Syllabus

PART I

Entrepreneurship in the Twenty-First Century

Chapter 1 - The Revolutionary Impact of Entrepreneurship

Chapter 2 - The Evolutionary Development of Entrepreneurship

Chapter 3 - The Entrepreneurial Mindset in Organizations: Corporate Entrepreneurship

Ó 2007 South-Western. All rights reserved. 1

CHAPTER 1

THE ENTREPRENEURIAL REVOLUTION

CHAPTER OUTLINE

I. Entrepreneurs—Challenging the Unknown

II. Entrepreneurs/Small Business Owners: A Distinction

III. Entrepreneurship: A Perspective

IV. Our Entrepreneurial Economy—The Environment of Entrepreneurship A. Predominance of new ventures in the economy B. Entrepreneurial firms’ impact

C. Trends in research and education

V. The Age of the Gazelles A. Innovation

B. GrowthC. Survival

VI. The Emerging Trends: The Internet and E-Commerce

A. The E-Commerce ChallengeB. E-Names: The Web Address C. Developing a Web Site D. Sticking to Your Web SiteE. Emerging E-Commerce Strategies

VII. Entrepreneurial Opportunities

VIII. Summary

CHAPTER OBJECTIVES

l. To explain the importance of entrepreneurs for economic growth.2. To introduce the concept of an entrepreneurial perspective within individuals.3. To examine the entrepreneurial revolution taking place today.4. To illustrate the entrepreneurial environment.5. To highlight some of the latest trends in entrepreneurial research.6. To examine the emerging trends of e-commerce and the Internet in relation to

entrepreneurship.

2 Ó 2007 South-Western. All rights reserved.

CHAPTER SUMMARY

This opening chapter attempts to provide a broad perspective of the entrepreneurial revolution occurring throughout the U.S. and the World. Beginning with a discussion of entrepreneurs challenging the unknown like Olympic athletes, symphony conductors, or top gun pilots, the chapter presents the perspective of entrepreneurship as a force that has revolutionized business.

The environment of entrepreneurship reflects a predominance of small firms and new ventures. Over the last few years, there has been a tremendous increase in new-venture activity. There are many statistics that illustrate this fact. For example, during the past ten years, new business incorporations averaged 600,000 per year. While many of these incorporations may have been sole proprietorships or partnerships previously, it still demonstrates venture activity, whether it was through start-ups, expansion, or development. More specifically, let’s examine some of the latest tabulated numbers.

Approximately one new firm with employees is established every year for every 300 adults in the United States. As the typical new firm has at least two owners-managers, one of every 150 adults participates in the founding a new firm each year. Substantially more—one in 12—are involved in trying to launch a new firm.

The net result, then, is that the United States has a very robust level of firm creation. Among the 6 million establishments (single- and multi-site firms) with employees, approximately 600,000 to 800,000 are added each year. That translates into an annual birth rate of 14 to 16 per 100 existing establishments. More specifically, in the new millennium the number of businesses in the US has soared to over 25 million and is still growing at a rate of 2%. Collectively, US businesses posted over $20 trillion in annual revenues.

Entrepreneurial firms are the essential mechanism by which millions enter the economic and social mainstream of American society. Small businesses enable millions of people including women, minorities, and immigrants, to access the American Dream. The greatest source of U.S. strength has always been the American Dream of economic growth, equal opportunity, and upward mobility. In this evolutionary process, entrepreneurship plays the crucial and indispensable role of providing the “social glue” that binds together both high-tech and “Main Street” activities.

The US outranks the rest of the world in important entrepreneurial support such as entrepreneurship education training, financial support and favorable social norms. The entrepreneurial sector is poised to be an even more important factor in the US’s future economic growth due to its adaptability to changing conditions and continued significant job creation. The chapter discusses ten specific developments that have occurred in the last few years. Many institutions have created programs for entrepreneurship research. The research focuses mainly on three areas: entrepreneurship education, outreach activities with entrepreneurs, and entrepreneurship research.

