the ABCs of entrepreneurship: the fundamentals all business professionals should know & remember 9781587622236, 1-58762-223-8

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I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r by Ar i Ginsber g et al. Aspator e Books © 2003 (112 pages)

ISBN:1587622238

Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end. Ta ble o f Con t en t s I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

Ba ck Co ver I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e I n side t h e Min ds: ThFu e ABCs t repr enBu eu rsin sh ip th efe most itat e book nd amofenEn t als All essis Pro ssio author na ls Sh ouivld Kn owever w r itten on the essentials behind conceptualizing and em implem & Rem be r enting a successful business ventur e. This title featur es the Depar tm ent Chair s and Cen ter Dir ector s for Ent repreneur ship fr om som e of the nation’s leading Business Schools, who hav e ISBN:1587622238 by Ar i Ginsber g et al. each contr ibuted chapter s akin to obj ectiv e, ex per ience- r elated, w hite paper s or essays on t he cor e issues e Books © 2003 (112 sur rounding star tingAspator a business. I n an ov er - ar pages) ch ing as w ell as in- depth pr esentation of the fundamentals, aut hor s ar ticulate t he unspok en r ules the impor issuesship, facing any ent repr eneur , and w hat w ill hold tr ue Fr om outlining theand history of ent tant repr eneur fr om into the futur e. Fr omgenerating outlining the history ent repreneur om gener cr edible andoffeasible ideas, ship, from frsecur ing ating cr edible and feasible ideas, fr om secur ing financials to m anaging effectiv ely, this pulls rpulls eader s t hrough all facets of entr epr eneu rship, financials to m anaging effectiv ely,book this book r eader s fr om begin ning to end. The differ en t niches r epreneur esented and the begin v ar ious per presented enable r eaders thr ough all facets of ent repr ship, fr om ning tospectives end. to r eally get inside the gr eat minds of ent repr eneur ship and pull pr actical adv ice, as t he ex per ts go back to basics inf aCon m ust Ta ble o t en-rtead s for any one inter ested in how to conceptualize and launch a business. I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Inside the Minds—The ABCs of Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r Entrepreneurship—The Fundamentals ISBN:1587622238 All Business by Ar i Ginsber g et al. Aspator e Books © 2003 (112 pages) Professionals Should Know & Remember Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing

www.InsideTheMinds.com financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end.

Aspatore Books is the largest and most exclusive publisher of C-Level executives (CEO, CFO, CTO, TaCMO, ble o f Partner) Con t en t from s the world's most respected companies. Aspatore annually publishes C-Level executives from overABCs half the Global 500, top 250 eprofessional services firms, law firms (MPs/Chairs), I nside t he Minds—The of Entr epr eneurship—Th Fundam ent als All Business Prand ofessionals Shouldcompanies Know & Rem other leading ofem allber sizes. By focusing on publishing only C-Level executives, Aspatore The ABCs of Ent repreneurof ship—Assessing, Buildingbusiness and Connect in g provides professionals all levels with proven intelligence from industry insiders, rather than Entr epr eneur ship Com es in Many Colors authors and analysts. Aspatore Books is committed to publishing relying on the knowledge of unknown highlySolutions innovative of business books, redefining and expanding the meaning of such books as Brainging to line Pr oblems resources for professionals levels. to individual best-selling business Frindispensable eedom and I nfor m ed Discipline—Fer tile Soilof forallthe SeedsInofaddition Entr epr eneur ship titles, Aspatore publishes the following unique lines of business books: Inside the Minds, Fundamentals for Books Building an Entr epreneur ial Or ganization Business Bibles, Bigwig Briefs, C-Level Business Review (Quarterly), Book Binders, ExecRecs, and Entr epr eneur ship and Str ategy TheScience C-Level Test, innovative for all professionals. Aspatore is a privately held company The and Pr ocess of Entrresources epr eneur ship headquartered in Boston, Massachusetts, with employees around the world. Key Concepts of Entr epr eneurship Inside the Minds The critically acclaimed Inside the Minds series provides readers of all levels with proven business intelligence from C-Level executives (CEO, CFO, CTO, CMO, Partner) from the world's most respected companies. Each chapter is comparable to a white paper or essay and is a future-oriented look at where an industry/profession/topic is heading and the most important issues for future success. Each author has been carefully chosen through an exhaustive selection process by the Inside the Minds editorial board to write a chapter for this book. Inside the Minds was conceived in order to give readers actual insights into the leading minds of business executives worldwide. Because so few books or other publications are actually written by executives in industry, Inside the Minds presents an unprecedented look at various industries and professions never before available. Published by Aspatore, Inc. For corrections, company/title updates, comments or any other inquiries please email [email protected]. First Printing, 2003 10 9 8 7 6 5 4 3 2 1 Copyright © 2003 by Aspatore, Inc. All rights reserved. Printed in the United States of America. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, except as permitted under Sections 107 or 108 of the United States Copyright Act, without prior written permission of the publisher. ISBN 1-58762-223-8 Inside the Minds Managing Editor, Carolyn Murphy, Edited by Michaela Falls, Proofread by Eddie Fournier, Cover design by Scott Rattray & Ian Mazie Material in this book is for educational purposes only. This book is sold with the understanding that neither any of the authors or the publisher is engaged in rendering medical, legal, accounting, investment, or any other professional service. For legal advice, please consult your personal lawyer. This book is printed on acid free paper. A special thanks to all the individuals that made this book possible. The views expressed by the individuals in this book (or the individuals on the cover) do not necessarily reflect the views shared by the companies they are employed by (or the companies mentioned in this

book). The companies referenced may not be the same company that the individual works for since the publishing of this book. I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e

Acknowledgements and Dedications Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r

Ari Ginsberg – I’d like to thank Fernando Alvarez, and Anna Wheatley for helpful comments and ISBN:1587622238 by Ar i Ginsber g et al. editorial assistance. Aspator e Books © 2003 (112 pages)

om outlining the history of ent repr eneur ship, frAssistant om Ellen Rudnick – IFrwould like to thank Waverly Deutsch, Adjunct Professor of cr edibleofand feasible ideas, from Hapak, secur ingAdjunct Associate Professor of Entrepreneurshipgenerating at the University Chicago/GSB, Susan financials to m anaging effectiv ely, this book pulls r eader s Entrepreneurshipthr atough the University of ent Chicago/GSB andfr Mark Kindelin, Altheimer & Gray for all facets of repr eneur ship, om begin ning toPartner, end. reviewing parts of this chapter and providing valuable assistance. Ta ble o f Con t en t s I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e The ABCs of Entrepreneurship—Assessing, Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r Building byand Connecting ISBN:1587622238 Ar i Ginsber g et al. Aspator e Books © 2003 (112 pages)

Ari Ginsberg Fr om outlining the history of ent repr eneur ship, fr om New York University Stern School of Business generating cr edible and feasible ideas, from secur ing Harold Price Professor Director ofpulls the rBerkeley Center for Entrepreneurial financialsoftoEntrepreneurship, m anaging effectiv ely, this book eader s Studies thr ough all facets of ent repr eneur ship, fr om begin ning to end. Ta ble o f Con t en t s

Assessing the Opportunity

I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber

TheABCs first of fundamental ofship—Assessing, entrepreneurship is opportunity recognition – understanding what it takes both The Ent repreneur Building and Connect in g to recognize an opportunity and to move from recognition toward assessing what is actually a good idea for a business. You need to realize that a viable business opportunity is not just about providing a Br inging Solutions to Pr oblems product or service with better functions or more features than those that are currently available. You Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship must understand the nature of the opportunity in terms of customer needs and market potential. This Fundamentals for Building an Entr epreneur ial Or ganization requires that you find concrete answers to a number of key questions. These are: Who and where are Entr epr eneur ship and Str ategy the potential customers? What needs of theirs are you addressing? What problem does your product The Science andcustomers, Pr ocess of Entr epr eneur shipto them does it provide? Has anyone else tried to fix the solve for your or what benefit Key Concepts of Entr epr eneurship problem or address the need before, and if so, why didn’t they succeed? How will I reach my customers? How will I deliver the benefits my customers need or solve the problems they have? Is the market for my product or service large or rapidly growing? Is the size large enough or the growth strong enough to make this an economically viable business idea? Entr epr eneur ship Com es in Many Colors

n sid eCompetition t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Assessing Ithe

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& basis Rem em r competitive advantage is important to being successful. A product or Understanding the forbe your by Ar i Ginsber g ettoal. service doesn’t necessarily have be unique, but you have to ISBN:1587622238 think of yourself as providing a distinct Aspator e Books © 2003 set of benefits to customers. Even if it’s(112 anpages) advantage that won’t last forever, it has to last long enough Fr om profits outlining thethe history of your ent repr eneur ship, frSo omregarding the customer value to produce significant over cost of investments. generating edible and feasible fromtosecur ing proposition, you have to ask,cr“What benefits am ideas, I offering the customer and what is the price? You financials to m anaging effectiv ely, this book pulls r eader s also have to ask, thr “How do I compare on those dimensions to others who are ough all facets of ent repr eneur ship, fr om begin ning to end. providing similar services or products?” Good competitive analysis requires not just thinking about who your obvious rivals are, Tabut ble about o f Conwho t en telse s might provide a superior, albeit less traditional, way of satisfying your customers’ I nside t he ABCs of Entr epr eneurship—Th All Business needs. It Minds—The also requires thinking about what makeseitFundam difficultent forals others to copy your value proposition Prand ofessionals Shouldyou Know & Rem em ber competitive advantage over a relatively long and rewarding what enables to sustain your The ABCs Ent repreneur ship—Assessing, Building and Connect in g period ofoftime. Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Assessing ICapabilities

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em r Another basic ingredient of be entrepreneurial success is a good understanding of the characteristics of ISBN:1587622238 by Ar i Ginsber et al.need cognitive skills that allow successful individuals. You notgonly you to recognize worthwhile Aspator e Books © 2003 (112 pages) opportunities and take advantage of them, but also key personality traits of passion, commitment, and om outlining the history of ent repr eneur ship, fr om resilience. Do youFrhave these characteristics? Do you know what it will take to be successful? You generating edible ideas, from secur ingmost start-ups do not succeed. You need to understand that thecrrisks of and newfeasible business failure are high; financials to m anaging effectiv ely, this book pulls r eader s also need to be aware of all your motivation – iseneur yourship, goalfrprimarily wealth, or are you primarily thr ough facets of ent repr om begin financial ning to end. interested in the personal fulfillment that you will achieve through your entrepreneurial journey? Ta ble o f Con t en t s

Knowing the basics of financial and market planning and how to write a good business plan are I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Primportant. ofessionalsYou Should Know & Rem em ber help from people who have proven skills in these areas. You should consider getting willABCs needoftoEnt berepreneur good at pitching your business plan order toin get The ship—Assessing, Building andinConnect g funding support, so you need to develop those of skills. If your business involves a new type of product, then you have to have a Entr epr eneur shipkinds Com es in Many Colors concept.toAsPrsoon as possible, you need to demonstrate some credibility in terms of what you Brproof ingingofSolutions oblems to and offerI nfor – form example, securing important customer or epr seteneur of customers that will demonstrate Frhave eedom ed Discipline—Fer tilean Soil for the Seeds of Entr ship that you havefor something valuable. That ial willOrallow you to get further financing to continue growing the Fundamentals Building an Entr epreneur ganization business.

Entr epr eneur ship and Str ategy The Science andpart Pr ocess Entr epr eneur ship Finally, a key of theofcompany’s success will be based on the people factor, on leadership and Key Concepts of Entr epr eneurship team building. You need to recognize that a good grasp of organizational behavior issues and

methods is at least as important as – if not more important than – a good grasp of financial and marketing issues and tools.

n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Assessing IRisk

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em be r The risk orientation of entrepreneurs varies. People often think that entrepreneurs have a predilection by Ar i Ginsber g etdangers al. for exposing themselves to great and hazards. That isISBN:1587622238 not the case. Very often, they don’t Aspator e Books © 2003 (112 pages) think they’re really taking any unreasonable risks at all. They just have a certain clarity of thinking, and Fr om outlining of ent eneur om are calculated. they see things that others don’t.the Sohistory the kinds ofrepr risks theyship, are fr taking generating cr edible and feasible ideas, from secur ing financials to m anaging ely, this book pulls r eader s As an entrepreneur, you should alwayseffectiv be asking, “Is there a way of doing this more safely?” It is thr ough all facets of ent repr eneur ship, fr om begin ning to end. important to recognize that no matter how much you work on your business plan, there will always be twists Taunexpected ble o f Con t en t s and turns. Part of determining what is a reasonable risk involves asking the “what if” questions. You work ABCs through what could go wronge and thenent ask, can I do if these things I nside t he Minds—The of Entr epr eneurship—Th Fundam als “What All Business Prhappen? ofessionals Know & RemI em ber to reassess or change course?” Then you look at the kinds of At Should what point should decide things that can do toship—Assessing, prepare for different scenarios. Youinmay feel that there are certain bets you The ABCs of you Ent repreneur Building and Connect g must make in order to succeed. But understanding the critical assumptions that you are making about Entr epr eneur ship Com es in Many Colors your environment and your capabilities and how potential hazards can be avoided or controlled – that Br inging Solutions to Pr oblems thought process is a calculating process. It doesn’t mean you have all the answers, but you do have a Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship very well thought-out vision. Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

I n sid e t he Mind Th e ABCs of En trSkills ep re ne ur sh ip: Th e Building Learning ands:Adaptation

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em changing, be r In a world that’s constantly the ultimate competitive advantage comes from superior learning ISBN:1587622238 by Ar i Ginsber et al. and adaptation skills, which areg the foundations of an entrepreneurial mindset. If your business can’t Aspator e Books © 2003 (112 pages) learn quickly and adapt to change effectively, then ultimately the successes it has achieved will plant Fr om outlining history ent repr the seeds for hubris and rigidity,the which will of sooner oreneur latership, lead frtoom its demise. generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, booktopulls r eader sand to change. Over time, the For large, established corporations, generally, it isthis harder be flexible thr ough all facets of ent repr eneur ship, fr om begin ning to end. system of routines and reinforcing processes that have played an important role in making the successful often lead to organizational calcification and inertia. The core competencies and Tacompany ble o f Con t en t s skills tthat provide theABCs company with a unique competitive advantage can also lead managers to ignore I nside he Minds—The of Entr epr eneurship—Th e Fundam ent als All Business Primportant ofessionals Should Knowfor & innovation Rem em ber and renewal. Smaller companies in earlier stages of the life opportunities cycle generally find it easier to be entrepreneurial, must be The ABCs of Ent repreneur ship—Assessing, Building andbut Connect in g particularly careful in managing the process of growing into larger, more mature enterprises. Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems

We live in a world that is increasingly more dynamic and turbulent, where technology is becoming more and more sophisticated and where the magnitude and pace of innovation and change have Fundamentals for Building an Entr epreneur ial Or ganization increased exponentially over the last few decades. There is good reason to believe that the future will Entr epr eneur ship and Str ategy be no different in this regard. Having an entrepreneurial mind-set will enable the senior management The Science Pr ocess of innovation Entr epr eneur ship team to be and more open to and change, thereby enabling their business to be successful in a Key Concepts of Entr epr eneurship business world that will be dominated by the most flexible, creative, and nimble organizations. Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Building the Team

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Rem em be r you need someone at the helm who has good managerial and To build and grow& the business, ISBN:1587622238 by Ar i Ginsber g etsignificant al. leadership skills. Before investing amounts of money in your business, venture capitalists Aspator e Books © 2003 (112 pages) and angels will look very carefully at whether or not the company will be run by somebody who has Fr om outlining the history of ent repr eneur fr om had operational experience managing a profit center. Theship, closer the experience is to the business or edible feasible ideas, to from secur ing the industry your generating company iscrin, the and better. You need have someone who heads the strategic financials to m anaging effectiv ely, this book pulls r eader s marketing effort. thr You also need someone who understands the nitty-gritty of the operations, because ough all facets of ent repr eneur ship, fr om begin ning to end. you cannot execute properly if you do not understand the day-to-day details involved in running the Tabusiness. ble o f ConThe t en tteam s has to have credibility not just in terms of what the individual members have done I nside t he Minds—The ABCscredentials of Entr epr eneurship—Th enttheir als All Business and what their individual are, but also ein Fundam terms of ability to work well together as an Preffective ofessionals Should Know ber level of shared commitment to a common vision and shared set team. There has&toRem be em a high The ABCs and of Entarepreneur ship—Assessing, Building and Connect g of goals strong sense of fit, comfort, and enjoyment ininworking together. Having a team of senior Entr epr eneurthat shiphave Com es in Many Colorstogether and have even failed together can forge a high level of managers faced adversity Brtrust, inging Solutions to Pr oblems and ingenuity - traits that superior entrepreneurial teams possess. inspiration, mindfulness, Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

The people you on an your team should beganization individuals who are willing to put some skin in the game, Fundamentals for want Building Entr epreneur ial Or who are looking to build something, and who are willing to take necessary risks. You can attract the right people by exciting them. Someone who is only looking for financial compensation is probably not The Science and Pr ocess of Entr epr eneur ship the right person to work in a start-up. Your team needs to feel as passionately as you do about the Key Concepts of Entr epr eneurship company’s products and prospects. Successful management teams are excited at the prospect of building something and of being part of an entrepreneurial effort. Commitment is very important. In return, you need to incite your employees so that they will share equitably in the results of success. Entr epr eneur ship and Str ategy

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Building the Plan

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em about be r There are so many clichés planning, such as “if you fail to prepare, you prepare to fail," and so ISBN:1587622238 by Ar i Ginsber g et it al.helps you to be better prepared on. Planning is important because for outcomes you otherwise would Aspator e Books © 2003 (112 pages) not have been primed to handle. Planning is also critical for effective execution. Planning gives you a the need historytoofpay entattention repr eneurto ship, fr om to make the plan happen. As in better command Fr ofom theoutlining details you in order generating cr edible feasible from secur ing business in general, execution is oneand of the key ideas, aspects of successful entrepreneurial behavior. You financials to m anaging effectiv ely, this book pulls r eader s have to be able not only to formulate plans, but also to execute. On the thr ough all facets of ent repr eneur ship, fr om begin ning to flip end.side, too much planning can be detrimental. Make a decision. Move ahead. You can get caught in a loop of endlessly planning Taand ble o f Conimplementing. t en t s never Or plans can be too rigid, not flexible enough to accommodate the I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business unexpected events that define every start-up experience. Pr ofessionals Should Know & Rem em ber

Planning you get a better senseBuilding of where northinisg – think of planning as a compass: Here The ABCs ofcan Enthelp repreneur ship—Assessing, andtrue Connect areepr theeneur directions in which I want to go. Here are things to which I should be paying particular attention. Entr ship Com es in Many Colors are some critical assumptions and factors I need to recognize. But you have to realize that you BrHere inging Solutions to Pr oblems needand to adapt circumstances. should prepared learn along the way and be Frwill eedom I nfor mto edchanging Discipline—Fer tile Soil for You the Seeds of be Entr epr eneurto ship

open-mindedfor about issues fully grasped before. But without the plan you wouldn’t properly Fundamentals Building an you Entr hadn’t epreneur ial Or ganization

know what to anticipate, or where to begin, or what the critical success factors are, or what your goals are. So that if you don’t get there, you will know that you’re off the mark and can figure out why.

