Community College. She spends her
evenings outlining paragraphs. "First you have a topic
sentence," she explains to Leroy. "Then you divide it up. Your
secondary topic has to be connected to your primary topic." To
Leroy, this sounds intimidating. "I never was any good in
English," he says. "It makes a lot of sense." "What are you
doing this for, anyhow?" She shrugs. "It's something to do." She
stands up and lifts her dumbbells a few times. "Driving a rig,
nobody cared about my English." "I'm not criticizing your
English." Norma Jean used to say, "If I lose ten minutes' sleep, I
just drag all day." Now she stays up late, writing compositions.
She got a B on her first paper—a how-to theme on soup-based
casseroles. Recently Norma Jean has been cooking unusual
foods—tacos, lasagna, Bombay chicken. She doesn't play the
organ anymore, though her second paper was called "Why
Music Is Important to Me." She sits at the kitchen table,
concentrating on her outlines, while Leroy plays with his log

house plans, practicing with a set of Lincoln Logs. The thought
of getting a truckload of notched, numbered logs scares him,
and he wants to be prepared. As he and Norma Jean work
together at the kitchen table, Leroy has the hopeful thought that
they are sharing something, but he knows he is a fool to think
this. Norma Jean is miles away. He knows he is going to lose
her. Like Mabel, he is just waiting for time to pass. One day,
Mabel is there before Norma Jean gets home from work, and
Leroy finds himself confiding in her. Mabel, he realizes, must
know Norma Jean better than he does. "I don't know what's got
into that girl," Mabel says. "She used to go to bed with the
chickens. Now you say she's up all hours. Plus her a-smoking. I
like to died." "I want to make her this beautiful home," Leroy
says, indicating the Lincoln Logs. "I don't think she even wants
it. Maybe she was happier with me gone." "She don't know what
to make of you, coming home like this." "Is that it?" Mabel
takes the roof off his Lincoln Log cabin. "You couldn't get me
in a log cabin," she says. "I was raised in one. It's no picnic, let
me tell you." "They're different now," says Leroy. "I tell you
what," Mabel says, smiling oddly at Leroy. "What?" "Take her
on down to Shiloh. Y'all need to get out together, stir a little.
Her brain's all balled up over them books." Leroy can see traces
of Norma Jean's features in her mother's face. Mabel's worn
face has the texture of crinkled cotton, but suddenly she looks
pretty. It occurs to Leroy that Mabel has been hinting all along
that she wants them to take her with them to Shiloh. "Let's all
go to Shiloh," he says. "You and me and her. Come Sunday."
Mabel throws up her hands in protest "Oh, no, not me. Young
folks want to be by theirselves." When Norma Jean comes in
with groceries, Leroy says excitedly, "Your mama here's been
dying to go to Shiloh for thirty-five years. It's about time we
went, don't you think?" "I'm not going to butt in on anybody's
second honeymoon," Mabel says. "Who's going on a
honeymoon, for Christ's sake?" Norma Jean says loudly. "I
never raised no daughter of mine to talk that-a-way," Mabel
says. "You ain't seen nothing yet," says Norma Jean. She starts

putting away boxes and cans, slamming cabinet doors. "There's
a log cabin at Shiloh," Mabel says. "It was there during the
battle. There's bullet holes in it." "When are you going to shut
up about Shiloh, Mama?" asks Norma Jean. "I always thought
Shiloh was the prettiest place, so full of history," Mabel goes
on. "I just hoped y'all could see it once before I die, so you
could tell me about it." Later, she whispers to Leroy, "You do
what I said. A little change is what she needs." "Your name
means 'the king,"' Norma Jean says to Leroy that evening. He is
trying to get her to go to Shiloh, and she is reading a book
about another century. "Well, I reckon I ought to be right
proud." "I guess so." "Am I still king around here?" Norma Jean
flexes her biceps and feels them for hardness. "I'm not fooling
around with anybody, if that's what you mean," she says.
"Would you tell me if you were?" "I don't know." "What does
your name mean?" "It was Marilyn Monroe's real name." "No
kidding!" "Norma comes from the Normans, They were
invaders," she says. She closes her book and looks hard at
Leroy. "I'll go to Shiloh with you if you'll stop staring at me."
On Sunday, Norma Jean packs a picnic and they go to Shiloh.
To Leroy's relief, Mabel says she does not want to come with
them. Norma Jean drives, and Leroy, sitting beside her, feels
like some boring hitchhiker she has picked up. He tries some
conversation, but she answers him in monosyllables. At Shiloh,
she drives aimlessly through the park, past bluffs and trails and
steep ravines. Shiloh is an immense place, and Leroy cannot see
it as a battleground. It is not what he expected. He thought it
would look like a golf course. Monuments are everywhere,
showing through the thick clusters of trees. Norma Jean passes
the log cabin Mabel mentioned. It is surrounded by tourists
looking for bullet holes. "That's not the kind of log house I've
got in mind," says Leroy apologetically. "I know that." "This is
a pretty place. Your Mama was right" "It's O.K.," says Norma
Jean. "Well, we've seen it. I hope she's satisfied." They burst
out laughing together. At the park museum, a movie on Shiloh
is shown every half hour, but they decide that they don't want to

