Lecture Entrepreneurship: Chapter 2 - Zacharakis, Bygrave, Corbett

Lecture Entrepreneurship: Chapter 2 - The entrepreneurial process. Chapter 2 is an overview of the factors critical for starting a new enterprise and building it into a successful business.

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Bygrave & Zacharakis, Entrepreneurship, 3rd Edition New York: Wiley,

THE ENTREPRENEURI AL

PROCESS

Chapt e r 2

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The Entrepreneurial Process

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INNOVATION TRIGGERING EVENT IMPLEMENTATION GROWTH

PERSONAL

Achievement

Locus of control

Ambiguity tolerance Risk

taking

Personal values Education

Experience

Opportunity recognition

PERSONAL Risk taking Job dissatisfaction Job loss

Education Age Gender Commitment Resources

SOCIOLOGICAL Networks

Teams Parents Family Role models Advisors

PERSONAL Entrepreneur Leader Manager Commitment Vision

ORGANIZATIONAL Team

Strategy Structure Culture Products

ENVIRONMENTAL Competitors

Customers Suppliers Investors Bankers Lawyers Resources Governmental Policy Economy

ENVIRONMENTA L

Economy Competition Resources Incubator Government policy

ENVIRONMENTA

L

Opportunities

Role models

Creativity

Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley,

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Entrepreneurship Defined

Entrepreneur: someone who perceives an opportunity and

creates an organization to pursue that opportunity.

Entrepreneurship involves all the functions, activities, and

actions associated with perceiving opportunities and creating organizations to pursue them

These include:

• Market and customer research

• Service and product innovation

• Team building

• Finding & managing resources

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Factors Influencing an Entrepreneur

•Higher internal locus of control

•Desire for financial success

•Desire to achieve self-realization

•Desire for recognition

•Joy of innovation

•Risk tolerance

Personal Attributes

Environmental

Factors

• Local, regional, or national attitudes

• Social and cultural pressures for or against risk taking

• Access to entrepreneurial role models

• Responsibilities to family and community

Remember: No single type of person is best suited for entrepreneurship

Entrepreneurs come from all walks of life!

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Ten D’s of Entrepreneurship

10 Distribute

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Before Committing, Entrepreneurs Must

1. Assess their own financial reality

• Live with little or no salary?

• What external financial commitments are there?

2. Identify key contacts in their networks

• Take an inventory of the resources in one’s network

3. Reach out to sources of free advice and feedback

• Who can help or advise?

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3 Crucial Components of Success

Opportunity

Resources

Entrepreneur

Fits & Gaps Business planning

Uncertainty

The Timmons Model

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Tenets of the Timmons Model

1. The Opportunity

• Is there a clear customer need?

• Is the timing right: team ready, market ready?

• Combine these factors with the execution of the business plan to make

an idea an opportunity

2. The Lead Entrepreneur and Management Team

• Experience within the proposed industry?

• Investors prefer to see a track record of driving growth and profits

• An ‘A’ team with a ‘B’ idea is almost always better than the opposite

3. The Resources

• Capital, technology, equipment, and most importantly – people

• Low overhead, high productivity, and controlling, but not owning resources

• Find ways to get things done faster, cheaper or better!

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Key Forms of Start Up Capital

No transfer of company

ownership

Potentially higher risk for the

entrepreneur

Requires repayment, and

therefore careful cash flow

planning

• Investors gain an ownership

stake

• Investor takes most risk, which

explains the costs and expected returns

• No repayment, but requires

careful capital planning and investment

Remember: Most companies will never take on outside investors,

and many will never use debt financing for growth.

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A Sample Financing Path

Angel Investment

Personal Savings

& Sweat Equity

Bank & SBA

Loans

Venture Capital

Initial Public Offering

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Happiness is a Positive Cash

Flow!1. Understand the difference between profits and cash flow:

• Profitable companies can have negative cash flows and risk running out

of money

• Unprofitable companies can have positive cash flows and be on healthy trajectories

2. Profit is measured as a gain or loss on the income

statement, but…

• Doesn’t accurately reflect the cash inflows and outflows of the company

• Some cash dealings impact cash flow but not profits Example: loan repayments

3. Cash flow measures the flow of cash during a given

timeframe

• It’s comprised of three elements: operations, investing and financing

• Plan and monitor closely What matters is the context – is the company growing, struggling, etc.?

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Nine F’s for Entrepreneurial Success

3 Fast

6 Flat

9 Fun

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