Entr epr eneur ship and Str ategy

The Science and Pr ocess of Entr epr eneur ship

Key Entr epr eneurship PartConcepts of beingofsuccessful is not just adapting to change, but adapting fairly quickly. Successful

entrepreneurs can adapt to new situations quickly because they are prepared and because they are resourceful and flexible in dealing with unforeseen circumstances. The key is to have a plan for when and how you are going to learn whether things are going in the right direction, and how to make the kinds of changes that will get you back on the right track or minimize the costs of failure.

sid eWhat t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e ConnectingI nto Matters

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& stumbling Rem em beblocks r One of the biggest entrepreneurs face is being overly product-focused and not ISBN:1587622238 by Ar i Ginsber g et al. spending enough time on understanding what the customer actually wants and what trade-offs they Aspator e Books © 2003 (112 pages) are willing to accept. In other words, what are the things that truly matter to the customer versus the Frrelevant? om outlining history of ent reprmoney eneur ship, fr om that don’t really matter to the things that are not Youthe may be spending on things cr edible andincrease feasible ideas, from secur ing the customers that you would like customer – bells generating and whistles that just cost without drawing financials to m anaging effectiv ely, this book pulls r eader s to attract. The more homework youof put finding outfrabout yourning customers, thr ough all facets ent into repr eneur ship, om begin to end. the higher your chances of success. In case I have not stressed this enough: Understanding the customer is what matters. Too Taoften ble o fentrepreneurs Con t en t s get sidetracked thinking, “This is such a great product.” Distracted by the novelty I nside Minds—The ABCs of Entr eprhave eneurship—Th e Fundam ent als All Business of thet he product, they forget that they to sell it to someone. Pr ofessionals Should Know & Rem em ber

YouABCs alsoofhave to be careful about managing your delivery capacity and cash flow. Don’t think, “I’m in The Ent repreneur ship—Assessing, Building and Connect in g start-up mode, I’mesjust goingColors push the accelerator and focus on how I can continue to build Entr epr eneur ship so Com in Many by manufacturing Brrevenues inging Solutions to Pr oblemsand selling more and more products because the customer demand is You’ve also got to be thinking about brake,” meaning Frgrowing.” eedom and I nfor m ed Discipline—Fer tile Soil for “working the Seedsthe of Entr epr eneur ship slowing down to make sure you havefora Building production andepreneur distribution infrastructure in place that can adequately handle Fundamentals an Entr ial Or ganization increased growth in customer demand and sales revenues.

Entr epr eneur ship and Str ategy

The and make Pr ocess of Entr eneur YouScience must also sure thatepr you areship properly managing your “burn rate” and cost structure as you Key Concepts of Entr epr eneurship accelerate your spending on growth investments. That’s not just something you need to worry about

down the road, because what often happens is that, before you know it, you’re out of cash, or you have alienated customers who are hard to win back. Cash flow is critically important, and by the time you run out of cash, it’s hard to get back on track. Once you lose your credibility with your customers, it can take a very long time, if ever, to get them to buy your products or services again. Another stumbling block is underestimating the importance of selling. You have to be out there selling your business all the time. Selling skills are very, very important and create valuable advantages for you; you cannot underestimate the importance of selling the products and services that you provide. There are, in fact, two aspects to selling. The first is the actual sales force working with customers. Hiring the right sales and marketing executive is critical. This person must have a good understanding of the product and the customer base as well as product and purchasing cycles. The second type of selling involves selling the “idea” of the company. What are you all about? Why does what you do add important value to your customers’ lives. In most cases, the founders will be the primary sellers regarding the idea of the company. Selling the company vision to key constituencies, including employees, investors, and customers, is a key role of founders and company CEOs. One of the biggest challenges for entrepreneurs is in making the transition from start-up to an ongoing enterprise. The vision, passion, and tenacity that make a founding entrepreneur successful do not necessarily make them the right person to lead the company forward into a high growth, or more mature stage. Executive succession - knowing when and whom to designate as the new senior manager at the helm - is one of the primary duties of a good CEO.

sid e t he Mind s: Th e ABCs of En re neBig ur sh ip: Th e ConcludingI nAdvice: Connecting totr ep the Picture Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem emtobedo r as an entrepreneur is to think about the difference you will make. Don’t Ultimately, what you want ISBN:1587622238 by Ar i Ginsber et al. of success is the wealth that’s sell out. Certainly, an importantg mark produced, but you need to create Aspator e Books © 2003 (112 pages) something of lasting value. Make a difference in the world, so that what you are doing brings real value Fr omaoutlining the history of to entlive. repr eneur fr om and makes the world better place in which Goingship, for the quick and easy buck will not work. As generating cr edible andsuccess feasible isideas, from secur ing we’ve learned over the last few years, a process that takes a lot of hard work. It requires financials to m anaging effectiv ely, this book pulls r eader s perseverance and resolve in the face of hardship. What is going to drive that willingness to work hard thr ough all facets of ent repr eneur ship, fr om begin ning to end. and prevail over setbacks is not just the self-confidence that comes from the knowledge that you’ve Taacquired, ble o f Conort en t s the creativity that you possess, but the feeling that what you are doing is meaningful. even I nside t he Minds—The ABCsfar of beyond Entr epr eneurship—Th e Fundam It is something that goes simply making money.ent als All Business Pr ofessionals Should Know & Rem em ber

One of the positive aspects that came out of the and boom and bust The ABCs of Ent repreneur ship—Assessing, Building Connect in g was the dramatic increase in entrepreneurial onlyColors were individuals starting up their own companies, but also the Entr epr eneur ship activity. Com es inNot Many Brentrepreneurial inging Solutionsspirit to Prseems oblems to have spread into all industries. Managers in large and small firms, new

old and companies, increasingly can I of doEntr what do better? Frand eedom I nfor m edwere Discipline—Fer tile asking: Soil for How the Seeds eprIeneur ship Fundamentals for Building an Entr epreneur ial Or ganization

While the corporate climate may have changed amid a recession and a parade of corporate scandals, this question remains relevant. Innovation and entrepreneurship are and will remain key drivers for The Science growth. and Pr ocess of Entr eprof eneur economic Perhaps one the ship lasting legacies of the “new economy” is the “careerification” of Key Concepts of Entr epr eneurship entrepreneurship. Whether starting their own company or working for someone else, employees are increasingly encouraged to think creatively about the needs of their company or organization. Being entrepreneurial is now recognized as a career choice that can lead to important contributions both in small and large companies and in both for-profit and not-for-profit sectors. Entr epr eneur ship and Str ategy

Ari Ginsberg is the Harold Price Professor of Entrepreneurship and Director of the Berkley Center for Entrepreneurial Studies at the Stern School of Business. He received his MBA and his Ph.D. in Strategic Planning and Policy from the University of Pittsburgh, and a Master's degree in Human Learning and Cognition from Columbia University. Professor Ginsberg teaches courses on competitive analysis, business start-up planning, corporate venturing, and the management of technological innovation in the MBA and Executive MBA Programs at Stern. He has been on the faculty of NYU since 1984 and has been a visiting professor at the London Business School and the Cranfield School of Management in England. He received the Citibank Excellence in Teaching Award in 1996 and the Peter Drucker Fellowship in 1998. He has also served as chairman of the Department of Management and Organizational Behavior. Professor Ginsberg's research and consulting activities focus on management of corporate growth and organizational adaptation and renewal, competitive dynamics in emerging industries and firms, and the use of cognitive mapping, modeling and simulation techniques to help managers understand the dynamics of emergent business systems. He has published widely and has authored several award winning papers on these and related topics.

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Entrepreneurship Comes in Many Colors Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r

Anthony C. Warren ISBN:1587622238 by Ar i Ginsber g et al. Smeal College of Business, Penn State University Aspator e Books © 2003 (112 pages) Director, Farrell Center for Corporate Innovation and Entrepreneurship Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end.

Learning Entrepreneurial Skills

we examine the multiple roles of an entrepreneur we must dissociate the concept of TaBefore ble o f Con t en t s

entrepreneurship from purely a start-up companyecontext. the word entrepreneur has I nside t he Minds—The ABCs of Entr epr eneurship—Th FundamUnfortunately ent als All Business come to connote an individual who has difficulties in working within an organizational framework, a Pr ofessionals Should Know & Rem em ber renegade by “doing their own thing,” controlling their environment, passionately following their The ABCs ofdriven Ent repreneur ship—Assessing, Building and Connect in g own innovation learning from their or other’s mistakes. In fact, nothing could be further from Entr epr eneur ship and Comnot es in Many Colors truth. A successful entrepreneur works well in teams, exhibits excellent leadership and Brthe inging Solutions to Pr oblems

communication skills, adapts rapidly and pragmatically to circumvent roadblocks, manages risk well, and is able to build value using limited resources not entirely under his or her control. The basic skills Fundamentals for Building an Entr epreneur ial Or ganization required to be a successful entrepreneur are the same, whether applied to a start-up, a non-profit Entr epr eneur ship and Str ategy organization, a large corporation, public service or just developing a fulfilling career. Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

The Science and Pr ocess of Entr epr eneur ship

Key Entr epr eneurship So Concepts let’s beginofby examining these skills and how they can be acquired.

First and foremost, an entrepreneur sees opportunities that are not observed by non-entrepreneurs. Contrary to the common view, opportunity perception is a skill that can be learned. It’s forcing your mind to think beyond the conventional way of approaching problems. This becomes easier when you are armed with lots of information, which at first sight you may not think is relevant. Entrepreneurs learn to be inquisitive. I encourage all of my students to read widely; the more they read, the more they start piecing together bits and pieces of the solution to a problem which, if they hadn’t had that information, they would never have seen. Perhaps a novel way of packaging toothpaste can be applied to two-part glues or Dell’s “made-to-order computer” business model can be applied to home theater equipment. I teach them to block out the conventional way of looking at things and to ask a lot of questions. A good starting point is to assume that any problem has already been solved by someone but not yet applied to the opportunity in which you and your potential customers have interest. Surfing the Internet, scanning the US patent database on-line, reading magazines and newspapers, finding out what other people are doing, networking and gathering a lot of knowledge that may or may not be relevant – all these things take place before an opportunity can be explored. Once an inquisitive mind-set has been established and is being incessantly fed from multiple information sources, you will find that there are opportunities all over the place, and that by looking at the world through a different set of glasses, you uncover more opportunities than you can possibly deal with. Entrepreneurs learn to assemble information from many disparate sources and create opportunities like solving a jigsaw puzzle. If you read about how some major innovations that have changed our lives started and eventually got traction in the market place, such as 3M’s “Post-it” notes, Vistakon’s disposable contact lenses, FedEx overnight parcel delivery, Southwest Airlines’ discount travel, the worldwide web, etc., you will find a common theme. Each was started by an entrepreneur who saw things a different way than others. They assembled information and used this input to create something that was inherently different and appealing to customers. Note that these examples are not confined to start-ups only; new ideas can and indeed must be created and exploited by large companies too. The first time you challenge yourself to find a new opportunity, you will probably be daunted by the task. “How can I find something of value with all the effort that is being exerted everyday by smarter people than me?” In fact, I teach a graduate class that specifically requires the students to uncover a new and valuable opportunity. At first they look at me as if I’m crazy. I point out that they should scan the Internet where there are many sites that list invention for license or franchising deals. They should call up university technology transfer offices, talk to the Defense Department, NASA, the Department of Energy. They soon find things that are intriguing and for which they can begin to generate some passion. The ideas are usually all over the map – perhaps a new website for creating a market for rental properties, a food franchising system for health clubs, a light-weight fire resistant fabric

developed by NASA and now ready for children’s clothing, or a combination drug for the treatment of diabetes. I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e

The ideas are stillFuembryonic and have a lot of holes in them. The next stage is to work on the early nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow idea and build it into a feasible & Rem em be r opportunity. So now you have to challenge yourself (or in class, we have the class challenge the initiator) and add to it in order to correct any ISBN:1587622238 by Ar i Ginsber g et al. and begin to polish the idea, faults or holes there might be in the execution of the plan. This process may take several weeks before Aspator e Books © 2003 (112 pages) the idea has beenFrconverted into a true business opportunity. During this phase, more focused om outlining the history of ent repr eneur ship, fr om research on whatgenerating has already been and done in the ideas, field – from whatsecur existing cr edible feasible ing and potential competitors have financials to m what anaging ely, this book pulls r eader achieved, who failed and why, theeffectiv unfulfilled customer needs are,s etc. – must be undertaken. In thr oughthese all facets entmuch repr eneur ship, fr om begin ningsay, to end. the age of the Internet, tasksofare easier than they were, ten years ago. Ta ble o f Con t en t s

The next stage is examining your opportunity as if you were an independent third person and to figure

I nside t he Minds—The ABCs of Entr epriteneurship—Th e Fundam ent als All Business out whom it’s most important to. Is important to investors? If so, what sort of investor – should a local Pr ofessionals Should Know & Rem em ber

business angel or an established source of venture capital be approached? Is it important to your family? Is it important to you? Or is it important to a corporation? There may be many applications of Entr epr eneur ship Com es in Many Colors your initial idea that did not occur to you at first but which you now need to understand. This analysis Brwill inging Solutions to Pr oblems point you to where your opportunity may benefit someone else, and therefore direct you to a Frsource eedom of and I nfor mresources ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship money, or know-how. The ABCs of Ent repreneur ship—Assessing, Building and Connect in g

Fundamentals for Building an Entr epreneur ial Or ganization

Forepr example, a new way of creating an exchange market for rental accommodations might benefit Entr eneur ship and Str ategy builders, furniture moving andepr storage companies, rental vehicle companies, furniture rental The Science and Pr ocess of Entr eneur ship companies, accommodation service firms, etc. One or more of these could be a viable Key Concepts temporary of Entr epr eneurship partner to help you get your enterprise off the ground.

Without understanding the implications of your opportunity to related entities, you cannot succeed in the two next tasks that you need to accomplish. First you need to determine which resources you need to access and to make the argument to your potential stakeholders that they should become part of your new venture. In the case of a start-up, it may be access to money, or borrowing a key piece of equipment, or finding a marketing partner. Within a corporation, it is more likely to garner support from senior management to try something new and radical, which may go against the established processes within the organization. In either case, now is your chance to exhibit another attribute of the successful entrepreneur, namely “bootstrapping” an idea to get to a certain level of proof by using other people’s resources. This can be on a large scale. For example, the famous “skunk-works” within Lockheed were able to prove the concept of the stealth bomber without getting any major resource allocation from the parent company. Of course, the arguments to convince your brother-in-law for a ten thousand dollar loan to try out an idea must be formulated differently than if you’re asking a pharmaceutical company for a development contract for a new drug, or approaching a group of angel investors for a few hundred thousand dollars to start an educational software company. I teach my students about the various sources of money and how different arguments are made to different sets of potential stakeholders and where the fit is best. By carefully thinking through how you can convince others to be part of your venture and to show them how they can benefit along with your success, places your opportunity into the real world in which together you will create wealth. If you can establish a partnership with stakeholders willing to participate in your opportunity along with you, whether a family member, an investor, suppliers, customers, or your corporate development committee, you have learned the first key attributes of an entrepreneur – the ability to spot an opportunity that others missed, to communicate the value of the opportunity, to understand how to bootstrap the idea by co-opting resources whether cash, know-how, or other forms of help, and to lead others to come along with you on your adventure. All these steps are independent of whether you are working within or outside an existing organization. You are now on your road to being a successful entrepreneur.