see it. They buy a souvenir Confederate flag for Mabel, and
then they find a picnic spot near the cemetery. Norma Jean has
brought a picnic cooler, with pimiento sandwiches, soft drinks,
and Yodels. Leroy eats a sandwich and then smokes a joint,
hiding it behind the picnic cooler. Norma Jean has quit smoking
altogether. She is picking cake crumbs from the cellophane
wrapper, like a fussy bird. Leroy says, "So the boys in gray
ended up in Corinth. The Union soldiers zapped 'em finally.
April 7, 1862." They both know that he doesn't know any
history. He is just talking about some of the historical plaques
they have read. He feels awkward; like a boy on a date with an
older girl. They are still just making conversation. "Corinth is
where Mama eloped to," says Norma Jean. They sit in silence
and stare at the cemetery for the Union dead and, beyond, at a
tall cluster of trees. Campers are parked nearby, bumper to
bumper, and small children in bright clothing are cavorting and
squealing. Norma Jean wads up the cake wrapper and squeezes
it tightly in her hand. Without looking at Leroy, she says, "I
want to leave you." Leroy takes a bottle of Coke out of the
cooler and flips off the cap. He holds the bottle poised near his
mouth but cannot remember to take a drink. Finally he says,
"No, you don't." "Yes, I do." "I won't let you." "You can't stop
me." "Don't do me that way." Leroy knows Norma Jean will
have her own way. "Didn't I promise to be home from now on?"
he says. "In some ways, a woman prefers a man who wanders,"
says Norma Jean. "That sounds crazy, I know." "You're not
crazy." Leroy remembers to drink from his Coke. Then he says,
"Yes, you are crazy. You and me could start all over again.
Right back at the beginning." "We have started all over again,"
says Norma Jean. "And this is how it turned out." "What did I
do wrong?" "Nothing." "Is this one of those women's lib
things?" Leroy asks. "Don't be funny." The cemetery, a green
slope dotted with white markers, looks like a subdivision site.
Leroy is trying to comprehend that his marriage is breaking up,
but for some reason he is wondering about white slabs in a
graveyard. "Everything was fine till Mama caught me smoking,"

says Norma Jean, standing up. "That set something off." "What
are you talking about?" "She won't leave me alone—you won't
leave me alone." Norma Jean seems to be crying, but she is
looking away from him. "I feel eighteen again. I can't face that
all over again." She starts walking away. "No, it wasn't fine. I
don't know what I'm saying. Forget it." Leroy takes a lungful of
smoke and closes his eyes as Norma Jean's words sink in. He
tries to focus on the fact that thirty-five hundred soldiers died
on the grounds around him. He can only think of that war as a
board game with plastic soldiers. Leroy almost smiles, as he
compares the Confederates' daring attack on the Union camps
and Virgil Mathis's raid on the bowling alley. General Grant,
drunk and furious, shoved the Southerners back to Corinth,
where Mabel and Jet Beasley were married years later, when
Mabel was still thin and good-looking. The next day, Mabel and
Jet visited the battleground, and then Norma Jean was born, and
then she married Leroy and they had a baby, which they lost,
and now Leroy and Norma Jean are here at the same
battleground. Leroy knows he is leaving out a lot. He is leaving
out the insides of history. History was always just names and
dates to him. It occurs to him that building a house out of logs
is similarly empty—too simple. And the real inner workings of
a marriage, like most of history, have escaped him. Now he sees
that building a log house is the dumbest idea he could have had.
It was clumsy of him to think Norma Jean would want a log
house. It was a crazy idea. He'll have to think of something
else, quickly. He will wad the blueprints into tight balls and
fling them into the lake. Then he'll get moving again. He opens
his eyes. Norma Jean has moved away and is walking through
the cemetery, following a serpentine brick path. Leroy gets up
to follow his wife, but his good leg is asleep and his bad leg
still hurts him. Norma Jean is far away, walking rapidly toward
the bluff by the river, and he tries to hobble toward her. Some
children run past him, screaming noisily. Norma Jean has
reached the bluff, and she is looking out over the Tennessee
River. Now she turns toward Leroy and waves her arms. Is she

beckoning to him? She seems to be doing an exercise for her
chest muscles. The sky is unusually pale—the color of the dust
ruffle Mabel made for their bed.

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