Chapter 1

Understanding Entrepreneurship

Learning Objectives
Define entrepreneurship Explain the role of entrepreneurship in economic growth Distinguish entrepreneurial ventures from small businesses in terms of their purpose and goals. Describe the evolution of entrepreneurship as a field of study since the 1960s Identify todays broad trends in the field of entrepreneurship.

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Definition of Entrepreneurship
Entrepreneurship is a mindset that is: opportunity-focused innovative growth-oriented

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The Promise of Entrepreneurship

An integrated input/output model The career assessment approach The new venture creation process

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Figure 1.1: The Entrepreneurship Process

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Figure 1.2: Entrepreneurship and Technological Change

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Outcomes of Entrepreneurship
Economic growth New industry formation Job creation

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New Industry Formation

New industries are born when technological change produces a new opportunity that an enterprising entrepreneur seizes. Disruptive or metamorphic technologies that destroy previous technologies and create new industries display a different pattern of behavior. The pattern of growth, shakeout, stabilization, and decline of industry can be interrupted at any time by the entry of another disruptive technology.
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Figure 1.3: Industry Life Cycles

Source: Adapted from M. R. Darby and L. G. Zucker, Growing by Leaps and Inches: Creative Destruction, Real Cost Reduction, and Inching Up, Economic Inquiry, January 2003, pp. 1-19 (January 2003).

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Job Creation
The most recent data from 2003 indicate that small businesses created 1,990,326 net new jobs as compared to 994,667 for large firms.*

*U.S. Bureau of the Census; Administrative Office of the U.S. Courts; Endogenous Growth and Entrepreneurial Activities.

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The Nature of Entrepreneurial Start-ups

An entrepreneurial venture brings something new to the marketplace. Three primary characteristics: 1. Innovative 2. Value-creating 3. Growth-oriented

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New Business Formation

Entrepreneurs use identifiable milestones to measure their progress: Deciding to start a business Researching the concept Preparing for launch Securing the first customer Obtaining the business license Other activities which signal the business is in operation

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Figure 1.4: Social, Political, and Economic Context of the Entrepreneurial Process

Source: Paul D. Reynolds. (2000) National Panel of U.S. Business Start-ups: Background and Methodology. Databases for the Study of Entrepreneurship, Amsterdam: JAI/Elsevier Inc. Vol. 4, pp. 153-227.

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New Business Failure

Not all entrepreneurs succeed in growing their start-up into an established business. Survival has been attributed to sufficient capital, having employees, and the entrepreneurs intention in starting the business.

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Table 1.1: Starts and Closures of Employer Firms, 2001-2005

Sources: U.S. Bureau of the Census; Administrative Office of the U.S. Courts; and U.S. Department of Labor, Employment and Training Administration.

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Socially Responsible Entrepreneurship

Today more than 85 percent of the companys employees are involved in philanthropy. One company uses the following mission: The mission is to use Salesforce.coms people, technology and relationships to improve our communities, inspire youth to be more successful, support the world during times of extreme need, and promote compassionate capitalism.

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The Entrepreneurial Revolution

Free enterprise as foundation of entrepreneurial motivation Marc Andressen, Netscape Communications Howard Schultz, Starbucks

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Figure 1.5: The Entrepreneurial Evolution

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Entrepreneurial Trends
Women and minority-owned businesses Social responsibility The Internet Globalization

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Looking Ahead
Part One: The Opportunity Chapter 1: Introduction to Entrepreneurship Chapter 2: The Entrepreneurs Perspective Chapter 3: Opportunity Recognition Chapter 4: The Business Concept and Model Part Two: Feasibility Analysis (Ch 5-8) Part Three: The Business Plan (Ch 9-16) Part Four: Growth and Change (Ch 17-19)

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