I n sid eWithin t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Entrepreneurs Corporations

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Rem entrepreneurship em be r The reason that I&teach skills independently from organizational context is that most ISBN:1587622238 by Ar i Ginsber et majority al. of my students and, I suspect, gthe of the readers of this book will develop their careers, at Aspator e Books © 2003 (112 pages) least over the next few years, within a corporation. A major issue that every company is struggling with om outlining the history of ent repr eneur fr om when you take people who think now is how to be Fr more entrepreneurial or innovative. And,ship, of course, edible and ideas, from secur ing creatively and putgenerating them in a cr routinely runfeasible organization, certain stresses often emerge. Understanding financials to m anaging effectiv ely, this book pulls r eader s how an entrepreneur functions effectively in a more rigid environment and makes convincing thr ough all facets of ent repr eneur ship, fr om begin ning to end. arguments to corporate stakeholders having very different objectives from private investors, enables Tayou ble to o f become Con t en t smore valuable as an employee and an agent for change. I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business succeed Should as an internal you must first learn how to identify opportunities for your PrTo ofessionals Know & entrepreneur, Rem em ber

corporation using the skills described above andand thenConnect develop The ABCs of Ent repreneur ship—Assessing, Building in gthe personal skills to convince the inevitable nay-sayers leastColors give the idea a try. The best way is to develop a plan that has many Entr epr eneur ship Com estoinatMany so that risk at any stage is contained, understood, and minimized. Revolution must be Brmilestones inging Solutions to the Pr oblems through evolution. Frattained eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization

Establish buy-off on your ideas from senior management and get their commitment from the very beginning. Then spend as much time as possible communicating progress, as well as problems, with The Science and of Pr ocess of Entr epr eneurthe shipproject theirs as well as yours. Let everyone know that a broad range stakeholders. Make Key Concepts of Entr epr eneurship setbacks are to be expected and that every threat should be viewed as yet another opportunity. Discuss what might happen if your major competitors exploit similar ideas and what damage it might do to your company. Be thorough in your analysis of the benefits so that you can be clear in your answers to difficult questions in the review meetings. If possible, run workshops to examine how similar innovations were managed successfully at other companies by inviting their executives to share their experiences with your managers. Use any and all ways to maintain confidence and keep momentum in the project. Entr epr eneur ship and Str ategy

I n sid e t he Can Mind s: Only Th e ABCs En tr ep re ne ur sh ip: Th e Entrepreneurship BeofLearned By Doing Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em be r I’m a great believer in what is commonly called clinical teaching: learning by being immersed in real ISBN:1587622238 by Ar i Ginsber g et al. others perform operations problems. Surgeons learn by watching and then by actually operating while Aspator e Books © 2003 (112 pages) under supervision. Entrepreneurship should be learned similarly. One way you can learn the skills is to Fr omentrepreneur outlining the clubs historyand of ent eneur ship, fr om network in your local tryrepr to find mentors. If you are working in a larger generating cr edible and business feasible ideas, from secur ing where you will interact with corporation, ask to be assigned to new generation activities financials to m anaging effectiv ely, this book pulls r eader s internal creative people. thr ough all facets of ent repr eneur ship, fr om begin ning to end. TaEntrepreneurship ble o f Con t en t s is taught entirely using clinical methods at the Smeal College of Management. The

introduction to the entrepreneurship course requires each student toBusiness find an idea that they would like to I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All theKnow methods Prchampion, ofessionalsusing Should & Remoutlined em ber earlier in this chapter. Their output is actually an executive summary their opportunity and targeted generate The ABCs ofdescribing Ent repreneur ship—Assessing, Building andtoConnect in g interest in a specific person or group of people that ship they’ve asColors their most appropriate stakeholders. If the opportunity best matches a Entr epr eneur Comidentified es in Many capital firm, have to identify not only the one or two firms that are the best fit, but also the Brventure inging Solutions to Prthey oblems in thetile area by the opportunity. Fractual eedompartners and I nforthat m edspecialize Discipline—Fer Soiladdressed for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization

If the opportunity fits a corporate partner’s route to commercialization, the student must define the actual person in that company who will be most likely to be receptive to the opportunity they’re putting The Science andsuitable Pr ocessfor of a Entr epr eneur ship investors, then they have them call them up and get an forward. If it’s group of angel Key Concepts of Entr epr eneurship audience to listen to their pitch of the opportunity. And so, in the introductory course, the students actually feel comfortable that, in fact, there are a hundred or even a thousand ideas that they can identify with and get excited about sufficiently to create the arguments and the resource and financial plans – in outline, not a detailed business plan – so that they can pitch it to somebody who ought to be receptive. I would recommend a similar exercise for anyone contemplating an entrepreneurial career. Finding an idea and engaging with someone to be a champion is a great way to learn. Entr epr eneur ship and Str ategy

Next, we do two things that I think are also very interesting from a learning perspective. The students have to write a business plan, and they can either write it around the idea that they conceived in the previous class, or they can take a bad business plan and convert it into a good business plan. But generally, they have to learn how to write a concise business plan. Every entrepreneur must be able to put their ideas into a convincing, well-argued document. There are several excellent templates that can be accessed on the Internet that can help you through this process. Do not underestimate the importance of a good plan and how difficult it is to put one together. Only when you try to put your ideas on paper in a cohesive way, do you uncover the holes that need to be filled. In parallel with the idea generation and planning exercises, the students are placed on the other side of the table and act out the role as a potential investor in someone else’s opportunity. Now you’re a venture capitalist and you’re looking at business plans to determine where to invest. This is another important way of learning – by challenging another’s plans you can directly experience the areas where significant risks lie, or there is insufficient information to make a decision whether to invest or not. At the University we actually have a venture fund, which the students manage. We find companies that are looking for investment, and they make a presentation to the class, and then the class does all the due diligence and decides whether to make an investment or not. So it’s interesting to observe the learning process: on the one hand, the students are trying to create arguments to attract money, and, in parallel, they’re looking at somebody else’s arguments and taking them apart to determine whether this would be a good investment or not. By simultaneously playing the role of both promoter and potential investor, the students learn to be more critical of their own ideas and, therefore, able to build them into more robust opportunities. Although you may not have money to invest in others’ plans, you can learn to critique plans by either going to presentations made to your local entrepreneurs’ club, for example, or getting yourself onto a review group to examine new opportunities within your existing company. This will help you when the time comes to create your own plans and sell them to stakeholders. After reviewing several plans, you will begin to see certain patterns of weakness. The main area of concern is usually associated with a lack of customer input. An idea has no value unless someone will eventually pay for it. Getting input from potential customers that indicates that they will buy what you plan to offer at the price, which will make you a profit, is the most important checkpoint for investors.

Without customers there is no business opportunity. Entrepreneurs often underestimate the need to complement their own management skills. A major cause of failure for new enterprises is the originator not recognizing theMind need in additional I n sid e t he s: to Thbring e ABCs of En tr eptalent. re ne urOwning sh ip: Thae large percentage of a failure is no compensation foram owning small part of Pro something Honest selfFu nd en t alsa All Bu sin ess fe ssio nalarge ls Shand ou ldsuccessful. Kn ow Rem em of be trusted r examination, with&the input advisors, should be done regularly. The willingness of founders to forgo the leading by Ar position i Ginsber is gviewed et al. as a positive attribute byISBN:1587622238 investors. Aspator e Books © 2003 (112 pages)

Because bringingFrinom additional managers with complementary skills adds to the chance of success, we outlining the history of ent repr eneur ship, fr om teach a basic knowledge of cr such skills. cashsecur management, team building and generating edible and These feasibleinclude ideas, from ing motivation, and negotiating as well managing and growing a start-up through its financials topartnerships, m anaging effectiv ely,as this book pulls r eader s thr ough all facets of eneur om begin ning the to end. various phases. An understanding of ent therepr value of ship, thesefrskills makes entrepreneur more likely to accept that others can bring value to the management team. Ta ble o f Con t en t s I nside t hethe Minds—The ABCs of epr eneurship—Th Fundam ent als Allskills Business Finally, students learn to Entr practice their learnede entrepreneurial using a set of different Pr ofessionals Should Know & Rem em ber

business scenarios where they play the role of CEO. For example, we take a real case biotech start-up company that has taken several wrong steps along the way. The “acting CEO” must create a new Entr epr eneur ship Com es in Many Colors innovative strategy to extract the lost value. The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Br inging Solutions to Pr oblems FrIneedom another andscenario, I nfor m edwe Discipline—Fer take a major tilecompany Soil for the thatSeeds is threatened of Entr eprby eneur an aggressive ship start-up and must

therefore re-examine its an business modelial– Or perhaps to shift from a product to a service model. The Fundamentals for Building Entr epreneur ganization “acting division has to present the rationale and plans for what might be a radical change to Entr epr eneur ship manager” and Str ategy theScience “board”and of the company. The Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

In another case, the students are presented with a series of rather disparate press clipping, product literature, market research reports and recently issued patents from around the world. They are issued with the following challenge: “Somewhere in here is an opportunity. Go figure out who’s going to make the move or where the business opportunity is.” For example, one case uses the idea of so-called “intelligent appliances” in the home that are connected to the Internet and what this might do to the detergent market. Will a company such as GE get into the detergent market? Will the consumer lease washing machines with a supply of detergent delivered by UPS to match their pattern of usage? Will the major supermarket chains be shut out of the detergent market – a major part of their revenue? I want to make them look at a very complex situation and figure out where the real opportunities might be and to use their learned skills in making the arguments to various stakeholder groups.

I n sidfor e t heGetting Mind s: Th eaABCs of En tr ep reVenture ne ur sh ip: ThOff e Practical Tips Business the Ground Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Rem em be rto start a company so the planning is critically important. So the first 2003 is one of the& worst times ISBN:1587622238 by Ar i Ginsber g et al. must have a business model important point is that you absolutely where you can get revenue into the Aspator e Books © 2003 (112 pages) venture quickly, even if at the start you will not be going to where the ultimate business is targeted. om some outlining the history ent repr eneur ship, om Figure out how toFrget income to stayofalive – maybe as a fr consultant, or with some other form of generating cr edible feasible ideas, from ing to find investment money. So the direct income because at the time ofand writing it’s actually verysecur difficult financials to m anaging effectiv ely, this book pulls r eader s skills of bootstrapping arealleven more important than thr ough facets of ent repr eneur ship,infrthe om past. begin ning to end.

point TaThe ble osecond f Con t en t s to note is not to be greedy – to recognize that you can’t do it on your own and that you’ret he going to have ABCs to have other people help you. Be fair ent even I nside Minds—The of Entr epr eneurship—Th e Fundam als by All showing Business over-generosity and let Prthem ofessionals Should Knowthat & Rem ber share in the value theem company creates. I’ve seen too many companies destroyed because theABCs founders to hold on to too muchBuilding equity. and Unhealthy is a bad thing at all times, and The of Enttried repreneur ship—Assessing, Connectgreed in g especially these hard Entr epr eneurinship Com es intimes. Many Colors Br inging Solutions to Pr oblems

Third, you also have to do your homework on competitors. I recently had a class look at a company which at first blush seemed to be a really good opportunity, but after the students did their research, Fundamentals for Building an Entr epreneur ial Or ganization they found that there were five competitors that had already carved out and developed a reputation in Entr epr eneur ship and Str ategy the market sector and had also partnered with a lot of the distribution network, so that there were high The Science Pr ocess Entrentrepreneurs epr eneur ship who started the company didn’t even know about these barriers forand a sixth entry.ofThe Key Concepts of Entr epr eneurship competitors. Such ignorance is far too common and inexcusable in the age of the Internet. Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

Fourth, talk to potential customers before you start your business. Most business plans don’t have any so-called primary research, and I think it’s because entrepreneurs don’t want to hear “no.” If it’s a bad idea, the first person who’s going to tell you is the potential customer, so the first thing you have to do is go out and test the market. Say, “I’ve got this idea. This is what I’m thinking of doing. Is it something you would be interested in buying or participating in?” And get feedback from the marketplace. There are still too many better mousetrap business ideas. Your idea may not be all that good, but by listening to customers you’re probably going to find a good idea in the area you’re interested in. So you can polish your idea and build something of value. For some reason, most people who are starting businesses avoid going around and talk to their potential customers before they start figuring out what the business is. That’s a mistake. Always make sure that there’s a customer for your idea. If you’re going to raise money or risk taking a second mortgage on your house, then make sure that you have something competitive and that there are customers out there who, if you do what you think you can do, will buy it. Fifth, you must learn how to communicate your idea concisely to your customers and the other stakeholders you need on board. Successful entrepreneurs are great communicators. You may hear reference to “the elevator pitch.” In this age of short attention spans and instant gratification, your audience has to be captured immediately while you convey the key points in the time that it takes an elevator to get to the top floor. You have to say in very concise terms what the value is of what you plan to do and what the benefits are to your audience. This is actually a difficult feat; it’s not a natural skill. Inexperienced entrepreneurs are often so excited about their idea that they talk more about themselves and the idea than about the value that it brings to the people who are actually going to eventually write out the checks – customers, investors or bankers. Learning that skill and being able to communicate your idea concisely in the other person’s language and framework in two minutes is a vital skill and needs practice. Try it out on your family members, friends or trusted advisors. Finally, learn to manage your available cash by balancing growth within the limits of your bank account. The phrase “cash is king” is especially true for a start-up venture in these times of a stressed economy coming after the dot.com failures. There’s no harm in having ambition – in fact, you can’t grow a company without ambition – but you need checks and balances to be realistic because you don’t want to burn out with no cash. If you need significant cash to fund growth and sufficient cash cannot be funded internally, you must explore other avenues. Start with seeking bank loans or an economic development grant. If you have to seek equity finance, you will need to spend 120 percent of your time raising money, particular in the current climate, and you should always be raising money when you don’t need it. You can’t leave it until the last minute, because it never gets done on time, and the closer you are to running out of cash, the worse the deal you’re going to make with investors.

So in terms of planning, you have focus your attention first on cash and cash management and that should be the constraint that determines the rate that you grow the business. You can’t afford to run I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e out of money. Always have contingency plans – what happens if this sale doesn’t come in, or we don’t Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow get this product out on time – what if we cannot raise the next round of capital – what do we do if the & Rem em be r government grantbydoes not come ISBN:1587622238 Ar i Ginsber g et through? al. Aspator e Books © 2003 (112 pages) Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end. Ta ble o f Con t en t s I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Avoiding Mistakes – Learning from Others

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Rem emcompanies be r The failure rate in&start-up is very high – no more than 20 percent survive more than three ISBN:1587622238 by Ar i Ginsber g et al. lower if we could somehow years. This failure rate would be much absorb and act on mistakes made Aspator e Books © 2003 (112 pages) by others. Just as teenagers need to reach adulthood by ignoring advice from their parents and Fr om outlining up thefor history of ent repr eneur ship, fr om experiencing errors in growing themselves, entrepreneurs appear to relish making the same generating cr them. edible and feasible ideas, from secur inglearned from earlier failures, yours mistakes as everyone before There are great lessons to be financials to m anaging effectiv ely, this book pulls r eader s or others. In fact, thr asough a venture capitalist, I like to invest inom people failed before providing that all facets of ent repr eneur ship, fr beginthat ning have to end. they learned intelligently from these failures. So when starting out, try to talk to others who have failed Tabefore ble o f Con en t s you.t Venture capitalists, bankers, accountants, and attorneys specializing in start-ups and other I nside t he Minds—The of Entr eneurship—Th e Fundam ent als All Business entrepreneurs are allABCs sources of epr great lessons. Listen to them. Here are some of my pet reasons for Prfailure ofessionals Should be Know & Rem em ber that should avoided. The ABCs of Ent repreneur ship—Assessing, Building and Connect in g

First, believe partnering small companies with larger companies, because you can get access to Entr eprIeneur shipinCom es in Many Colors resources Brbigger inging markets Solutionsand to Pr oblems without having to buy into them or invest in them directly. However, the cultures, large and small are very match, it’sepr very easy to make contractual or legal Frtwo eedom and I nfor m ed Discipline—Fer tile difficult Soil for to the Seeds and of Entr eneur ship mistakes in such relationships on when the entrepreneur is desperate for money. It is natural for Fundamentals for Building an Entrearly epreneur ial Or ganization

big corporations to grab for more, and then they can hold you for ransom later. One of the companies studied by my students went under because they actually had a development contract with a large The Science and Pr ocess of Entr epr eneur ship manufacturer that had the rights to the technology if the small firm couldn’t deliver on time. Thus the Key Concepts of Entr epr eneurship objectives of the two parties were not aligned. Subsequently, the large firm delayed a stage payment for a trumped up reason pushing the smaller company into bankruptcy, which resulted in the large manufacturer acquiring the products and technology for next to nothing. Being held hostage by somebody you think at the beginning is solving your immediate cash problems is a common mistake. It can be avoided by not putting all your eggs in one corporate basket and, where possible, work with competitors. This enables you to keep your partners more honest. Entr epr eneur ship and Str ategy

However good your idea is, it will only be successful if your team executes the commercialization quickly and professionally. This means that you must ALWAYS hire the best people you can find. It’s always a mistake to hire people who aren’t good enough. If you find out they’re not good enough early on, then bite the bullet and get rid of them quickly. The wrong person will cost you too much money and perhaps even take the company under. You’ll make mistakes in hiring, but if it’s not working out, give them one chance, and if they don’t perform, they’ve got to go. In a small company you just cannot have free riders. So how do you get good people? That’s when networking counts. Good entrepreneurs network. They don’t hide themselves away in their basement. They move around; they’re social animals. Networking means talking to as many people as possible about what you are trying to do - accountants, attorneys, investors, bankers, customers, suppliers, etc. For example, you can ask your potential customers, “I’m looking for a sales director. Who serves you in your marketplace that you really like dealing with?” In the early stages you can’t afford to use a headhunter, but you can use similar skills by just asking around and calling up and finding the right people, running the checks on them, and feeling comfortable with them. In a small company, you should try not hiring a key person full- time to start with, but agree on a trial period to see whether it works out. “Why don’t you work part-time for us?” or “Why don’t you be a sales rep for us?” or “We’re looking for a controller – can you help out working our books for a couple of days a week?” And then as you grow, you might like the person and then bring them on full time. This is a great way to avoid a costly mistake. To complement your best-of-the-best hires, you need to build a cadre of trusted advisors as part of your support network. But be wary. If you go to local entrepreneurial workshops they are often populated with a lot of people who don’t add any value, so you have to be just as diligent in checking out your advisors as new hires. But maybe you had legal work done for a will or buying a house and you felt comfortable with the attorney, so you talk to them and say, “Do you have anybody in your practice who does start-up company law? I’d like to start working with your firm.” A word of caution. I have rarely found a retired executive from a large corporation able to understand the needs and stresses of a small company. Years of having a large support infrastructure make such persons peculiarly dangerous to a smaller company. They are usually unprepared to roll up their sleeves and turn their efforts to whatever task is necessary at any time and can easily become a

burden rather than an asset. Promises of introductions at the highest level of possible corporate partners usually turn out to be out of date, or worse, carry baggage that can adversely reflect on your company. You are to find an company that operated in a similar I nbetter sid e t he Mind s:entrepreneur Th e ABCs of that En trhas ep resold ne urtheir sh ip: Th e business to the one that building them anowadvisor, or better, an investor. Fu nd amyou en t are als All Bu sinand ess ask Pro fe ssioto nahelp ls Shyou ou ldasKn & Rem em be r

Thus, you shouldby tryArtoi Ginsber networkg with seen the mistakes facing a new venture et al.people who have actuallyISBN:1587622238 a hundred times before, because that’s how you can mitigate your personal risk. Get a good advisory Aspator e Books © 2003 (112 pages) board, early on, of people who have been successful in your business area. If you’re going to take Fr om outlining the history of ent repr eneur ship, fr om money from anybody, whether investor, banker,ideas, supplier or secur corporate generating cr edible and feasible from ing partner, remember that the financials to m anaging effectiv ely,the thisbest bookvalue pullscomes r eader sfrom accessing their know-how money is the least value that you’re going to get; thr ough all facets ent repr eneur ship, fr om begin ning to end. and their willingness to help. Seek of“smart money”: stupid money is usually bad money. So even if you take a small amount of money from a private investor to help grow your business, you want to take it Ta ble o f Con t en t s from somebody who can really help. I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber

Entrepreneurs must be good team leaders. Modern management methods teach empowerment rather than control as the central culture of businesses. Successful entrepreneurs don’t make the Entr epr eneur ship Com es in Many Colors mistake of being control freaks. They hire people they trust and let them run, because you can’t grow a Brbusiness inging Solutions Pr oblems with onetoperson trying to control everything. So when I hear someone saying, “I’m trying to Frhold eedom ed Discipline—Fer for the of Entr epr eneur ship on and to allI nfor themequity, and I try to tile takeSoil control of Seeds everything that’s going on in the company,” then I Fundamentals Building an Entr epreneur ial Orgood ganization choose not tofor make an investment however the opportunity seems. Focus on team building and Entr eneur ship and Str let epr everybody make theategy decisions they’re responsible for and which they have the capability and The Science and Pr ocess of Entr epr eneur ship experience. The ABCs of Ent repreneur ship—Assessing, Building and Connect in g

Key Concepts of Entr epr eneurship

There is a currently lot of discussion concerning corporate governance in the aftermath of the problems at Enron, WorldCom, Global Crossing, Tyco, etc. However, the issues surrounding independence of board members in larger companies apply just as much in small businesses. However uncomfortable you may feel about reporting to an independent board, in the long run, having a strong and active board that will act if the founders of the company falter will benefit everyone. Boards must have teeth and have independent outsiders. A board that is composed mainly from the friends of the founding entrepreneur doesn’t bring any diversity of thought or challenge to the management of the company. Don’t make the mistake of assembling advisory boards or operating boards that will not act for the benefit of the company rather than the benefit of the founder. Independently acting boards are put in place to correct management mistakes. Remember your greatest risk is making mistakes, not starting a new venture. So put in place the tried and tested governance procedures to lessen the chances of fatal mistakes.

n sid e t he Mind Th e ABCs ofor En tr ep re ne ur sh ip: Th e Measuring ISuccess – s:Lifestyle Wealth?

