Chapter 1: Introduction to Entrepreneurship

CHAPTER 1

INTRODUCTION TO ENTREPRENEURSHIP

LEARNING OBJECTIVES

After studying this chapter students should be ready to:

1. Explain entrepreneurship and discuss its importance.

2. Describe corporate entrepreneurship and its use in established firms.
3. Discuss three main reasons people decide to become entrepreneurs.
4. Identify four main characteristics of successful entrepreneurs.
5. Explain the five common myths regarding entrepreneurship.
6. Explain how entrepreneurial firms differ from salary-substitute and lifestyle firms.
7. Discuss the changing demographics of entrepreneurs in the United States.
8. Discuss the impact of entrepreneurial firms on economies and societies.
9. Identify ways in which large firms benefit from the presence of smaller
entrepreneurial firms.
10. Explain the entrepreneurial process.

CHAPTER OVERVIEW

This chapter (1) introduces the book, (2) provides an overview of the entrepreneurial
process, and (3) introduces a conceptual model that shows how the entrepreneurial
process typically unfolds. The model, which is shown at the top of the next page, depicts
the entrepreneurial process as a 10 step process, beginning with the decision to become
an entrepreneur. The chapters of the book follow the model. We hope that this approach
provides your students a nice visual way of understanding how the entrepreneurial
process unfolds.

The chapter focuses on why people become entrepreneurs, the characteristics of

successful entrepreneurs, the changing demographics of entrepreneur, and the importance
of entrepreneurship to the economy and society. The three boxed features, which appear
in every chapter, are introduced. The chapter ends with a brief discussion of each of the
major sections of the book.

The chapter, like the rest of the book, is written in an upbeat yet realistic manner.

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Chapter 1: Introduction to Entrepreneurship

Basic Model of the Entrepreneurial Process

The Model Parallels the Chapters in the Book

CHAPTER OUTLINE

I. Introduction to Entrepreneurship
A. What is Entrepreneurship?
B. Why Become an Entrepreneur?
C. Characteristics of Successful Entrepreneurs
1. Passion for the Business
2. Product/Customer Focus
3. Tenacity Despite Failure
4. Execution Intelligence
D. Common Myths About Entrepreneurs
E. Types of Start-Up Firms

II. Changing Demographics of Entrepreneurs

A. Women Entrepreneurs
B. Minority Entrepreneurs
C. Senior Entrepreneurs
D. Young Entrepreneurs

II. Entrepreneurship’s Importance

A. Economic Impact of Entrepreneurial Firms
B. Entrepreneurial Firms’ Impact on Society
C. Entrepreneurial Firms’ Impact on Larger Firms

III. The Entrepreneurial Process

A. Decision to Become an Entrepreneur
B. Developing Successful Business Ideas
C. Moving From an Idea to an Entrepreneurial Firm

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 Chapter 1: Introduction to Entrepreneurship

D. Managing and Growing an Entrepreneurial Firm

CHAPTER NOTES

I. Introduction to Entrepreneurship

A. What is Entrepreneurship?

1. The word “entrepreneur” derives from the French words entre, meaning
between,” and prendre, meaning “to take.” The word was originally used
to describe people who “take on the risk” between buyers and sellers or
who “undertake” a task such as starting a new venture.

2. Inventors and entrepreneurs differ from one another. An inventor creates

something new. An entrepreneur assembles and then integrates all the
resources needed to transform the invention into a viable business.

3. Entrepreneurship (according to the classic definition) is the process by

which individuals pursue opportunities without regard to resources they
currently control.

4. Established firms with an orientation to behave entrepreneurially practice

corporate entrepreneurship.

a. All firms fall on a conceptual continuum that ranges from highly

conservative to highly entrepreneurial. The position of a firm on
this continuum is referred to as its entrepreneurial intensity.

b. Entrepreneurial firms are typically proactive innovators and are not

adverse to risk. In contrast, conservative firms take a more “wait and
see” posture, are less innovative, and are risk averse.

B. Why Become an Entrepreneur?

1. The three primary reasons that people become entrepreneurs and start their
own firms are to (1) be their own boss, (2) pursue their own ideas, and
(3) realize financial goals.

a. Be your own boss. Many entrepreneurs want to be their own boss

because either they have had a long-term ambition to own their own
firm or they have become frustrated working in traditional jobs.

b. Pursue their own ideas. Some people are naturally alert, and when
they recognize ideas for new products or services, they have a desire
to see those ideas realized.