The Internet is having tremendous impact on the global marketplace. The statistics appear to support this claim of profound change from the “Internet explosion.”

U.S. businesses spent $85.7 billion on building up their Internet capabilities in 1999. For 2000, total spending will reach $120 billion. Smaller ventures use the Internet for a variety of operations, including customer-based identification, advertising, consumer sales, business-to-


business transactions, e-mail, and private internal networks for employees. Seventy-eight percent of small venture owners with Web site have declared the ability to reach new and potential customers as their main reason for having one.

The most immediate obstacle facing companies that seek to fully implement e-commerce is the cost. Experts estimate that a small business would need an initial investment of $10,000 to launch an e-commerce site and approximately 20 percent of the launching funds to maintain it annually. The technical barriers involve both personnel and data.

The opportunities during this century will be immense. Entrepreneurial opportunities will continue to arise for individuals willing to take the risk. As we will see throughout the following chapters, the discipline of entrepreneurship can be learned to better prepare oneself to take advantage of such an entrepreneurial opportunity.

LECTURE NOTES

THE ENTREPRENEURIAL REVOLUTION

I. Entrepreneurs—Challenging the UnknownA. Individuals recognize opportunities where others see chaos or confusion.B. They are compared to Olympic athletes, symphony conductors, or top gun pilots.

II. Entrepreneurs/ Small Business Owners: A Distinction

A. The terms entrepreneur and small business owner are used interchangeably, but there are differences.

B. Small businesses are not dominant in their field and are not innovative.

C. The objectives of entrepreneurial ventures are innovation, profitability and growth.

III. Entrepreneurship: A PerspectiveA. More than mere creation of businessB. Special perspective that permeates individualsC. Dynamic forces that has revolutionized business

IV. Our Entrepreneurial Economy—The Environment for EntrepreneurshipA. Predominance of small firms and new ventures

1. During the last ten years, there were over 600,000 new business incorporations per year.

2. Small business employment statistics have been steadily rising.3. Small firms constitute more than 90 percent of the entire business population.4. Approximately seven million entrepreneurs (out of 12 million) work for themselves

without employing anyone else. Of the 5 million remaining firms, only 15,000 employ 500 or more people.

5. The smallest of our enterprises have created a steady supply of net new jobs.


6. Approximately one new firm with employees is established every year for 300 adults in the United States. Substantially more—one in 12—are involved in trying to launch a new firm.

7. The US outranks the rest of the world in entrepreneurial support such as entrepreneurship education training, financial support and favorable social norms.

8. The entrepreneurs’ ability to expand existing markets and create new markets makes entrepreneurship important for individuals, firms and entire nations.

B. Entrepreneurial Firms’ ImpactThe United States has achieved its highest economic performance during the last ten years by fostering and promoting entrepreneurial activity. The U.S. success has at least three entrepreneurial components.l. Large firms have adapted and learned to become more entrepreneurial.2. New entrepreneurial firms are developing faster than ever.3. New firms have created more than 1 million net new jobs since 1990.

C. Research and education1 The major themes that characterize recent research about entrepreneurs and new-

venture creations:a. The entrepreneurial and managerial domains are not mutually exclusive but

overlap to a certain extent.b. Venture financing has emerged in the 1990s.c. Entrepreneurship within large organizations has gained much attention.d. Entry strategies and career patterns have been identified that show some

important common denominators.e. Entrepreneurs use a great variety of methods in order to achieve success.f. The risks and trade-offs of an entrepreneurial career have been a subject of keen

interest.g. Women and minority entrepreneurs have emerged in unprecedented

numbers.h. There has been enormous growth of interest in entrepreneurship around the

world in the past few years.i. The economic and social contributions of entrepreneurs have been slow to make

immensely disproportionate contributions to job creation and innovation.j. Entrepreneurship education has become one of the hottest topics at American

business and engineering schools.2. Since 1981 the “Frontiers of Entrepreneurship Research” conference has provided

an outlet for the latest developments in entrepreneurship.3. Most university centers for entrepreneurship have focused on three major areas:

a. Entrepreneurship educationb. Outreach activities with entrepreneursc. Entrepreneurship research

4. Many universities are expanding programs for entrepreneurship and small business management.


V. The Age of the GazellesA. Fastest growing firms are those with at least 20 percent sales growth every year for 5

years, starting with a base of at least $100,000.