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem r To measure success, inem mybe view, you have to first define two types of start-up companies. The most ISBN:1587622238 by Ar i Ginsber et al. common type, but not so oftengcelebrated, are the so-called lifestyle companies. Most entrepreneurs Aspator e Books © 2003 (112 pages) start their own business because they don’t want to work for somebody else. They are in business to Fr om as outlining history of entan repr eneur ship, frlivelihood. om “keep it in the family,” it were,the and to create independent A small machine shop, a cr edible and feasible secur ing retail store; smallgenerating building contractors are typicalideas, of thisfrom category. You’re in that business because you financials to m anaging effectiv ely, this book pulls r eader s want to live comfortably, to the standards desire, be to in end. control of your own destiny thr ough to all live facets of ent repr eneurthat ship,you fr om beginto ning and to sleep well at night. This is your personal way of achieving success and satisfaction. You don’t Taburn ble oout f Con t enfamily ts your life, you maintain harmony with your friends and family, and you make enough I nside t he ABCs while of Entrremaining epr eneurship—Th e Fundam ent alsaAll Business money toMinds—The be comfortable your own boss. Such lifestyle company is typical of most Prprivately ofessionals & Rem em ber heldShould smallKnow companies. The ABCs of Ent repreneur ship—Assessing, Building and Connect in g

However, it ship is notCom theessort of company Entr epr eneur in Many Colors that any independent third party should invest in. Investors like to rich,Solutions and theytodon’t want to stay in the investment for ever. Lifestyle companies provide no exit Brget inging Pr oblems for investors. So before seeking outside your be completely honest Frstrategy eedom and I nfor m ed Discipline—Fer tile Soil for theinvestors Seeds of in Entr eprnew eneurventure, ship with yourself.for AreBuilding you willing to lose control? you like to sell your company to someone else Fundamentals an Entr epreneur ial OrWould ganization

within three to five years? If not, focus on your lifestyle made possible by your venture and don’t waste investors’ time.

Entr epr eneur ship and Str ategy

The Science and Pr ocess of Entr epr eneur ship

Key Entr eneurship TheConcepts second of type ofepr company is formed for the principal purpose of creating substantial wealth for

yourself and your investors/partners. Any comfortable lifestyle that you currently enjoy is likely to take second place to wealth creation. These are the companies we read about – Microsoft, Dell, Ben and Jerry’s. In creating wealth, you will almost certainly bring in professional investors seeking a high return on their money, which they can only realize by selling their interest in the company to the public or another company or investor group. The whole structure and culture of the company is not to create current income but to create equity value through growth. Success means something different to entrepreneurs in each of these company types. In the first case, success can be measured by the cash flow that the company can deliver reliably to the entrepreneur and his or her family. In the second case, success is measured by the value of the ownership position of the entrepreneur and the investors when the equity becomes “liquid,” i.e. able to be sold to a third party for cash or tradable securities. The first type of company may create its own unique set of problems. If it remains a family-owned company and the founders wish to retire, they may not have developed any succession plan. A common problem with many, if not most family-owned companies that have done very well, is that the owners have failed to develop ways to extract any of the value for the benefit of retiring founders or to hand it on to other members of the family. Often the necessary steps are not taken early enough to set in motion the things you need to do to enter into retirement comfortably while ensuring the company’s successful continuation. It may be necessary to bring in people who might want to buy the company from you, and you need to have all the financial management in place so that you can actually eventually retire from the company. The danger is that you hang on too long, and then it’s too late. The success of the growth-oriented company is clear: the entrepreneur makes a high return on the original investment. Most likely a high strain is placed on your family and friends. Ideally, the entrepreneur can separate emotionally from the company and cash out while still young. Then it’s time to take a year off, sail around the Caribbean, or whatever, and then when boredom eventually takes its toll, come back and do it all over again. Before embarking on your own dream, make sure that you are very clear in your mind which of the two alternative routes you plan to follow. Either is fine, but vacillating between the two is disastrous for yourself and anyone that gets involved with you.

sid eThinking t he Mind s: ThEntrepreneurially e ABCs of En tr ep re ne ur sh ip: Th e AdvantagesI nof

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Rem an em interest be r Everybody should& have in entrepreneurship and should try to learn some of the skills ISBN:1587622238 by Ar i Ginsber et al.is going with everything changing described above. The way the gworld more and more rapidly, Aspator e Books © 2003 (112 pages) inevitably we all must live with uncertainty. People who can think on their feet and turn adversity into Fr om who outlining the history of ent repr successful eneur ship, frand om make the most money, whether opportunity are those are going to be the most feasible ideas, from secur recent ing through their owngenerating company cr oredible withinand a larger company. Several surveys of CEO’s of large financials to m anaging effectiv ely, this book pulls r eader s companies, as well as academic research, show that the intellectual capability thr ough all facets of ent repr eneur ship, fr om begin ning to end. of managing in a very rapidly changing environment is the one attribute that is in greatest demand in the business world. So Tawhatever ble o f Con t en tcareer s your ambitions, you could do much worse than learn the basic skills of an I nside t he Minds—The ABCs of Entras eprdescribed eneurship—Th e Fundam ent als All Business entrepreneur in a rigorous way, above. The entrepreneurial way of managing constantly Prchallenges ofessionals the Should Know Rem em berat the world in an unconventional way, but, in fact, this way status quo& by looking The ABCs of Ent repreneur ship—Assessing, Building and Connect in g consistently creates more wealth and more personal satisfaction. Entr epr eneur ship Com es in Many Colors

my advice to anybody who really wants to run their own company is to first of all read and learn BrSo inging Solutions to Pr oblems works. tile Then jobSeeds in a company has a good reputation in the Frabout eedomhow andentrepreneurship I nfor m ed Discipline—Fer Soilget for athe of Entr eprthat eneur ship

industry sector the area reallyiallike – so, for example, if you fancy yourself running a chain of Fundamentals fororBuilding an that Entryou epreneur Or ganization cosmetics stores, then get a job with Estée Lauder and learn about that industry. If you dream of starting your own gourmet food line, then get a job with one of the food companies, Kraft or P&G, and The Science and Pr ocess of Entr epr eneur ship get into that division and learn about the markets and the competition and the regulations. The Key Concepts of Entr epr eneurship knowledge that you gain in business development in those sorts of companies will actually teach you a lot about the business you are planning and reduce the risk of your new venture. You will also be exposed to several opportunities that might not be large enough for your current employer but be ideal for a new venture. And then you’re in great shape to start your own company in whatever area that you fancy. Entr epr eneur ship and Str ategy

Whatever the current economic conditions, there will always be enormous opportunities for those that have learned to think and behave entrepreneurially. In a down cycle, such as we are currently experiencing, you may have to think differently because there’s no “easy money” available. Very few investments in early stage companies are being made, largely because of the dot-com debacle. So while the economic scene gets itself back into balance and the investment climate improves, prepare yourself by getting the knowledge and looking for opportunities. What goes around will come around, and the opportunities will be there to enable you to “do your own thing.” In the meantime, network, hone your entrepreneurial skills, gather knowledge and prepare yourself to launch your dream, alone or within your current job environment. Dr. Warren received an Honors B.Sc. and Ph.D. in Physics at the University of Birmingham, (UK) followed by post–doctoral research in superconductivity at the Universities of Toronto and Illinois. After three years heading a multi-national program in magneto-hydrodynamic power generation, Dr. Warren joined a start-up in Cambridge, England that created and executed new product strategies for major corporations based on a broad range of technologies. As the company, PA Technology, grew rapidly, Dr. Warren was responsible for the international operations setting up divisions in Australia, several European locations and finally in Princeton, NJ. In 1987, Dr. Warren co-founded and raised the capital for a ten year Limited Partnership to create and develop early stage technology-based companies. Over one hundred companies were formed to commercialize proprietary technology during the life of the partnership. In 1999, he co-founded Strategic Technologies LLC, a boutique investment bank undertaking transactions for corporations with significant intellectual property assets. He is also a venture partner in Adams Capital Management, a nationwide VC firm headquartered in Pittsburgh with over $700M under management. In 2001, Dr. Warren joined the Smeal College of Business at Penn State as Director of the Farrell Center for Corporate Innovation and Entrepreneurship and as the Farrell Clinical Professor for Entrepreneurship. He is the author of many scientific papers and patents as well as articles on innovation and risk finance. Dr. Warren is often quoted in the press regarding entrepreneurship issues, the management of risk, and public policy regarding economic stimulation through small company foundation.

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r by Ar i Ginsber g et al. Aspator e Books © 2003 (112 pages)

ISBN:1587622238

Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end. Ta ble o f Con t en t s I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e BringingIFunSolutions to Problems nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r

Albert A. Cannella, Jr. ISBN:1587622238 by Ar i Ginsber g et al. Texas A&M University Aspator e Books © 2003 (112 pages) Professor, Mays Faculty Fellow, Director of the Center for New Ventures and Entrepreneurship Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end.

The Entrepreneurial Aspect of Technology Commercialization oft sentrepreneurship is extremely broad. I try to separate several dimensions, or TaThe ble oconcept f Con t en

categorize it into three basic The groups are small ent business, family business, and technology I nside t he Minds—The ABCs of groups. Entr epr eneurship—Th e Fundam als All Business commercialization. Small business management is about a person starting or operating a business Pr ofessionals Should Know & Rem em ber thatABCs is notofintended to experience very rapid growth, rather The Ent repreneur ship—Assessing, Building and but Connect in gto provide products or services on a small These frequently also referred to as mom-and-pop operations. Certainly managing a Entr epr scale. eneur ship Comare es in Many Colors

business involves entrepreneurship – there’s no doubt about that; it’s an entrepreneurial Brmom-and-pop inging Solutions to Pr oblems

act. However, the kinds of problems that mom-and-pops face are very different from those of family businesses, where the organization is trying to employ family members and balance out (usually) a Fundamentals for Building an Entr epreneur ial Or ganization very large number of social and emotional issues. And both of those (small businesses and family Entr epr eneur ship and Str ategy businesses) are quite a bit different from a situation in which an entrepreneur is trying to take a raw The Science and Pr ocess of Entr epr eneur ship technology and make a commercially viable new product or service that nobody’s ever seen before. Key Concepts of Entr epr eneurship So I try to separate entrepreneurship into those three broad categories and talk about them separately, because the issues involved are quite different. Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

My personal teaching and research emphasis is on technology commercialization. What I mean by that is taking fundamental, basic research done at research universities and converting it into viable products and services. So what I talk about to entrepreneurs is the process of taking what I think of as potential solutions to problems (that being the research that’s done in universities), and the actual problems themselves (problems that people face in their day-to-day lives, or problems that need resolution in one form or another), and bringing those two together. Very often problems exist, and solutions exist for those problems, but the people who have the problems don’t know any of the people who have the solutions. I look at this in a broad way as a knowledge management concern – bringing together people with problems and people with solutions and trying to find matches between those two. To me, that’s the key to the technology commercialization process, and it often leads to business start-ups. In my teaching, I talk about other things as well, such as the entrepreneurial drive, motivation, and so on, but because my primary emphasis is on technology commercialization, that’s my starting point and that’s the approach I take. From there, I would usually discuss ways of sharing problems and solutions, and then about the fundamental business planning that goes behind a technology commercialization. Once you have a match between a problem and a solution, you would move more into the business planning arena. The business planning process poses questions about what costs are involved, and what resources are needed, and also considers the competition and markets and those things external to the start-up. The planning process is very important, and tends to get a lot of coverage in teaching. However, at first blush, especially in technology commercialization projects, I try to get people not to worry too much about how big the market is and how much things cost, and all that. Those are problems to be resolved in the planning process, and you may well find out when you put the meat on your plan that there really isn’t very much there, and the idea isn’t really worth pursuing. But in this sort of openended problem and solution/resolution discussion, you don’t want to think about that yet. Too many good ideas are never developed because people don’t give them a chance, and don’t try hard enough to find solutions to the problems that commercialization presents.

sid e an t he Entrepreneur Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e SucceedingI nas

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& me Remas em r One thing that irks a be researcher in the entrepreneurship arena is the confusion that people have ISBN:1587622238 by Ar i Ginsber et al.they mean. Most often, observers about successful start-ups andgwhat seem to want to conclude that Aspator e Books © 2003 (112 pages) entrepreneurs are successful because they are “a breed apart” or because they are brilliant. If the Fr omus outlining theithistory of ent repr eneur ship,offrthat om kind of thinking. A lot of people revolution has taught anything, demonstrates the fallacy cr edible and feasible ideas, frominsecur ingof enriching themselves, because who weren’t very generating capable were highly successful, at least terms financials to m anaging effectiv ely, this book pulls r eader s the market was wacky. Amazon case in class lot of times, and always ended up thr oughWe all used facetsthe of ent repr eneur ship, fr om a begin ning to end. pushing my students to identify what factors would make Amazon a success. With all the hype Tasurrounding ble o f Con t en t srevolution, you couldn’t tell the evangelists from people with a truly viable idea. The the I nside Minds—The of Entr e Fundam als All Business point ttohemake here isABCs the fact thatepr a eneurship—Th person has made a lot ent of money in a start-up business doesn’t tell Prus ofessionals Should & Rem ber much about thatKnow person, andem entrepreneurs shouldn’t be put on a pedestal any more than lottery The ABCs without of Ent repreneur ship—Assessing, anddid Connect in g their firms became successful. winners a lot of careful study intoBuilding what they and how Entr epr eneur ship Com es in Many Colors

business BrSuccessful inging Solutions to Prstart-ups oblems tend to need a lot of different kinds of expertise. One of the important areas is finance. This is a matter offor understanding independent Frcontent eedom and I nfor m ed Discipline—Fer tile Soil the Seeds of what Entr epr eneur ship elements cost, and how one gets the for money to cover those costsialinOr order to create a product or service. One of the big Fundamentals Building an Entr epreneur ganization

challenges that we face with start-ups is, of course, cash flow. An ongoing business normally has a steady cash flow, so there is cash coming in and cash going out. People are paying bills, but they’re The Science and Pr ocess of Entr epr eneur ship selling products. In a start-up technology commercialization, normally that is not the case. Cash goes Key Concepts of Entr epr eneurship out but doesn’t come in, at least until the new product or service is up and established in the marketplace. So you have to work out the sequence of how that’s going to happen, and what kind of money needs to be spent at what stage. A big part of this – and I think a much overlooked part – is the management, which is deciding what tasks have to be done and in what sequence in order to reach the marketplace. Then, the process needs to be optimized, so that you’re minimizing the number of dollars you have to spend before dollars start coming in the door. Matching up those cash flows is, of course, important in any kind of start-up – reaching that break-even point where the dollars going out start matching up to those coming in. You are by no means out of the woods when that happens, but you’re way down the road. Entr epr eneur ship and Str ategy

Large and successful organizations run on standardized systems and procedures, and what the entrepreneur needs to do is to build good standardized operating procedures. That’s absolutely critical because it will build reliability and replicability into the products and services that are provided, and that’s really going to be key. Once those standard operating procedures are created and implemented, then it takes a lot less management time and intervention and effort to get work done. I think very often entrepreneurs don’t think in terms of those standard operating procedures. This is fundamentally a management challenge and doesn’t require brilliant thinking as much as plain old hard work and analysis. Goals and planning are very, very important, but they’re often not used effectively. In my mind, the best thing about planning is that it clarifies in the minds of entrepreneurs and their teams what they are trying to do and how they are going to accomplish it. In fact, as you start to implement those plans, many things can (and will) go wrong, and they are liable to worsen significantly if the plan is blindly implemented. At the same time, the act of developing the plan is critical. The plan is extremely important in helping both the entrepreneur and the team find unity of purpose and a clear focus on what they’re trying to do and the things they have to nail down in order to make that work. But you can’t kill yourself trying to stay with the original business plan. You learn an awful lot the first few months, and it can make you deviate quite a bit from the original plan. One of the things I mentioned earlier was standardized operating procedures, and while these can accomplish wonders, when change comes suddenly, they can also bite you. There are a couple of things that have to be recognized here. One is that there is a fundamental rate of change in the environment that any ongoing business has to deal with. That’s one rate of change on the outside. But there is a second thing that entrepreneurs have to deal with, and that is the deviation between their plan and reality. That’s quite different. In other words, the entrepreneur sets up a plan and makes some projections about the nature of the world and how it’s going to be; however, it may turn out to be very different from those projections, and that person has to have some flexibility to adjust. That’s really important for the survival of that start-up. Once the company gets up and running, then it has to adjust as times change. Again, these are qualitatively different kinds of changes. One is a

miscalculation – a planning error. The other is just a changing state of the world, if you will. What I emphasize to people is that it’s important not to get too married to any one product or service or customer or procedure justMind try tos:be and But is aTh tension that you have to I n sid e –t he Thopen e ABCs offlexible. En tr ep re nethere ur sh ip: e manage there, and I think it’st als wrong to sin believe thatfeevery organization needs Fu nd am en All Bu ess Pro ssio na ls Sh ou ld Kn ow to be extremely flexible. I & Rem em be rOrganizations need to be flexible when they have to, but they don’t need don’t think that’s correct at all. ISBN:1587622238 to be flexible all the time; flexibility money, and it costs time and effort and frustration. So I think by Ar i Ginsber g et costs al. Aspator e Books 2003don’t (112 pages) it’s really important to have it, but© you want more of it than you need. Fr om outlining the history of ent repr eneur ship, fr om