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Chapter 1: Introduction to Entrepreneurship

c. Realize financial goals. People start their own firms to pursue financial
rewards. This motivation, however, is typically secondary to the first
two and often fails to live up to its hype.

C. Characteristics of Successful Entrepreneur

1. Passion for the Business

a. The number one characteristic shared by successful entrepreneurs is

passion for their business. This passion typically stems from the
entrepreneur’s belief that the business will positively influence
people’s lives.

2. Product/Customer Focus

a. An entrepreneur’s keen focus on products and customers typically

stems from the fact that most successful entrepreneurs are, at heart,
craftspeople.

3. Tenacity Despite Failure

a. Because entrepreneurs are typically trying something new, the failure

rate associated with their efforts is naturally high.

b. Developing a new business may require a certain degree of

experimentation before a success is attained. Setbacks and failures
inevitably occur during this process. The litmus test for
entrepreneurs is their ability to persevere through setbacks and
failures.

4. Execution Intelligence

a. The ability to fashion a solid business idea into a viable business is a

key characteristic of successful entrepreneurs.

b. The ability to effectively execute a business idea means developing a

business model, putting together a new venture team, raising money,
establishing partnership, managing finances, leading and motivating
employees, and so on. It also demands the ability to translate thought,
creativity, and imagination into action and measurable results.

D. Common Myths About Entrepreneurs

1. Myth 1: Entrepreneurs are born, not made.

a. This myth is based on the mistaken belief that some people are

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 Chapter 1: Introduction to Entrepreneurship

genetically predisposed to be an entrepreneur.

2. Myth 2: Entrepreneur are gamblers.

a. Entrepreneurs are usually moderate risk takers, as are most

people.

3. Myth 3: Entrepreneurs are motivated primarily by money.

a. It is naïve to think that entrepreneurs don’t seek financial rewards.

As discussed previously, however, money is rarely the primary
reason entrepreneurs start new firms.

4. Myth 4: Entrepreneurs should be young and energetic.

a. While it is important to be energetic, investors often cite the strength

of the entrepreneur (in terms of business experience, skill and talent) as
their most important criterion in the decision to fund new ventures.

b. More often than not, older rather than younger entrepreneurs have the
qualities that investors are looking for.

E. Types of Start-Up Firms

1. Salary-substitute firms are small firms that afford their owner or owners a
similar level of income to what they would earn in a conventional job.

a. Examples of salary-substitute firms are dry cleaners, convenience

stores, restaurants, accounting firms, retail stores, and hairstyling
salons.

2. Lifestyle firms provide their owner or owners the opportunity to pursue

a particular lifestyle and earn a living while doing so.

a. Examples of lifestyle firms include ski instructors, golf pros, and tour
guides.

3. Entrepreneurial firms bring new products and services to market by

creating and seizing opportunities.

a. Google, eBay and Starbucks are well-known, highly successful

examples of entrepreneurial firms.

II. Changing Demographics of Entrepreneurs

A. Women Entrepreneurs

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Chapter 1: Introduction to Entrepreneurship

1. There were 6.5 million women-owned businesses in 2002, the most

recent year the U.S. Census Bureau collected business ownership data.
That number is up 20 percent from 1997.

2. Although historically women-owned firms have primarily been in health-

care and professional services, that emphasis is changing. Between 1997
and 2002, the fastest-growing areas of women-owned firms were
construction (30 percent increase), agricultural services (24 percent
increase), transportation (20 percent increase), communications (20
percent increase), and public utilities (20 percent increase).

B. Minority Entrepreneurs

1. Minorities owned approximately 18 percent of the 23 million U.S.

businesses in 2002, up 10 percent from 1997.

2. African American-owned firms had the highest growth rate between

1997 and 2002, up 45 percent. Hispanics and Latinos constituted the
largest minority business community in 2002, owning 6.6 percent of all
U.S. firms. The percentage of minority women owning businesses also
rose between 1997 and 2002.

C. Senior Entrepreneurs

1. Although the Census Bureau does not collect data on senior

entrepreneurs (people 55 years old and older), there is strong
evidence to suggest that the number of older people choosing
entrepreneurial careers is increasing rapidly.