B. Innovation—gazelles are leaders in innovation with responsibility for 55 percent of innovations in 362 different industries.

C. Growth—During the last 10 years business incorporations have averaged more than 600,000 with 1995 experiencing an all-time high of 807,000.

D. Survival--- about half of all start-ups last between five and seven years, depending on economic conditions.

VI. Emerging Trends: The Internet and E-CommerceThe Internet explosionU.S. businesses spent 85.7 billion on building up their Internet capabilities in 1999, up 39 percent from one year earlier. For 2000, total spending reached $120 billion.A. The E-Commerce Challenge

1. According to the U.S. Small Business Administration, online retail marketing is currently experiencing about a 200 percent annual growth rate, with online traffic doubling every 100 days.

2. In 2003 E-commerce, on a percentage basis, outperformed total US economic activity in all four major economic sectors.

3. The most immediate obstacle facing companies that seek to fully implement e-commerce is the cost. Experts estimate that small business would need an initial investment of $10,000 to launch an e-commerce site and approximately 20 percent of the launching funds to maintain it annually.

B. E-Names: The Web Address 2 The U.S. government has set up a nonprofit organization—the Internet Corporation

for Assigned Names and Numbers (ICANN)—to oversee the introduction of competition in the domain name registration business.

2. The Anticybersquatting Consumer Protection Act of 1999 enables trademark holders to stop cybersquatters, buyers of domain names that infringe on trademarks of existing or emerging businesses.

C. Developing a Web SiteD. Sticking to your Web Site

3 Stickiness refers to a host of potential value-adds, features, functions, and “gimmies”—all of which serve as electronic fly paper, of sorts, and make people want to stay at your site longer.

2. One way to create stickiness, without creating sticky technical situations for yourself, is to outsource the task to a company for chat technology and management.

E. Emerging E-Commerce Strategies3-P Growth Model1. Presence: the ramp-up stage where the entrepreneur needs to build an excitement

about the specific offerings of the venture in the marketplace4 Penetration: the “hypergrowth” stage where the entrepreneur focuses on gaining

market share and establishing greater virtual integration


5 Profitability: the managed growth stage where the entrepreneur needs to focus on expanding revenue via business-to-business transactions and increased operational efficiencies

VII. Entrepreneurial Opportunities

SUGGESTED ANSWERS FOR DISCUSSION QUESTIONS (END OF CHAPTER)

1. Briefly describe what is meant by the term “entrepreneurship.”Entrepreneurship is more than the mere creation of a business. Seeking opportunity,

taking risks, and having the tenacity to push ideas into reality, are special characteristics that permeate individuals. Entrepreneurship is an integrated concept that has revolutionized the way business is conducted.

2. Describe the predominance of new ventures in the economy.During the last ten years there were over 600,000 new business incorporations per year.

Ninety-nine percent of U.S. businesses can be considered small. The smallest of our enterprises have created a steady supply of net new jobs.

According to the National Federation of Independent Business (NFIB), approximately 12 million businesses have owners whose principal occupation is owning and operating them. Approximately 7 million (out of 12 million) have owners who work for themselves without employing anyone else. Of the 5 million remaining firms, only 15,000 employ 500 or more people. Small businesses are the most common form of enterprise-established relationships regardless of industry, and most small businesses consist of a single establishment. More than half of all businesses employ fewer than 5 people. More significantly, almost 90 percent of firms employ fewer than 20 people.

3. What is the record number of new small firms being established?In 1995, there were 807,000 new incorporations, an all-time record.