A lot of people think entrepreneurs breed apart. As I noted earlier, I don’t think that’s true in generating cr edible are and afeasible ideas, from secur ing financials to mare anaging book pulls r eader s general. I think entrepreneurs prettyeffectiv muchely, likethis everybody else. They’re willing to take some risk, thrthey oughdon’t all facets of entthe reprrisk. eneur ship,believe fr om begin ning to end. but in many cases, perceive They in something pretty deeply, and they want to make it happen. So in many cases I think it’s a matter of a person in a particular situation who really Ta ble o f Con t en t s feels like they can do something and be successful with it, and once that decision is made, they move I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business and do it. ButKnow serial& entrepreneurs often aren’t that successful on their second and third Prahead ofessionals Should Rem em ber attempts, and often those who are successful are successful The ABCs of Ent repreneur ship—Assessing, Building and Connect inon g their third but not their first, second, and fourth – so I just don’t feel that there’s a set of characteristics that separates entrepreneurs from Entr epr eneur ship Com es in Many Colors everybody else. I think they’re a lot like other people, but they find themselves in a situation where they Br inging Solutions to Pr oblems feel like they can make a big difference, and they go for it. Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

Fundamentals for Building an Entr epreneur ial Or ganization To be a successful entrepreneur, you normally have to work very hard, but you also have to think Entr epr eneur ship and Str ategy carefully. You have to balance this business of bowling through things – just working your way through The Science and Pr ocess of Entr epraeneur things – with reflection. There’s lot ofship hard work, but you also have to think about where you’re going andConcepts what you’re doing. Balancing that out is really quite important. We encourage people to believe Key of Entr epr eneurship

and be dedicated and so forth, but at the same time, you need to recognize when you’re pushing a cause that’s not going anywhere, and before you ruin yourself, pull out of it and find something else or make adjustments. So you certainly have to pay attention to this business of balancing working very hard with thinking very carefully. Henry Mintzberg calls this balancing thought and action. Also, entrepreneurs tend to be optimistic people. If there is a personality characteristic that would separate entrepreneurs from other people, I’d say optimism might do it. Of course, optimism is pretty widespread in the non-entrepreneurial population too. Also, I wouldn’t try to predict who would be and who would not be an entrepreneur based solely on knowledge of their optimism. Many good entrepreneurs, especially in technology commercialization, are good at the technical side and are good salespeople. If they really believe in what they’re doing, they can relate to other people on an emotional level about that product or service. In my view, a big part of successful entrepreneurship is really believing in the product or service and being able to relate to others and reach others on an emotional level about the product or service, because normally it’s a product or service that has not existed previously. Now, if you’re doing a start-up of a more standardized business – let’s say a consulting business – then I think your key is, in a sense, similar. It’s trying to convince the buyer that you’re legitimate, that you can do this, and that you can actually deliver the goods. But in that case, it’s more belief in you, I think, than in the service per se, because people are already familiar with the service. The buyer has to have confidence in the product, and, normally, in the seller as well.

I n sid e t he Challenges Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Major Pitfalls and

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em be rin planning, referring to unanticipated things that come up. There We always talk about failures ISBN:1587622238 by Ar i Ginsber g etupal.unanticipated that will have certainly will be things that come to be responded to, but I don’t see Aspator e Books © 2003 (112 pages) those necessarily as failures in planning. You can only plan for what you can know or predict. It’s very om outlining theunknown history oftoent repr eneur ship, fr om contingencies in your plan. You difficult to includeFrfactors that are you and unforeseen generating edible andoccur, feasible ideas, from problem secur ing solving is the key. When you have to work through those cr when they and, for that, financials to m anaging effectiv ely, this book pulls r eader s create a start-up thr organization, every youship, encounter is the firsttopass ough all facets of problem ent repr eneur fr om begin ning end. through, so there won’t be a procedure for handling it. It takes a lot of management time and effort to get that done, so that’s Tacertainly ble o f Con t en t s pitfall. a major I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business PrAnd, ofessionals of course, Should many Know businesses & Rem emjust ber flat run out of money – it’s as simple as that. They can’t match

their cashofinflows to required cash outflows. Thisand is particularly The ABCs Ent repreneur ship—Assessing, Building Connect in gtrue in technology commercialization. Youepr can getship some estimates asColors to how much money you’re going to need when you start, and Entr eneur Com es in Many that’stosome serious money. If you’re wrong in your estimates, you can be wrong by an Brsometimes inging Solutions Pr oblems magnitude, which case, even though the product or epr service Frorder eedomof and I nfor m edinDiscipline—Fer tile Soil for the Seeds of Entr eneurwould ship be viable – and you may

well believe it’s veryanviable at the end – you still can’t get the money to make it work. So certainly Fundamentals for very, Building Entr epreneur ial Or ganization running out of money is a huge issue for start-up organizations.

Entr epr eneur ship and Str ategy

The Science and Pr ocess pitfall, of Entrand epr eneur ship is really critical, is not attracting the talent that you need in I think a third potential one that Key Concepts of Entr epr eneurship terms of human resources. You need to attract people who want to work and can contribute to your

organization and who do a really strong, effective job. Again, in the technology commercialization arena, that’s a pretty big deal. In many cases, the people are technical experts, and virtually every good prospective employee has choices. They don’t have to work for your company; and could work for a lot of different companies. And if you really want good employees, you have to offer them something that fits them and makes the job attractive to them, and that’s a big challenge in a start-uptype firm because the future is so uncertain. Prospective entrepreneurs often say to me things like, “I am going to hire the best employees,” and I always ask them, “what makes you think that the best employees will want to work for you?” In hiring talented employees in a start-up situation, I really do think that what you have to do is to engage people on a more fundamental level than just the profit-and-loss potential of a business. Engage them on a more fundamental level of doing something that’s really big and important, and that they want to be part of. You certainly can’t compete with larger companies in terms of retirement programs and health packages and all those kinds of things. Good employees expect to receive benefits commensurate with their abilities. To compete with larger employers, you have to appeal to prospective employees’ other side, if you will – wanting to be part of something different but important. There’s a great deal of divergence across entrepreneurs, and this is one of the reasons why I focus on technology commercialization and not on the broader notion of entrepreneurship as a person who just wants to run his or her own business. Many entrepreneurs are very, very independent, and they don’t want to be encumbered by anyone else’s decisions or influences. They want to run their own show and not have anyone else very involved in it. That’s one kind of an entrepreneur. I think that kind of entrepreneur has a tremendous problem attracting skilled employees – for example, employees who are technically trained and have a lot of other opportunities. Because that kind of entrepreneur won’t give employees opportunities to make decisions on their own, or won’t give them very much discretion or leeway, they will have great difficulty hiring and retaining talented employees. Most highly educated or specialized kinds of employees want to be able to make decisions on their own, and so, in terms of the charisma of a founder, it’s selling these technically trained people on the fundamental value of the idea, and releasing enough control to get them to buy into it so that they are willing to become active members of a team. There is really a split in the entrepreneurship arena, in my view. If you have a person who wants to start a small business because they are very independent and wants to be independent, that kind of person faces a very different challenge in recruiting talent than the person who is trying to commercialize technology and attract some very specialized kinds of employees, and is willing to delegate some important decision making to these employees. If there’s more than one person involved, then you need a balance, normally, of skills and capabilities. Actually, you need that even if there is only one person involved: that person needs to be able to do a

number of different things and do them well. So, we’re back to the idea of complementary kinds of skills. And you’re also looking for very compatible personalities – people who enjoy working together, can enjoy each other’s and turn I n sid ecompany, t he Mind s: Thwon’t e ABCs of on Eneach tr ep reother ne urwhen sh ip: times Th e get tough. So I think you have to have the Fu skills that compatible and it can be a challenge to nd am enyou t alsneed, All Bubut sinalso ess Pro fe ssio napersonalities, ls Sh ou ld Kn ow find the right mix.& Rem em be r by Ar i Ginsber g et al. Aspator e Books © 2003 (112 pages)

ISBN:1587622238

Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end. Ta ble o f Con t en t s I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

n sid e t he Mind s: Th e ABCs ofand En tr ep re ne ur sh ip: Th eRisk Identifying IMarket Opportunity Evaluating Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem that em be r The evidence suggests entrepreneurs ought to focus on markets that they’re familiar with. I think ISBN:1587622238 by Ar i Ginsber g etto al.create a successful start-up that’s pretty important. It’s difficult in an industry you don’t really know Aspator e Books © 2003 (112 pages) very well. So you need to focus on markets that you have some familiarity with. We have a number of om outlining the history of entstandpoint repr eneur ship, om them to, for example, make a list of tricks that we tell Fr people to do from a creativity – wefrtell cr edible and feasible ing life, or things that they see problems, make generating a list of things that bother themideas, aboutfrom theirsecur working financials to m anaging effectiv ely, this book pulls r eader s bothering other people. theyofshould take timetotoend. think about those problems thr oughThen, all facets ent reprperiodically eneur ship, fr om some begin ning and some potential solutions to those problems. It makes you attuned, when you see a solution out Tathere, ble o f to Con t en t s that solution up to a specific problem. If you have a list of those problems and you matching I nside Minds—The ABCs of frequently, Entr epr eneurship—Th Fundam Business reviewt he those problems fairly you comeeup with aent lotals of All potential ideas. Making this list of Prthings ofessionals Shouldyou Know & Rem emnotice ber bothering other people, and that could have some potential that bother or that you The ABCs ofisEnt repreneur ship—Assessing, Building and Connect in g solutions, important. Entr epr eneur ship Com es in Many Colors

thing I like encourage people to do is to talk to people in the business. I think tradeshows BrAnother inging Solutions to to Pr oblems some of I the places on tile earth technical Frare eedom and nforgreatest m ed Discipline—Fer Soilfor fordeveloping the Seeds new of Entr epr eneurideas. ship In a short time you can

meet a lot of for people withan a lot ofepreneur differentialkinds of problems and circumstances, and a lot of potential Fundamentals Building Entr Or ganization

solutions, too, and bring those together. To me, the most interesting part of this is bringing together raw technologies and problems that people have and finding ways of using those raw technologies to solve The Science and Pr ocess of Entr epr eneur ship people’s problems. Entr epr eneur ship and Str ategy

Key Concepts of Entr epr eneurship

What I try to get people to do is to think about what resources they have, and think about the market itself, the competition, and what’s going on out there on the outside. One of the first things that you’re going to want to evaluate is whether there is any way you can protect what you have, or if it is something that competitors will just copy as soon as they see it. For example, you may be a fashion designer, and you may do a really great job of designing a line of fashions, but the minute people see those fashions, they can copy them. There is no protection there. So what people end up doing in those markets is developing the ability to deliver a specific group of fashions very quickly to customers, knowing that they are going to be imitated if they are successful, but that’s OK. They make their money early on, before the imitators get into the marketplace. You normally can’t do that with an entrepreneurial type of business. If you are developing a product or service and doing that very specifically, you think about ways you could keep others from imitating what you do, or copying what your product or service is. That’s certainly important. I also think it’s critical to look at all kinds of different issues, such as distribution. How are you going to reach your customers? How are you going to get the product or service to the customers? In many markets – mass markets – that’s a big job, and one that most entrepreneurs cannot necessarily handle. Especially in the technology commercialization arena, we do a lot of this kind of analysis where we ask the question, “Should we do a start-up or should we do a licensing deal?” Because if you have a technology that you have protected – in other words, you have a patent or something on it – you can license it to someone who has the resources to put it in the mass market tomorrow, and you personally would never be able to put together those kinds of resources in a start-up. So what we do is analyze what is needed to be successful in the marketplace, what resources we have right now in hand, and what our options are given any divergences between those two. We try to resolve it in that way. Smaller businesses can do very specialized kinds of things that big companies normally can’t do. I use a number of examples with students. Say we were to develop a soap, and we were going to sell it to the mass market – basically, distribute it to everybody in the United States – the first big problem we’d run into is getting it on the grocery store shelves or the Wal-Mart shelves. It’s very hard to do that. Procter and Gamble, on the other hand, can do it in a blink. Also, if our soap is at all successful, the big players will introduce soaps to compete with us, and they will beat the daylights out of us. Procter and Gamble can spend $100 million on an advertising campaign and it won’t even raise eyebrows. There is no way a start-up can do that. However, we could develop a very special soap for people with a very unusual skin condition. We could charge a relatively high price for it and we could sell it through dermatologists or other kinds of specialty outlets, and for Procter and Gamble that market is just too small. Specialized products that the big companies can’t do provide great possibilities, I think. There are many opportunities like that waiting to be developed.

Every opportunity comes with risk, of course. I think you have to look at risk in several ways. A lot of people try to look at risk from the financial viewpoint, as expected value. But entrepreneurs can’t just look at expected Ivalue. alsos:have look of at En what the the expected value n sid e They t he Mind Th etoABCs tr ep re downside ne ur sh ip: is, Thbecause e could be quite high, but the could also be na very high. I think entrepreneurs have to look at Fu nd am endownside t als All Burisk sin ess Pro fe ssio ls Sh ou ld Kn ow Rem em be rattuned to that. Basically, they need to look at the downsize and ask the downside too,&and be very ISBN:1587622238 themselves if theybygive Ar i Ginsber it their best g et al. and it still fails, can they handle the worst of the negative consequences? IAspator have heard e Books stories © 2003where (112 pages) people borrow their grandmother’s funeral money, or their parent’s retirement money for their business Forship, me,frthe Fr om outlining the history of start-ups. ent repr eneur om downside risk there is too high. I generating cr edible andbusiness. feasible ideas, from secur ing would find another way or find another financials to m anaging effectiv ely, this book pulls r eader s thrabout ough all facets of of risk ent repr fr om the begin ning to end. What I like to think in terms is toeneur first ship, consider risk to the financial capital that is invested in the company, but also to look closely at risk in terms of its effect on your own career in the Ta ble o f Con t en t s event the business fails. For example, if you are taking money from a group of venture capitalists and I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business venture fails, there will& probably be implications for your capability to raise money from them in the Prthe ofessionals Should Know Rem em ber future. So I think you have to consider career The ABCs of Ent repreneur ship—Assessing,these Building and implications Connect in g as an entrepreneur. If you have an idea that you’re pretty confident of, but you’re not completely confident of, and your idea fails, I think it’s Entr epr eneur ship Com es in Many Colors going to make it more difficult for you to do a second start-up. So I think that the personal downside of Br inging Solutions to Pr oblems failure is important for prospective entrepreneurs to consider. If you are doing this with all your money, Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship and nobody else’s, then you’ll live with the consequences if the business fails. You can learn from the Fundamentals for Building an Entr epreneur ial Or ganization attempt, pick up the pieces, and move on. If your business also involves losing money for other people, Entr epr eneur ship and Str ategy though, there could easily be some limitations on your career. So, again, I think you need to look at the The Scienceand and assess Pr ocessitofvery Entrcarefully epr eneurand ship see if it’s worth the effort. I don’t want to make this sound too downside Key Concepts of Entr epr eneurship harsh. Often failure doesn’t necessarily mean that a person will never again be able to try a start-up.