2. Unpublished government data obtained by Challenger, Gray &

Christmas indicates that 2.1 million Americans 55 years of age
and older owned their own business in 2005, an increase of 22
percent from 2000.

3. The dramatic increase in the number of senior entrepreneurs is

attributed to a number of factors, including corporate downsizing,
an increasing desire among older workers for more personal
fulfillment in their lives, and growing worries among seniors that
they need to earn additional income to pay for future health care
services and other expenses.

D. Young Entrepreneur

1. The interest among young people in entrepreneurship is growing. At

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 Chapter 1: Introduction to Entrepreneurship

the high school level, a Gallup study revealed that 7 out of 10 high
school students want to start their own companies and 27 percent
of high school students take an entrepreneurial business course.

2. On college campuses, interest in entrepreneurship education is at an

all-time high. More than 2,000 colleges and universities in the United
States, which is about two-thirds of the total, offer at least one course
in entrepreneurship.

III. Entrepreneurship’s Importance

A. Economic Impact of Entrepreneurial Firms

1. For these reasons, entrepreneurial behavior has a strong impact on the

strength and stability of the economy.

a. Innovation –According to the National Federation for Independent.

Business Owners, small firms are twice as innovative per employee
as larger firms.

b. Job Creation – In the past two decades, economic activity has moved
increasingly in the direction of smaller entrepreneurial firms, possibly
because of their unique ability to innovate and focus on specialized
tasks.

B. Entrepreneurial Firms’ Impact on Society

1. The innovations of entrepreneurial firms have a dramatic impact on

society. Think of all the new products and services that make our
lives easier, enhance our productivity at work, improve our health,
and entertain us. Many of these products and services were conceived
and brought to market by entrepreneurial firms.

2. New innovations do create moral and ethical issues that societies are
forced to grapple with. For example, bar-code scanner technology and
the Internet have made it easier for companies to track the purchasing
behavior of their customers, but this raises privacy concerns.

C. Entrepreneurial Firms’ Impact on Larger Firms

1. In additional to the impact that entrepreneurial firms have on the economy

and society, entrepreneurial firms have a positive impact on the
effectiveness of larger firms.

a. For example, some entrepreneurial firms are original equipment

manufacturers, producing parts that go into products that larger

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Chapter 1: Introduction to Entrepreneurship

firms manufacturer and sell.

b. Thus, many exciting new products, such as DVD players, digital

cameras, and improved prescription drugs, are not solely the result
of the efforts of larger companies with strong brand names, such as
Sony, Kodak and Johnson & Johnson. They were produced with the
cutting-edge component parts or research and development provided
by entrepreneurial firms.

c. The evidence shows that many entrepreneurial firms have built their
their entire business models around producing products and services
that help larger firms be more efficient or effective.

IV. The Entrepreneurial Process

* Figure 1.3 in the book (and reproduced earlier in this chapter) models the
entrepreneurial process. This process is the guide or framework we use to
develop this book’s contents.

A. Decision to become an Entrepreneur (Chapter 1)

1. As discussed earlier, people become entrepreneurs to be their own boss, to

pursue their own ideas, and to realize financial rewards.

2. Usually a triggering event prompts an individual to become an

entrepreneur. For example, an individual may lose her job and decide that
the time is right to start her own business.

B. Developing Successful Business Ideas (Chapters 2-6)

1. Many new businesses fail not because the entrepreneur didn’t work hard
but because there was no real opportunity to begin with.

2. Developing a successful business idea includes opportunity recognition,

feasibility analysis, writing a business plan, industry and competitors
analysis, and the development of an effective business model.

C. Moving from an Idea to an Entrepreneurial Firm (Chapters 7-10)

1. The chapters in this section deals with preparing the proper ethical
and legal foundation, assessing a new venture’s financial strength
and viability, building a new venture team, and getting financing
or funding.

D. Managing and Growing an Entrepreneurial Firm (Chapters 11-15)

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 Chapter 1: Introduction to Entrepreneurship

1. Given today’s competitive environment, all firms must be managed and

grown properly to ensure their ongoing success. This is the final stage
of the entrepreneurial process.

2. The chapters in this section focus on the unique marketing issues

confronting new ventures, the importance of intellectual property,
preparing for and evaluating the challenges of growth, strategies for
firm growth, and franchising.

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