4. How have most net new jobs been created in the economy?Small entrepreneurial firms have created the most net new jobs in the U.S. economy.

In addition, the smallest of our enterprises have created a steady supply of net new jobs over the business cycle. It is important to recognize that, historically, employment growth in the United States is correlated directly with new-business growth. This fact has been traced back to 1960, demonstrating that new-business formations are the critical foundations for any net increase in U.S. employment. Thus, our employment growth and industry expansions are closely tied to new-venture development.

5. Identify some of the innovative products for the new millennium. According to the “Entrepreneurial Edge” in the chapter, the ten most innovative

products will be:Genetaceuticals Personalized computers


Multifuel automobiles Next-generation televisionElectronic wallet Home health monitors Smart maps and tracking devices Smart Materials Weight-control and anti-aging productsNever-owned, leased-only products

6. Define a “gazelle” and discuss its importance.A gazelle is a fast growing firm with at least 20 percent sales growth every year for 5

years, starting with a base of at least $100,000. Despite the continual downsizing in major corporations, the gazelles provided 5 million jobs and brought the net employment growth to 42 million jobs.

7. Describe the increased use of the Internet by smaller firms. Internet use by small ventures is on the rise: The number of entrepreneurial businesses

with access to the Internet nearly doubled over a 2 year period, from 21.5 percent in 1996 to 41.2 percent in 1998. As many as 35 percent of small businesses maintain their own Web site. Research shows that smaller organizations that utilize the Web have higher annual revenues, averaging $3.79 million in 1998, compared with $2.72 million for all small ventures.

Smaller ventures use the Internet for a variety of operations, including customer-based identification, advertising, consumer sales, business-to-business transactions, e-mail, and private internal networks for employees. Seventy-eight percent of small venture owners with a Web site have declared the ability to reach new and potential customers as their main reason for having one.

8. Define the term E-commerce and describe all of the elements that it covers. Electronic commerce (e-commerce)—the marketing, promoting, buying, and selling of

goods and services electronically, particularly via the Internet—is the new wave in transacting business. E-commerce encompasses various modes of Internet use:

• E-tailing (virtual store fronts), which is a site for shopping and making purchases• Electronic data interchange (EDI), which is business-to-business exchange of data• E-mail and computer faxing• Business-to-business buying and selling• Ensuring the security of data transactions

9. Briefly discuss the challenges facing companies as they seek domain names.Choosing an Internet brand name isn’t easy. Because customers are less likely to

remember long or awkward names, short and snappy Web addresses are at a premium.In many cases, however, the most desirable names have already been claimed. As a

result, some businesses are paying anywhere from $400,000 to $1 million just to get the rights to the online names they want.

10. What does “stickiness” refer to in regard to a Web site?


Stickiness refers to a host of potential value-adds, features, functions, and “gimmies”—all of which serve as electronic fly paper, of sorts, and make people want to stay at your site longer. The idea is that, if potential customers stick around your site long enough, they’re likely to buy something eventually and then frequently return to take advantage of your offerings.

11. Describe the 3-P Growth Model Strategy for e-commerce. The 3-P Growth Model, introduced by Ernst & Young, defines three specific stages

for a venture pursuing the e-commerce route:6 Presence: the ramp-up stage where the entrepreneur needs to build an excitement about

the specific capabilities or offerings of the venture in the marketplace7 Penetration: the “hypergrowth” stage where the entrepreneur focuses on gaining

market share and establishing greater virtual integration8 Profitability: the managed growth stage where the entrepreneur needs to focus on

expanding revenue via business-to-business transactions and increased operational efficiencies

TEACHING NOTES FOR END-OF-CHAPTER CASES

VIDEO CASE 1.1: eHARMONY WITH NEIL CLARK WARREN (Answers to Questions)

1. Explain how Neil Clark Warren made the transition from psychologist and author to entrepreneur.

Warren dealt with marriage issues in his practice and, from this experience, explored how to find the perfectly compatible mate in his book, Finding the Love of Your Life. Based on the popularity of the book, he teamed up with another person, Greg Forgatch, to develop seminars on finding a compatible mate. The success of this venture made the duo think about how they could reach an even wider audience. Since online dating did not exist at this time, they saw a perfect opportunity to wed their ideas to internet technology, and that is how eHarmony was born as an e-commerce venture.