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Financing Issues

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Rem em be r businesses are founded with the dream of someday doing an initial Right now, many &entrepreneurial ISBN:1587622238 by Ar i Ginsber g et public offering, and that’s where theal.entrepreneur is going to get paid. We also have a lot of that in the Aspator e Books © 2003 (112 pages) technology commercialization arena, where the entrepreneur develops a technology in the hope that it om outlining entthen repr eneur ship, frThe om IPO market is now a pretty tough will become very Fr successful andthe hehistory or sheofcan just retire. generating cr edible andIPO. feasible from secur ing place; it’s much more difficult to do an Theideas, new federal regulations that are coming out are also financials to m anaging effectiv ely, this book pulls r eader s likely to be devastating to small-cap firms. If the regulations come down as thr ough all facets of ent repr eneur ship, fr om begin ning to end.they are being described, it’s going to be as expensive for a small company to be public as for Procter and Gamble to be public. TaIfble o fhappens, Con t en t sI think it will be a disaster. Small firms cannot endure large fixed costs simply to be that I nside Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business publict he companies. Pr ofessionals Should Know & Rem em ber

Another financing issue is that of normal, everyday working The ABCs key of Ent repreneur ship—Assessing, Building and Connect in g capital and banking relationships. For theepr very small I think you can still have decent banking relationships with a local bank, as Entr eneur shipbusinesses, Com es in Many Colors as Solutions the owner’s name is on all the notes. But for a growing business, where the business’s capital Brlong inging to Pr oblems aremlarger than those tile of aSoil small not epr as eneur great ship as those of a large business, Frrequirements eedom and I nfor ed Discipline—Fer for business the Seedsbut of Entr

the banking relationship becomes very difficult. There are not many banks out there that will deal with Fundamentals for Building an Entr epreneur ial Or ganization these kinds of businesses, and can understand and handle the kinds of financial problems that they have. Particular problems arise in the working capital area, and revolving credit and those kinds of The Science and Pr ocess of Entr epr eneur ship situations. It’s becoming tough out there, and I think there are a great many high growth businesses Key Concepts of Entr epr eneurship that are not going to be developed simply because the entrepreneur can’t put together the financial resources to do it. I think that will be a problem. Entr epr eneur ship and Str ategy

The IPO situation also has a strong effect on venture capital because venture capitalists invest with the hope that their payoff will be an IPO. But to the extent that IPOs become very difficult to do, then venture capitalists are going to have a harder time getting paid back, and of course, that’s what they live for, so it can be a big problem. What happens inevitably is that marketplaces adjust. Probably what we will see is a bigger influence of things like business angels and private equity. I don’t know this; I’m just speculating, but I’m guessing that’s what is going to happen. Because as public markets become more stringent and costly, private markets will evolve a little bit, and I think private equity is probably where a lot of this will go. I also think that someday, some bank out there is going to recognize the potential of this market niche and start offering some products and services for these small-cap type firms – not mom-and-pops, but the next level above the mom-and-pops. Right now, banks are fighting over credit card customers, which is kind of ridiculous because none of those people generate a lot of income for banks – it is difficult for a bank to make much money from credit cards. There’s a lot of money in commercial lending, but it is a specialized business, so it’s something you have to manage and develop carefully. Banking consolidation has taken us away from that more recently. Finally, let me note that even though the IPO market is busted and the stock market has tanked, I’m still very optimistic about entrepreneurship. I think that there is still huge potential out there for technology commercialization, and I think we’ll see a number of successful ones as time passes. Additionally, I think that technically trained graduate students are a great group to work with if you want to encourage start-ups. They have great technical training, and they often don’t have great job opportunities. Many are international and are highly motivated to do their own start-ups. At this stage of their careers, just getting out of graduate school, they don’t have much to lose. I expect some great things to come from entrepreneurship activities in both the short-term and the long-term. Bert Cannella started his adult life as a farmer in middle Tennessee and north Georgia. He also had a small welding and machine business, focused on general repairs. In 1984, he earned his MBA from the University of Northern Iowa. In 1986, he entered the strategic management Ph.D. program at Columbia University in New York. He joined the faculty at Texas A &M University in 1989. Dr. Cannella’s research is focused on executives, corporate governance, and entrepreneurship. His research has appeared in Academy of Management Journal, Academy of Management Review, Strategic Management Journal, Journal of Management, and Journal of Financial Economics. He teaches entrepreneurship, strategic management, research methods, and project management. A current professor and Mays Faculty Fellow, Bert became Director of the Center for New Ventures and Entrepreneurship in 2000. He currently serves as Past-President of the Business Policy and

Strategy Division of the Academy of Management, and as Associate Editor of Academy of Management Review. Honors and awards include an Association of Former Students Outstanding Teaching Award Iinn sid 1994, College and Research Award in e t he Mind s: ThGraduate e ABCs ofSchool En tr epof re Business ne ur sh ip:Outstanding Th e 1996, and Fish Camp Namesake in 1997. Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r by Ar i Ginsber g et al. Aspator e Books © 2003 (112 pages)

ISBN:1587622238

Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end. Ta ble o f Con t en t s I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e FreedomIFunand Informed Discipline—Fertile Soil for nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r the Seeds of Entrepreneurship ISBN:1587622238 by Ar i Ginsber g et al. Aspator e Books © 2003 (112 pages)

Dwight R. Lee Fr om outlining the history of ent repr eneur ship, fr om Terry College ofgenerating Business,crUniversity of Georgia, Athens edible and feasible ideas, from secur ing Ramsey Professor of Economics and Free Enterprise financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end.

Entrepreneurs as Heroes

Ta ble o f Con t en t s

I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business spirit of Should entrepreneurs theber bold ventures they embark upon are essential to the economic PrThe ofessionals Know & and Rem em

progress we all value. Entrepreneurs are, in the The ABCs ofand Entprosperity repreneur ship—Assessing, Building and Connect in g broadest sense, those who pursue any

enterprise in the hope of creating wealth and include those who start small businesses, such as dry cleaners and flower shops, as well as those who innovate entirely new technologies and products. All Br inging Solutions to Pr oblems entrepreneurs contribute to our prosperity by redirecting resources from less to more valuable uses, Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship but it is a relative few who make the most significant contributions. They are the entrepreneurs who risk Fundamentals for Building an Entr epreneur ial Or ganization their wealth, security, and reputations to challenge the prevailing views of the possible, and who, when Entr epr eneur ship and Str ategy they succeed, push back the limits of the possible and turn one generation’s fantasies into the next The Science and Pr ocess of IEntr eprtoeneur ship generation’s necessities. refer them as the heroic entrepreneurs. They are the ones who make the Key Concepts of Entr epr eneurship truly spectacular economic contributions—the ones who allow us to break for long yardage, so to speak—and we all enjoy opportunities and prosperity unimagined not long ago because they have never been intimidated by the fear of failure and the doubts of others. Entr epr eneur ship Com es in Many Colors

Heroic entrepreneurs are necessary for economic progress but they are not sufficient. Every country and culture contains men and women who possess the spirit of heroic entrepreneurship, but, in far too many countries, their entrepreneurial talents and energies lie fallow. For the seeds of entrepreneurship to germinate and flourish, they have to be nourished by the mixture of freedom and accountability found only in market economies. The freedom and accountability of the marketplace enhance the productivity of all economic activity, but it is absolutely essential if we are to realize the surges of economic progress that only heroic entrepreneurship can provide.

n sid e tFailures he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e SuccessesI and

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em be rentrepreneurship, they are interested in entrepreneurial success – how When most people talk about by Ar i Ginsber g et get al. their products to market,ISBN:1587622238 entrepreneurs succeed, how they and how they get people to buy them. Aspator e Books © 2003 (112 pages) These considerations are obviously important and are considered in detail in other chapters of this om my outlining theconcern history ofhere. ent repr ship,understand fr om book, but they areFrnot primary Buteneur to really the importance of heroic generating cr edible and ideas, secur ing to also understand that entrepreneurs and the contributions theyfeasible make to all offrom us, we have financials to m anaging effectiv ely, this book pulls r eader s entrepreneurial failure is every bit as important asship, entrepreneurial success. thr ough all facets of ent repr eneur fr om begin ning to end.To put it differently, we can not fully benefit from the successes of entrepreneurs, if we can benefit at all, without an economic Taenvironment ble o f Con t en t s allows for their failures, failures that will surely outnumber the successes. that I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business PrNo ofessionals Knowsignificant & Rem em ber economyShould can make progress by staying with the safety of the status quo, with the easy

andABCs the obvious. The gains from the easy and obvious are quickly exploited to the point where there is The of Ent repreneur ship—Assessing, Building and Connect in g littleepr additional be had from them. The limits of the possible can only be pushed back by Entr eneur shipprogress Com es intoMany Colors risks—attempting Brtaking inginggreat Solutions to Pr oblems things that few would dare and which are considered ludicrously themmore sensible. The lie epr behind Frimpractical eedom and by I nfor ed Discipline—Fer tile innovative Soil for theefforts Seeds that of Entr eneurmany ship of the goods and services that we take for when were first imagined, considered by almost everyone to Fundamentals for granted Building today an Entrwere, epreneur ial they Or ganization

be absurd, the “impossible dreams” of a few misfits and crackpots. Imagine how impoverished we would be today if support for past entrepreneurial ventures had depended upon majority vote. But the The Science and Pr ocess of Entr epr eneur ship fact is that the majority is correct most of the time. Most heroic entrepreneurial ventures fail, and fail Key Concepts of Entr epr eneurship miserably, and we can see after the fact that would have been better off if they had never been attempted. Of course, no one can venture forth to challenge the existing way of doing things with hindsight. Heroic entrepreneurship requires experimentation, and if the results of experimentation could be known in advance, there would be no need to experiment. The very nature of heroic entrepreneurial quests means that we never know in advance which ones will lead to economic progress and which will retard that progress by consuming more value than they create. There is only one way to discover the entrepreneurial wheat among all the chaff, and that is by giving people the freedom to pursuit their “impossible dreams,” not matter how impossible they may seem. But freedom is fragile and cannot survive long in the absence of the informed discipline that only market economies can provide. To understand the power of entrepreneurship to promote economic progress, we have to understand how critical market economies are to the protection of freedom. Entr epr eneur ship and Str ategy

I n sid eFreedom t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Discipline and

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Rem em be r What successful &entrepreneurship needs – and when I say successful, I’m not talking about the by Ar i Ginsber g et al. but about success fromISBN:1587622238 success of the individual entrepreneur the point of view of the general Aspator efor Books 2003 things. (112 pages) economy – is a process doing© two First, it needs to provide freedom for people to do Fr om outlining history of that, ent repr ship, earlier, fr om whatever they want to do: to try the crazy things as eneur indicated would never get a favorable generating cr edible andsurvive feasiblethe ideas, from secur ing political process. You also need a majority vote—things that would never consensus of the financials to m anaging effectiv ely, this book pulls r eader s process that will ruthlessly oneneur those entrepreneurial activities thr ough allimpose facets offailure ent repr ship, fr om begin ning to end. – the majority – that aren’t worth as much as they cost. Entrepreneurs, by their very nature, are very confident – some would say Tabullheaded ble o f Con t – enpeople. ts They are easily convinced of the value of their ideas and not easily discouraged I nside Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business by thet he doubts of others, even if strong evidence begins to emerge that the doubters are right. That’s Prwhy ofessionals Should Know &that Rem emruthlessly ber a process is needed will cut the legs out from underneath the entrepreneur when it The ABCs ofclear Ent repreneur ship—Assessing, Connect g it. Entrepreneurs, by their nature, won’t becomes that his or her venture is Building failing – and to call a haltinto Entr eneur ship Com es in Many Colors do epr it themselves. Br inging Solutions to Pr oblems

market a process that accomplishes thethe twoSeeds things It allows for entrepreneurial FrThe eedom and Iisnfor m ed Discipline—Fer tile Soil for of just Entrmentioned. epr eneur ship freedom andfor it does so by ruthless, but informed discipline on that freedom. Let’s talk about Fundamentals Building animposing Entr epreneur ial Or ganization the informed discipline first.

Entr epr eneur ship and Str ategy The Pr ocess of Entr epr eneur ship TheScience marketand process allows consumers and others to inform entrepreneurs when they are creating Key Concepts of Entr epr eneurship more value than they are using up. It also allows them to inform entrepreneurs when they are creating

less value than their ventures are using up. This information is communicated through market prices which provide more than just information, but also a powerful incentive to respond appropriately to the information. When the ventures of entrepreneurs are creating wealth, market prices transfer financial resources to them. That’s a nice reward but it’s also a means to continue with and expand valuecreating activities. When, on the other hand, an entrepreneur’s venture is destroying wealth market prices (those he is able to charge in combination with those he has to pay) and removing financial resources from him, he is thereby forced to eventually scale back the venture and, likely, discontinue it entirely. It’s a profit and loss system, and the losses are just as important as the profits. You need more failures than successes, because most entrepreneurial ventures activities reduce the well-being of society more than they add to it. But the information communicated and discipline imposed by the market process insures that the benefits from successes are fully realized and that the failures are soon recognized and terminated, with the net result being that entrepreneurs are a potent force for increasing prosperity. The informed discipline imposed by markets deserves a bit more discussion, since it is more multifaceted and interactive than simply empowering consumers to communicate what they value and don’t value to suppliers and entrepreneurs. Market communication is always multi-directional communication. It is clearly crucial that consumers communicate their preferences to businesses through market prices. But it is just as crucial that businesses communicate the cost of what they’re producing through market prices. Consumers may like something, but if they find out that its cost is greater than its value, they want to receive this information and respond to it appropriately by consuming less of it, and maybe none at all. This is accomplished in markets through the effect that what businesses pay for their productive inputs is reflected in the prices they charge. The prices businesses pay for productive inputs is a good measure then of the value of those inputs in alternative productions. By communicating this cost to consumers in the prices charged, consumers have strong and informed motivation to buy a product only if it is more valuable than what producing it sacrificed elsewhere in the economy. Informed discipline also requires that consumers be able to communicate with each other in ways that motivate mutual accommodation, and they are able to do so through market prices. If the price of the good goes up, it’s not suppliers arbitrarily deciding to gouge consumers, as many seem to believe. Sure, suppliers would rather receive more rather than less for their goods and services, but the supplier who charges much more than cost risks losing business and profits to other suppliers. Of course, if the costs of production go up, this will obviously be communicated through higher prices. But prices can increase without an increase in the cost of production because of the price communication among consumers. Any time some consumers in, say, Montana, decide that they now value bananas, for example, more than before, they will communicate that information to you through higher prices. When you see the price of bananas increasing, you will respond as if you are saying, “Banana

consumers in Montana are telling me that they now value additional bananas more than I do. So I will consume fewer bananas so they can consume more.” Of course you are not really saying this. You have no idea exactly why theMind prices:ofTh bananas increased. you don’t to know details that are I n sid e t he e ABCs of En tr ep reBut ne ur sh ip: Thneed e irrelevant to making the decision. need to Sh know that Fu nd amappropriate en t als All Bu sin ess All Proyou fe ssio na ls ou ldisKn owthe price of bananas went & Rem your em bebanana r up, and you will reduce consumption. How much will you reduce your consumption? No ISBN:1587622238 one knows for sure But of accuracy that consumers by beforehand. Ar i Ginsber g et al.I can predict with a high degree e Books © 2003 (112 pages) outside Montana Aspator will, in aggregate, reduce their consumption by exactly enough to make available the additional bananas Montana consumers torepr consume at the higher price. Fr om outlining the historywant of ent eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, thismillions book pulls r eaderpeople s Because of our ability to communication with literally of other through market prices, ough allbasis facetsaofgreat ent repr eneur ship, fr om begin ningother to end. we all receive on thr a regular deal of information on what people value, how much of what we enjoy should we share with others by consuming less, what should be produced in larger Ta ble o f Con t en t s amounts, and what should we reduce production of, etc. Furthermore, market prices provide people I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business a strongShould incentive to &act on em theber information transmitted in ways that take the concerns of others Prwith ofessionals Know Rem into consideration. The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors

In other words, market interaction imposes discipline on people who use resources – and that’s all of

Brus. inging Solutions to Pr oblems It imposes discipline in the sense that all of us can be trusted to make decisions that best Fraccommodate eedom and I nfor m ed Discipline—Fer Soil forof the Seedswho of Entr eneur ship our interests with thetile interests others areepr affected by our decisions. For Fundamentals Building Entrof epreneur ial ifOr example, youfor only buy ananitem clothing it ganization is worth at least as much to you as it is to someone else, Entr epr eneur ship and Str ategy as reflected in the price you pay. You take a job that in part is dependent on how much it pays, and The Pr much ocess of epr eneur values ship thatScience reflectsand how theEntr consumer what you produce. It is this market discipline that allows us to tolerateoffar more freedom than would otherwise be acceptable. I can tolerate your freedom to do Key Concepts Entr epr eneurship

all kinds of things because you’ll take my interest into consideration when you are making your choices in response to market prices. The freedom we enjoy because of the informed discipline of the marketplace has much in common with good health—it is extremely valuable but we often take if for granted until we have to do without it. So the best way to appreciate the freedom possible because of the market is to consider the consequences that result without market communication and discipline. For example, there should be no surprise that basic freedoms are denied in those countries where markets have been destroyed in the futile hope of social cooperation through good will and collective control. Undisciplined freedom is simply not acceptable, and, without markets, people will resort to the crude and repressive control of central authority and bureaucratic red tape as the only alternative left for imposing discipline. Even in economies in which the primary organizing principle is the free market, markets often don’t exist to allocate important resources. Not surprisingly, the result is crude and clumsy politically imposed limits on our freedom. For example, pollution problems are the direct result of not having private property and market exchange determine the use of the environment for discharging wastes. If markets existed for the use of the environment as a waste-sink, polluters would pay prices reflecting the cost their emissions imposed on others and this accountability would motivate polluters to voluntarily limit their discharges to efficient levels. But without markets for the right to pollute, when we pollute the air that others breathe or the water from which others fish, we pay no price at all, much less a price that reflects the value that our actions are imposing on others. As a result, we don’t tolerate people’s freedom to pollute, because there’s no discipline that forces them to take the concerns of others into consideration. So we quite reasonable accept bureaucratic restrictions on polluting activities that we would consider unacceptable in most areas of our lives. The connection between discipline and freedom was eloquently, though too pessimistically, stated by Edmund Burke when he wrote, “Society cannot exist unless a controlling power upon will and appetite be placed somewhere, and the less of it there is within, the more of it must be without. It is ordained in the eternal constitution of things, that men of intemperate minds cannot be free. Their passions forge their fetters.”[1] Fortunately, there is an intermediate position between relying completely on internally imposed restrain and externally imposed fetters. Market discipline serves to moderate and channel in productive ways those “intemperate minds” that all of us are subject to, especially those animated by entrepreneurial visions, making unnecessary the fetters Burke had in mind. It’s the informed discipline that comes from communication through market prices that allows us to tolerate not just the freedom to buy bananas and clothing, but also the freedom of entrepreneurs to pursue their crazy ideas and impossible dreams. We tolerate the freedom of these people to divert resources away from activities where they could be used to produce goods and services of predictable value to pursue innovations that will most likely come to nothing. We can tolerate this freedom only

because we know that it is be subjected to the ruthless discipline of the marketplace, and a discipline that reflects our collective judgment as consumers as to whether the entrepreneurial efforts are creating value or Idestroying is ethis combination and discipline that n sid e t he value. Mind s:ItTh ABCs of En tr epof re freedom ne ur sh ip: Th informed e creates a fertile soil foram the of Bu entrepreneurship, fosters Fu nd enseeds t als All sin ess Pro fe ssioone na lsthat Sh ou ld Knand ow directs the innovative & Rem em be r and creative among us into activities that generate tremendous impulses of the most energetic ISBN:1587622238 economic progress which gcould by political authorities. by and Ar i Ginsber et al.never be planned and programmed [1]Quoted in Muller Aspator (1993, e Books p. 99).© 2003 (112 pages) Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end. Ta ble o f Con t en t s I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

I n sid e t he vs. MindPolitics s: Th e ABCs of En tr ep re ne ur sh ip: Th e Entrepreneurship

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Rem em be r that would seem to threaten their freedom the most. But as we have It is the failures of&entrepreneurs ISBN:1587622238 by Ar i Ginsberimposed g et al. by markets make it possible seen, the informed discipline to tolerate the freedom of Aspator e Books © 2003 (112 pages) entrepreneurs to experiment with new products and attempt novel approaches to produce existing Fr om outlining the history of ent reprand eneur ship, approaches fr om products, even though most of those new products novel will fail. Strange as it may generating benefits cr edible and feasible ideas, from secur ing seem, given the enormous society realizes from the successes of entrepreneurs, it is those financials to m anaging effectiv ely, this book pulls r eader s successes that often motivate the greatest entrepreneurial freedom. To understand this thr ough all facets of ent reprresistance eneur ship, to fr om begin ning to end. seemingly strange situation, we have to consider in a bit more detail the nature of entrepreneurial Tasuccesses ble o f Con tand en t ssome biases in the political process. I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business PrEntrepreneurial ofessionals Should Know & Rem em beralways disruptive, and far more so when they succeed than when ventures are almost

they fail. of Indeed, the greater the benefit society to realize The ABCs Ent repreneur ship—Assessing, Buildingstands and Connect in g from an entrepreneurial venture, the more willesbeinand theColors more likely it is to provoke a negative reaction from those with the Entr eprdisruptive eneur ship it Com Many political influence. Entrepreneurial success results from the most potent, ruthless, and unsettling Brmost inging Solutions to Pr oblems of competition—the type of competition toeneur igniteship the after burners of economic Frform eedom and I nfor m ed Discipline—Fer tile Soil forthat the does Seedsthe of most Entr epr progress because it renders obsolete theialtried and true with the new and improved. And by doing so, it Fundamentals for Building an Entr epreneur Or ganization

threatens the security, indeed the very existence, of well-established and profitable enterprises. We are talking here about “creative destruction,” a term coined by the economist Joseph Schumpeter (1950, The Science and Pr ocess of Entr epr eneur ship p. 84) to describe entrepreneurial competition. As Schumpeter’s (1950, p. 84) describes it, “[I]n Key Concepts of Entr epr eneurship capitalistic reality as distinguished from its textbook picture, it is not that kind of competition [price competition] which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization—competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of existing firms but at their foundations and their very lives.” Entr epr eneur ship and Str ategy

We all like vigorous competition when we are buyers, but few are enthusiastic about it as wellestablished sellers. Competition forces existing suppliers to remain constantly alert to better ways to serve the interests of consumers, and, even when alert, they are always at risk of losing customers to those who are more alert. But competition from successful entrepreneurs, because it provides the greatest benefits to consumers, poses the greatest threat to, and strongest reaction from, those facing it. From the broad social perspective, the best reaction would be either intensify efforts to meet the competition with better and less expensive products or, if that is unsuccessful, to passively go out of business, releasing scarce resources to those making more valuable use of them. But wellestablished firms commonly have significant amounts of political influence because of their contributions to powerful politicians and the large number of jobs they provide in the jurisdictions those politicians represent. When a political influential firm, or industry, has a choice of either making painful changes and likely being driven out of business, or using its influence to hamper the ability of upstart entrepreneurs to get to their market, it is seldom reluctant to choose the latter. The status quo Goliaths face serious risk from entrepreneurial Davids in the field of market competition, but when the battle is shifted to the political arena the Davids face serious disadvantages. A new firm with a better way of serving the interest of consumers can, if allowed to compete freely with established firms, can easily win the battle one consumer at a time. But even with a superior product, a new firm has little hope of mobilizing large numbers of citizens to organize for the political action required to overcome government barriers to open competition. We in the United States are fortunate that there remain serious constrains, both in the form of constitutional barriers and public opinion, on government’s ability to protect the status quo against entrepreneurial innovation and competition. Yet, all governments are, by their very nature, conservative institutions and poorly adapted to dealing with change and uncertainty. They tend to be much more responsive to the interests served by short-run stability and predictability than to those served by disruptive changes, even when those changes promote long-run progress. It is not just the lack of political connections of those with the new ideas in comparison to that of those representing the old and well-established operating here. Also relevant is that political time horizons tend to be sufficiently shorter than the long-run benefits from entrepreneurial success, which are swamped by the short-run disruptions in political deliberations. As Schumpeter (1950, p. 287) observed, “The incessant competitive struggle to get into office or stay in it forces upon men at or near the helm a short-run view and makes it extremely difficult for them to serve [the] long-run interests of the nation. Thus the prime

minister in a democracy might be likened to a horseman who is so fully engrossed in trying to keep in the saddle that he can plan his ride.” I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e

It is not surprisingFu then that those with vested interests in existing industries have been able to use nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow political influence&toRem hamper em bethe r introduction of threatening and disruptive innovations – threatening and disruptive because of theirgpotential to benefit consumers.ISBN:1587622238 Certainly the United States is no by Ar i Ginsber et al. exception, despiteAspator the aforementioned limits on governments at all levels in this country. Consider a e Books © 2003 (112 pages) few examples. Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing

When motorized financials vehicles began to be more than novelty the rich,sthose interests tied to to m anaging effectiv ely, a this book for pulls r eader established formsthrofough competition toeneur political In retrospect, some of the examples are all facetsresorted of ent repr ship,action. fr om begin ning to end. almost humorous, as when the Horse and Mule Association of America, the Master Horseshoer Ta ble o f Con t en t s National Protection Association, and the National Hay Association lobbied state legislators to impose I nside t he Minds—The ABCs of Entr epr eneurship—Th Fundam [2] entWhile als All these Business restrictions on the use of automobiles, trucks, andetractors. restrictions obviously didn’t Pr ofessionals Should Know & Rem em ber have much long-run impact, they did slow progress up a bit by imposing temporary inefficiencies. The ABCs of Ent repreneur ship—Assessing, Building and Connect in g

Entr epr eneur ship es inserious Many Colors Inefficiencies of Com a more and long lasting nature were imposed on the use of trucks by the Brpolitical inging Solutions oblems influencetoofPrthe railroad industry, among others. When trucks began providing an efficient

rail m transport for certain of freight andofroutes, railroads Fralternative eedom andtoI nfor ed Discipline—Fer tiletypes Soil for the Seeds Entr eprthe eneur ship successfully sought to have truck regulating by an theEntr Interstate Commerce Commission (ICC), which had long been regulating Fundamentals for Building epreneur ial Or ganization theepr railroad with and the Str 1935 Motor Carrier Act. Those familiar with the general history of industry-specific Entr eneur ship ategy regulatory soon being The Science agencies and Pr ocess of Entr eprcaptured eneur shipby the industry being regulated will not be surprised to learn thatConcepts the ICC of immediately imposed inefficiencies on trucking firms, thus reducing their ability to compete Key Entr epr eneurship against the railroads. Writing at the time, economist James Nelson (1936) saw the railroads as favoring “any legislation which might hinder the growth of commercial transportation.” [3]

During the 1920s and ‘30s, organizations such as the National Association of Retail Grocers and the American Wholesale Trade Association successfully lobbied for a host of state and federal legislation, which imposed restrictions on the practices and prices of chain stores and levied discriminatory taxes on them.[4] Such efforts continue with modest success with retailers using their political influence at the local level to oppose and delay the opening of the big-box stores like Wal-Mart and Home Depot. Even with all the enthusiasm for the Internet, organized interest ties to the status quo have had some success lobbying in favor of government restriction on its use. The tremendous potential of the Internet to benefit consumers by allowing them to deal directly with producers makes it a serious threat to existing businesses and their employees. Forty-nine states have responded to the lobbying of automobile dealers by passing laws restricting sales of automobiles by requiring that they be purchased through dealerships; the American Federation of Teachers has campaigned against "distance learning" via the Internet and some states have passed laws making it illegal for an out-ofstate institution to deliver Internet-based courses to their state residents; the Texas Bar Association has sued firms that provide legal software; the North Carolina Auctioneer Licensing Board explored the possibility of political restriction on those selling things on Web sites like Ebay, and the list could be expanded. [ 5] [2]See Atkinson (2001). [3]Quoted

in Shaffer (1997, p. 119). The railroads were not the only one interested in regulating trucking. The ICC was anxious to expand it control and budget provided by the Motor Carrier Act, and the large trucking firms also favored the Act as a way of reducing the competition from smaller carriers, who opposed the Act.

[4]See

Shaffer (1997, Chapter 7).

[ 5]See

Atkinson (2001).

ConclusionI n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em be r of new products, new technologies, and the fast pace of progress Given the constant introduction ISBN:1587622238 by Ar i Ginsber g et al. of government restrictions enjoyed by Americans, the discussion on entrepreneurial activity may sound Aspator e Books © 2003 (112 pages) strange. And fortunately, those restrictions, though numerous, are not all that effective, at least not in outliningto the history ofthat ent repr ship, om the long run. But Fr it’somimportant recognize the eneur benefits wefrrealize from a steady stream of generating cr edible and feasible ideas, from economy secur ing and the freedom it offers innovation is testimony to our predominantly market-based financials to m anaging effectiv ely, this book pulls r eader s entrepreneurial activity byallimposing andship, direction that freedom. thr ough facets ofdiscipline ent repr eneur fr om on begin ning to end. The advantage of the market is that it pulls the rug out from under entrepreneurial failures and provides the means for Taexpanding ble o f Con entrepreneurial t en t s successes while guiding that expansion in ways that offer the most value to I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als Business political rules and consumers. Once you begin undermining the market process withAllexcessive Prregulations, ofessionals Should Know & Rem em ber you begin undermining the informed discipline of the market economy and that, in turn, The ABCs of Ent repreneur Building and Connect in g undermines the freedomship—Assessing, we can tolerate, particularly entrepreneurial freedom. The result can, and Entr eprwill, eneur es inofMany Colors likely beship an Com erosion our economic progress as the fertility of the free market soil that does so Brmuch ingingtoSolutions to Prseeds oblems nourish the of entrepreneurship is leached away. Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

Professor Leeforreceived Ph. D from the of California, San Diego in 1972. Since that time Fundamentals Building his an Entr epreneur ial University Or ganization

he has had full time tenured faculty appointments at the University of Colorado, Virginia Tech University, George Mason University, and the University of Georgia where he has been the Ramsey The Science and Pr ocess of Entr epr eneur ship Professor of Economics and Private Enterprise since 1985. Professor Lee's research has covered a Key Concepts of Entr epr eneurship variety of areas including the Economics of the Environment and Natural Resources, the Economics of Political Decision Making, Public Finance, Law and Economics, and Labor Economics. Entr epr eneur ship and Str ategy

During his career, Professor Lee has published over 120 articles in academic journals, over one hundred articles and commentaries in magazines and newspaper, and has co-authored eight books and served as the contributing editor of two more. He has lectured at universities and conferences throughout the United States as well as in Europe, South America, Asia and Africa. He was president of the Association of Private Enterprise Education for 1994-95 and president of the Southern Economic Association from 1997-98. Additionally, Professor Lee spent a year at the Center for Study of American Business at Washington University in St. Louis as a visiting scholar in 1988-89, and six months at Liberty Fund in Indianapolis as a visiting scholar in 1999.

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Books Referenced

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

emRevenge be r Atkinson, Robert &D.,Rem “The of the Disintermediated: How the Middleman is Fighting EISBN:1587622238 by Ar i Ginsber g et al. Policy Paper (Washington, Commerce and Hurting Consumers,” D.C.: Progressive Policy Institute, Aspator e Books © 2003 (112 pages) January 2001). Fr om outlining the history of ent repr eneur ship, fr om generating edible and feasible ideas, from secur ingDecent Society (New York: Free Muller, Jerry Z., Adam Smithcrin His Time and Ours: Designing the financials to m anaging effectiv ely, this book pulls r eader s Press, 1993). thr ough all facets of ent repr eneur ship, fr om begin ning to end.

Nelson, James, “The Motor Carrier Act of 1935,” Journal of Political Economy 44 (August 1936): 464Ta ble o f Con t en t s 65. I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber

Schumpeter, Joseph A., Capitalism, Socialism, and Democracy (New York: Harper Torchbooks, 1950), originally published in 1942.

The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors

BrShaffer, inging Solutions Pr oblemsof Trade: The Business Campaign Against Competition, 1918-1938 Butler, IntoRestraint Fr(London: eedom and Associated I nfor m ed University Discipline—Fer Presses, tile Soil 1997). for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Fundamentals for Building an Entrepreneurial Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r Organization ISBN:1587622238 by Ar i Ginsber g et al. Aspator e Books © 2003 (112 pages)

Ellen Rudnick Fr om outlining the history of ent repr eneur ship, fr om The University of Chicago Graduate School of Business generating cr edible and feasible ideas, from secur ing Executive Director and Clinical Professor Michael P. Polsky Center financials to m anaging effectiv, ely, this book pulls r eader s for Entrepreneurship thr ough all facets of ent repr eneur ship, fr om begin ning to end.

Can Entrepreneurship Be Taught?

Ta ble o f Con t en t s

I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business an entrepreneur and current Professor of Entrepreneurship in a Graduate School of Business, I PrAs ofessionals Should Know & Rem em ber

often getofasked the question “Can entrepreneurship taught?” The ABCs Ent repreneur ship—Assessing, Building and be Connect in g I believe there are many innate

characteristics entrepreneurs possess that cannot be taught. These include vision, tenacity, and a tolerance for risk and ambiguity. However, if an individual has the desire to embark on his or her own Br inging Solutions to Pr oblems then I believe there are educational skills and tools that can be learned along the way that can help Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship one be more successful and channel these energies in the right direction. Entr epr eneur ship Com es in Many Colors

Fundamentals for Building an Entr epreneur ial Or ganization

Entr eneur ship and Str ategy Theepr term entrepreneur may mean different things to different people. Some people assume it is the The Science and Pr ocess of Entr epr eneur ship person who creates a new product or service from scratch and builds a successful business around it; Bill Concepts Gates is a example. Key of prime Entr epr eneurshipHowever, my definition of entrepreneur is broader and refers to many

different types of business developers and risk takers. This includes someone who buys a business and grows it into a larger and more profitable business or takes over a small regional family business and grows it into a large national enterprise. Or it could be a person who franchises an untried or a successful brand. It might also be someone who sees a successful business model out there and believes he or she can do it better. So it is important to remember the definition of an entrepreneur is quite broad and the franchisee or family storeowner is far more prevalent than the Bill Gates of the world. Regardless of which type of entrepreneur you are or wish to be, there are important fundamentals, some of them more relevant to your specific business than others, which will be discussed in this chapter. These include legal considerations, communicating your business strategy through a business plan, financing insights, keys to building a successful business and entrepreneurial pitfalls to avoid.

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Legal Considerations

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Rem emnot be going r I am not a lawyer&and am to be able to tell you which legal structure you should select for by Ar i Ginsber g et al.consult with an attorney toISBN:1587622238 your business. However, you should determine if a corporation, partnership, Aspator eor Books 2003 (112 pages)is the best structure for you. Each structure has tax and limited liability company, sole ©proprietorship Fr om history Also of entimportant repr eneurin ship, fr om liability implications yououtlining need tothe consider. determining the best legal entity for your generating cr edible and feasible from secur ing business will be how you intend to raise capital. ideas, Many institutional investors prefer a “C” corporation, financials to m anaging effectiv ely, this book pulls r eader s which is a separately taxed will not invest their capital thr ough all entity, facets and of ent repr eneur ship, fr om begin unless ning to you end.have this structure in place. If you intend to use your own capital and do not require outside investment you might prefer a Tadifferent ble o f Con t enof t sstructure such as a partnership, “S” corporation, or LLC which are not separately taxed type I nside t he Minds—The ABCs oftax Entr epr eneurship—Th e Fundam ent als All Business and may provide significant efficiencies. Pr ofessionals Should Know & Rem em ber

If you do of intend to raise ship—Assessing, outside capital, even if it and is from friends The ABCs Ent repreneur Building Connect in g and family, you must consider the state andepr federal regulations issuing of securities. At the federal level, you must be sure that your Entr eneur ship Com es ingoverning Many Colors qualifies for to one the common “exemptions” and that related laws are followed. In addition, each Brsale inging Solutions Pr of oblems has specific calledtile “Blue Laws,” which govern theship sale of securities and are Frstate eedom and I nfor mregulations, ed Discipline—Fer Soil Sky for the Seeds of Entr epr eneur

equally important. If you an violate any of these in the original funding of your company, it could be a Fundamentals for Building Entr epreneur ial Orlaws ganization

deterrent to attracting future investors. And you could be putting yourself in jeopardy of a future lawsuit from an investor or an unpleasant visit from a regulator.

Entr epr eneur ship and Str ategy

The Science and Pr ocess of Entr epr eneur ship

Key Concepts of Entr epr eneurship I have had students who have found books on incorporation or writing a private placement

memorandum and thought they could bypass the lawyers. While you might be able to glean a lot from these books and reduce the hours you consume of a lawyer’s time, I strongly recommend that any documents you file for incorporation or for soliciting capital be reviewed with an attorney. Laws are constantly changing and books (even this one) do get out of date! Selecting an attorney can be one of the more important decisions you make. While some things such as incorporation are routine, other things such as protecting intellectual property, setting up the capital structure, raising capital, developing partnership or employee agreements, and negotiating strategic alliances are less boilerplate. A good attorney who can work with you on many of these issues or has access to resources on the things that he/she lacks expertise in will be a valuable part of your team. In selecting an attorney, reputation is helpful but it is important to do your own due diligence on the attorney. Ask for references similar to yourself. Find out if they will work with you on a creative fee structure or fixed fee basis to limit your legal expenses. Find out who actually will be doing the work. Big firms with beautiful offices do not always mean better service. It might just mean more expensive service.