2. What are the key elements to eHarmony's success?

One key element is Warren's enthusiastic commitment to improve the marriage stability rate in the United States; he is an entrepreneur with a vision, and he takes an active role in his business. Another key element is that eHarmony put six months of research time into developing the first online singles questionnaire that they knew was valid and reliable; they spent additional time into researching and refining this questionnaire. The company has hired a competent team to do this research and writing and to set up scientific models to analyze the results as well; this team also knows how to use internet technology to its fullest. Finally, eHarmony has established a reputation for honesty and integrity among those clients who use an online dating service.

3. What steps should eHarmony take in the future to ensure its success in the dating services arena?


eHarmony should continue to monitor and improve the online questionnaire according to its various clients' requirements. It should explore opportunities to increase its clientele. It should also maintain a staff that is committed to the needs of the company's clients as well as the health and growth of the company.

CASE 1.2: GAZELLES...OR TURTLE?

1. Is summit software a gazelle? Support your answer. Yes, Summit Software would be considered a gazelle since the definition is a business

establishment with at least 20 percent sales growth every year over a 5 year period starting with a base of $100,000.

2. What problems may Jim face owning such a fast-growing business?Survival may be Jim’s biggest challenge. Firms can grow too fast and fail from not

being able to cope with the growth. In addition, the e-commerce challenges also face Jim where costs are funning extremely high.

3. Are gazelles more important to the economy than traditional growth business? Why or why not?

Despite the continual downsizing in major corporations during the early 1990s the gazelles produced 5 million jobs and brought the net employment growth to 4.2 million jobs. More recently, these gazelles (which currently number about 358,000, or 4 percent of all ongoing companies) generated practically as many jobs (10.7 million) as the entire U.S. economy (11.1million) during the same period. Their extraordinary performance and contribution warrants their recognition. Research shows that they have been leaders in innovation, growth, and survival.

CASE 1.3: TO WEB OR NOT TO WEB

1. What problems will Norah likely face while trying to start the dot.com business? Norah may encounter a number of barriers when pursuing the e-commerce route.

These include initial start-up costs, difficulty in attracting and keeping technologically skilled personnel to service the site and customers, establishment of adequate security for a small business’s (or its customers’) data, and consumer trust. (See Table 1.3 for a list of advantages of and challenges to e-commerce).

The most immediate obstacle facing Nora to fully implement e-commerce is the cost. Experts estimate that a small business would need an initial investment of $10,000 to launch an e-commerce site and approximately 20 percent of the launching funds to maintain it annually. The technical barriers involve both personnel and data.

2. What is the first step someone should take toward an Internet start-up? The most basic step in e-commerce is to choose an Internet name. Perhaps

surprisingly, this step of choosing an Internet brand name isn’t easy. Because customers are less likely to remember long or awkward names, short and snappy Web addresses are at


a premium. Next Norah needs to design and develop an attractive Web site with features that will make the site “sticky.”

3. Discuss Norah’s possibilities given her knowledge and resource. Norah has a unique idea with personal knowledge to support it. There is a continuous

flow of potential opportunities if an individual can recognize a profitable idea amid the chaos and cynicism that also permeates such an environment. Thousands of alternatives exist since every individual creates and develops ideas with a unique frame of reference. Norah’s use of the Internet may be a wise choice.

According to the U.S. Small Business Administration, online retail marketing is currently experiencing about a 200 percent annual growth rate, with online traffic doubling every 100 days. Small businesses earned $3.5 billion in e-commerce sales in 1997, and projection for online sales for the beginning of the next decade range widely—from $25 billion to more than $300 billion—depending on the source.

Ó 2007 South-Western. All rights reserved.11

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