I n sidPlan e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e The Business

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem emthings be r One of the most important you will do at the beginning of your business is develop a business ISBN:1587622238 by Ar i Ginsber g etInternet al. plan. A few years ago, during the bubble, many would-be entrepreneurs and their somewhat Aspator e Books © 2003 (112 pages) blinded investors joked that their business plans were written on the back of a napkin in some bar. om outlining thea history of ent repr eneur ship, ombusiness and strategy for executing There just wasn’tFrtime to develop thorough understanding of frthe generating cr edible andthem. feasible ideas, from secur ing the opportunity! Well, the joke was on After many business closures and significant losses of financials to m anaging effectiv ely, this book pulls r eader s investor money, we have returned to the discipline and rigor of business due diligence and the thr ough all facets of ent repr eneur ship, fr om begin ning to end. business plan. Ta ble o f Con t en t s

Theret he areMinds—The three mainABCs reasons forepr aneneurship—Th entrepreneure to develop plan and continue to update I nside of Entr Fundam ent a alsbusiness All Business Pritofessionals and expand Should it as the Know business & Rem em evolves: ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g

First, it is a planning tool. The business plan helps an entrepreneur plan out the business, define his/her need for resources, understand the marketplace and customer needs and evaluate the best Br inging Solutions to Pr oblems strategies for accomplishing the plan objectives. Entr epr eneur ship Com es in Many Colors

Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

Fundamentals Building an Entrfor epreneur ialcapital Or ganization Second, it is aforsales document raising or attracting management talent or advisors to the Entr epr eneur ship and Str ategy company. Whenever you approach a potential investor or even a bank, you will be asked to send them The Science and ocess of Entr eneur ship a business planPror at least theepr executive summary of the business plan. Similarly as you build a management or eneurship seek advisors for your business, the business plan will be an easy, concise way Key Concepts ofteam Entr epr

of sharing your vision and strategy for the business. Third, the business plan is a monitoring tool. Once your business is up and running, the plan serves as a way to measure and monitor your performance against your original objectives. As you modify the objectives it will also be important to update the business plan so it becomes a living document, not something relegated to a shelf. So what are the key elements of the business plan? There have been many articles and books written about business plans and how to write them so I do not intend to go into that level of detail. However I will focus on some of the critical elements of the business plan, some of the topics that must be covered and some common do’s and don’ts of writing business plans. All business plans are expected to cover information that answers the following questions: What is the product or service being sold? What is the problem being solved? Who are the customers for the product; why are they going to buy it and how much are they willing to pay? How large is the market for this product or service? Who else is trying to solve this same need (e.g. competitors) and how are you going to compete against them? What might be their reaction to your product or service? Do you have any particular proprietary advantage to your product or service (patents, trademarks, strategic alliances)? Are there any barriers to entry? What is the cost of your product/service and how are you going to make money? How are you going to market and distribute the product? Are there any specific distribution channels you need to develop for this product/service? Who is the management team and why can they make this happen? What are the risks to this business? What are your key milestones? If you have outside investors or employee owners, how will they make money? What is the exit strategy?

All of these questions should be addressed in formal sections of the business plan. A sample table of contents for these sections might look like this: I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e

Business MissionFu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r

by Ar i Ginsber g et al. Company Background/Description

ISBN:1587622238

Aspator e Books © 2003 (112 pages)

Market Overview Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing

Revenue Model financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end.

Competitive Landscape

Ta ble o f Con t en t s

I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Technology (if relevant) Pr ofessionals Should Know & Rem em ber

Operations Strategy The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors

Management team/advisors/partners

Br inging Solutions to Pr oblems

FrTimetable/Milestones eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization

Business Risks Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship

Financial Forecasts for three to five years including first and second year by month or by quarter

Key Concepts of Entr epr eneurship

Detailed sales projections and assumptions Income Statement Balance Sheet Cash Flow Statement Capitalization required including sources and uses of capital Appendices (which might include resumes of management team, customer testimonials, market research, patent information, copies of relevant articles or marketing materials) Once the above detailed sections of the business plan are developed, you will need to synthesize all this information into an executive summary, which is the introduction to the business plan.

I n sid eSummary t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e The Executive

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em The Executive Summary is be ther most important part of your business plan and also needs to be a ISBN:1587622238 by Ar i Ginsber et al.It is the “hook” that gets potential document that can stand on itsgown. investors, partners or advisors to Aspator e Books © 2003 (112 pages) want to read further. Often times when you introduce yourself to a potential investor he/she will first ask Fr omsummary. outlining the history ent repr eneursummary ship, fr omthe investor will then ask for the full to see your executive Based on of this executive cr edible and feasible from secur ing business plan. Sogenerating the executive summary is alsoideas, a sales document. financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end.

The executive summary is usually no more than two to three pages and succinctly outlines the basics business Taof bleyour o f Con t en t s plan. It includes your company mission, product/service, market size and revenue potential, key competition, management team, capital requirements, summary financial projections I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Prand ofessionals key milestones. Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g

After several years of reviewing business plans, I have compiled the following list of Do’s and Don’ts:

Entr epr eneur ship Com es in Many Colors

BrNever ingingassume Solutions to Pr oblems you have no competition. Even if there is not a direct competitor, there are usually Frsubstituting eedom and technologies I nfor m ed Discipline—Fer tile Soil the Seeds of Entrthat epr eneur ship or satisfaction withfor existing solutions can impede your ability to bring your Fundamentals for Building an Entr epreneur ial Or ganization product or service to market. Entr epr eneur ship and Str ategy

Understand what market youship are competing in. It is very easy to say we are competing in the The Science and Pr ocess of segment Entr epr eneur billion dollar of market foreneurship business intelligence systems when in fact your particular database or software Key Concepts Entr epr product may only be appropriate for the transportation segment or pharmaceutical segment which may be a much smaller market size. You lose credibility with investors or lenders if you do not accurately understand and forecast your market segment. Avoid the phrase “If we capture just 5 percent of the market, we have a very successful business.” There are hundreds of companies out there that are all trying to get just 5 percent of the market. Develop your market penetration strategy with care and a detailed understanding of the market segment. Avoid using acronyms or at least define them when you first use them. Many technology business plans can turn off a potential investor who is not adept at the lingo and will feel even less capable of analyzing the business opportunity if they do not understand what they are reading. Be brief and simple. Use simple sentences to describe your business. For example, “We develop middleware for wireless networks” vs. “We develop and deliver an integrated suite of packaged applications for web and wireless deployment which global enterprises use to become more competitive and profitable by establishing and sustaining high-yield interactions and transactions with customers, suppliers, and employees.” Find potential customers or do focus groups to substantiate the value of what you are offering. There is nothing more valuable in building credibility for your business than being able to say I have customers who are willing to buy this product. If you have customer testimonials, use them in the business plan Financial projections should be realistic. Avoid the hockey stick effect of many business plans that show astronomical profit projections in years four and five after the first three years of losses. Don’t be afraid to recognize where you have weaknesses. If you need to strengthen the management team, list the positions you need to fill and how you intend to hire for them. Once you have completed the business plan you will need to develop two other forms of communication for your business. One is the elevator pitch and the other is the “in person” power point presentation. I will briefly describe some thoughts on each of these.

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e The Elevator Pitch

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em r If the executive summary is be a two to three page distillation of a twenty-plus page document, the ISBN:1587622238 by Ar i Ginsber et al. summary of your executive elevator pitch is a two to three gminute summary. It is called the elevator Aspator e Books © 2003 (112 pages) pitch because if you are riding in an elevator from the first to the fortieth floor of the building – Frto omthree outlining the history of ent repr ship, fr om approximately two minutes – you should be eneur able to succinctly express to a potential investor generating cr edible and feasible from secur ingIt is actually quite hard to articulate what your business is and why they should wantideas, to read your plan. financials to m anaging effectiv ely, this book pulls r eader s your mission in two to three minutes, andrepr I would urge fr you spend lotend. of time in developing this thr ough all facets of ent eneur ship, om to begin ninga to pitch to maximize the benefit. You will be required to use it over and over to many different audiences. Ta ble o f Con t en t s

Whilet he it isMinds—The not likely that you be riding einFundam an elevator a potential investor, it is possible I nside ABCs of will Entractually epr eneurship—Th ent alswith All Business Prthat ofessionals you will Should be on the Know phone & Rem and emhe/she ber will say, “Okay, I’ve got three minutes, what is your business? ” The goal pitch ship—Assessing, is for the listenerBuilding to say, “Really? Tellinme The ABCs of of Entyour repreneur and Connect g more.” As a colleague of mine explained inship a recent column i-Street, “You cannot explain your whole business, the claims of your Entr epr eneur Com es in Manyin Colors your wonderful management team, how enormous the market is, and the enthusiastic Brpatent, inging Solutions to Pr oblems you getmfrom everyone you to the about the of idea inepr one or two Frresponse eedom and I nfor ed Discipline—Fer tilespeak Soil for Seeds Entr eneur shipsentences. What can you

do? You can for clearly answer twoepreneur critical questions: What are you selling and who are you selling it to?” Fundamentals Building an Entr ial Or ganization [6] Entr epr eneur ship and Str ategy The and Pr ocess of Entr eneur ship TheScience elevator pitch should not epr describe the technology or how it works or include too many buzzwords Key Concepts of Entr epr eneurship that are not understandable by lay people. Again, from my colleague’s column, “Even the most

complicated technology can be described simply; it just takes a bit more work. For example, one inventor described his product like this, “a proprietary algorithm to model a moving object as a trajectory, instead of a sequence of points on a map, and a dynamic variable to account for the uncertainty inherent in managing mobile assets.” Do you have any idea what this does? Rather “We have a software product that optimizes expensive mobile assets such as trucks and service personnel while they are in the field and would be sold to companies such as Fedex, UPS, etc. At the risk of sounding trite, I will reiterate the famous advice, “Keep it simple.’” [6]i-Street magazine, December, 2002

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e The “In Person” Presentation

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em be r is so important in building your business and especially in raising The process of communication ISBN:1587622238 by Arto i Ginsber g et door al. you need the three minute capital. For example, get in the pitch. If you are successful you will Aspator e Books © 2003 (112 pages) probably be asked to send the executive summary, and if they are “hooked,” then the business plan. If Fr om outlining ent repr ship, fr om they are still interested, they willthe askhistory you toofmake aneneur “in person” presentation. Sometimes this may generating edible and feasible ideas, from secur ing take the form of just asking cr you questions in an informal manner. However, most times you will be financials to m anaging effectiv ely, this book pulls r eader s asked to give a brief PowerPoint presentation to set the stage for a discussion. thr ough all facets of ent repr eneur ship, fr om begin ning to end.

of tthumb for this presentation include: TaSome ble o f rules Con t en s I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business the outline your&executive summary. PrFollow ofessionals ShouldofKnow Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g

Slides should be very simple; not a lot of words or complicated graphs or too many colors that will be distracting.

Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems

FrAssume eedom and m ed Discipline—Fer tiletwo Soilminutes for the Seeds of Entr epr eneur thatI nfor it will take an average of to discuss each slide;ship do not have more than fifteen

to twenty minutes of slides. Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy

Use the slides to stimulate discussion and engage your audience rather than trying to answer every possible question.

The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

The key thing during the “in person” presentation is that the management team appears credible and earns the listener’s trust. This will come from your ability to answer the tough questions about your customer base, distribution channels, competition, revenue model, and how the business is going to make money. The PowerPoint slides are only a starting point. You will be judged on your ability to convince the audience of your knowledge of the market and potential of your business. I have watched some management teams spend all their time developing the most detailed slides in a presentation only to be sidelined by the investor who asks, “Who makes the purchasing decision? How many of these purchasers have you spoken to? Do you have any potential sales leads? How will these new federal regulations affect the sales cycle?” Spending your time on “substance vs. form” will make all the difference in these presentations.

I n sidBusiness e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Financing the

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em be r and websites that can be helpful to you in raising capital for your There are many articles, books ISBN:1587622238 by Ar i Ginsber g et al.the process for you here. Rather business so I am not going to detail I intend to share, from my own Aspator e Books © 2003 (112 pages) personal experience, insights into the process. Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, Some from secur There are many different ways to finance a business. are ing harder than others. The easiest ways financials anagingagainst effectiv ely, thisthat book pulls r eader s are to use your own moneytoorm borrow assets you own. Obviously there is a lot of risk in this thr ough all facets of ent repr eneur ship, fr om begin ning to end. but it does not require you to give up equity or deal with outside investors. The next easiest way is to your Tasell ble equity o f Conin t en t s business through a “private placement” among angel investors (wealthy individuals) or friends and family.ABCs If youofare to raise lessethan $1 million, this approach is preferable than I nside t he Minds—The Entrtrying epr eneurship—Th Fundam ent als All Business institutional capital. Youem need Prseeking ofessionals Should Know & Rem ber however to determine the value of your company, how much equity you willing to ship—Assessing, give up and assure that you federal and state guidelines in attracting The ABCs of are Ent repreneur Building and follow Connect in g investors. If you do raise money in this way, you need to get a lawyer experienced in doing private Entr epr eneur ship Com es in Many Colors security transactions to help in constructing the private placement memorandum, the purchaser’s Br inging Solutions to Pr oblems agreements, subscription agreements, and to ensure you are meeting all state and federal guidelines. Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization

Another approach to raising capital is to develop strategic partnerships with customers or vendors who have a vested interest in your company becoming successful. These strategic partners tend to be The Science and Pr ocess of Entr epr eneur ship good investors since their long-term interests depend on your company’s overall success, rather than Key Concepts of Entr epr eneurship how much money you earn in the short run. They will tend to have longer term outlooks than strictly financial investors. However, if you want to partner with a large corporation, their decision process is very slow and you may not have the time to wait! Entr epr eneur ship and Str ategy

The most difficult way to raise equity capital is through institutional investors such as venture capital (VCs) or private equity firms. These firms see hundreds of plans a week and may only fund a handful of businesses a year. To get their attention you need to facilitate a personal introduction. This is where your network or a board of advisors can assist. Usually VCs will look at a plan or take the call of an entrepreneur who has been referred to them from someone they know. You need to do research to determine which VCs would be appropriately interested in your business because each firm tends to specialize by industry and by whether a company is in its infancy or already generating revenue and profits. The websites of VC firms are a good resource for determining whether or not there would be interest in investing in your deal. You can read about the other portfolio companies they have invested in and what are their areas of focus. Once you know this, you can then examine your own network to determine if you know someone who can get you in the door. VC money is also very expensive money because VCs accept more risk than traditional banks are willing to take. An entrepreneur may be required to give up significant equity in the company as well as one or more board seats. However the right VCs can be very important to a start-up or early stage company because they add experience and have strong contacts. Plus, the prestige of having smart institutional money in the business could dramatically increase the company’s chance of success and future value. Debt is also another approach for financing a business if that business has hard assets or if you are buying an existing business. The debt markets have tightened lately and traditional debt is more difficult to find. In buying a business, banks typically lend money at a multiple of a company’s operating cash flow, often described in financial circles as EBITDA (current earnings before interest, taxes and depreciation). Just a few years ago banks might lend 4.0x to 4.5 x EBITDA; these days it tends to range between 2.0x to 3.0x EBITDA, depending on your asset base and banking relationships. Seller financing, in which the seller receives part of the purchase price over time, is playing a more important role in helping to finance buyouts. For working capital and operating needs, lines of credit against receivables or inventory as well as equipment leases provide other ways to raise debt. Some lenders (such as merchant banks and mezzanine financial institutions) will consider more creative financing using a combination of debt and equity or warrants. However, in raising debt, there are often many covenants that an organization must meet on a regular basis or the bank or lending institution can call the loan and force the company into liquidation or bankruptcy. During tough economic times lenders tend to be more restrictive if a company is outside these covenants than during good economic times. If you believe your business can regularly meet the requirements that the bank imposes, debt can be one of the least expensive forms of raising capital.

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r by Ar i Ginsber g et al. Aspator e Books © 2003 (112 pages)

ISBN:1587622238

Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end. Ta ble o f Con t en t s I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

I n sid e tof he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Characteristics Successful Businesses

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em be One of the strongest assets inrbuilding a successful business is the management team. You often hear by Ar i Ginsber g ethad al. the choice between an AISBN:1587622238 VCs or other investors say if they product and a B management team or Aspator e Books © 2003 (112 pages) an A management team and a B product, more often than not they would select the B product with an Fr om outlining the historyteam of entisrepr eneur ship, fr om A management team. The management important in developing and executing the strategy generating cr edible and feasible ideas, and frombreadth secur ingof their experience and ability to and building credibility with your investors. The depth financials to m anaging effectiv ely, this book pulls r eader s meet the challenges of a all start-up will be critical long-term If this were a horse thr ough facets enterprise of ent repr eneur ship, fr omtobegin ning to success. end. race, the management team is your jockey. Management teams should reflect experience in sales and Tamarketing, ble o f Con tfinance, en t s operations and strategy, preferably in the same industry. If the company is I nside t he Minds—The ABCshaving of Entrstrong epr eneurship—Th e Fundamisent als All Business technologically focused, technical expertise essential. Sometimes in a start-up Prsituation ofessionals Know & Rem berto attract the talent that you need so it is important to find other youShould may not always beem able The ABCs of Ent ways to get it. repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors

canSolutions be one role your board of advisors or board of directors. Many start-up businesses BrThis inging to Prof oblems their limited through creating advisory board of industry veterans or functional Frleverage eedom and I nfor m ed resources Discipline—Fer tile Soil for thean Seeds of Entr epr eneur ship experts. These get paid inialoptions in the company so their success is tied to the Fundamentals for advisors Building often an Entr epreneur Or ganization

company’s success. Selection criteria for advisors should include their ability to spend time with you and the company, their own network of contacts that might be valuable for the company, and an The Science and Pr ocess of Entr epr eneur ship expertise that fills a gap you have in your team. Entr epr eneur ship and Str ategy

Key Concepts of Entr epr eneurship

A successful entrepreneur is a strong communicator. Whether you are trying to raise capital, hire good management, attract a valued advisory board or board of directors, or sell your product and service it is important to be able to articulate simply and concisely your mission and business proposition. It is also important to do it in a way that communicates your enthusiasm and commitment for the business. Entrepreneurs need to convince people to do something they were not intending to do. The chapter highlighted earlier the importance of the elevator pitch, executive summary, business plan and “in person” presentations. Add to that customer and distributor presentations, public, banking and employee relations. These are all forms of selling and communicating your strategy and building confidence in you and your business. A successful entrepreneur knows what his/her strengths are and tries to complement them, not replicate them. He/she also knows when to move aside. Oftentimes the person who has the vision and ability to get the business off the ground is not the best person to manage the business once it gets to a certain size. We have all heard stories of companies that have failed because the founder maintains operational control when it is not his or her strength. Even Bill Gates turned over the CEO job to his Chief Operating Officer, Steve Ballmer, to allow himself to focus on what he knows best, technology. A successful business stays focused and prioritizes its resources accordingly. It is very easy to get distracted and spread too thin. Given the limited resources of most entrepreneurial businesses it is important to focus those resources on the critical tasks that need to get done that will determine success. As a former entrepreneur, I kept a list of the top six priorities of our company, made sure everyone in the company knew what these priorities were and reviewed them at every staff meeting. The budget and plans always reflected these priorities, and if we decided to allocate resources outside these efforts, there always had to be a good reason or maybe we needed to reevaluate our priorities. A successful company knows its customer. This doesn’t mean just your sales and marketing department but also includes your product development, manufacturing or operations and even finance staffs. A strong customer orientation permeates throughout successful companies. Remember the customer is the fuel that drives the engine. And the customer is always right. Even when the customer is unhappy, if you spend time with him/her and try to rectify the situation, you may find an even more loyal customer. A successful company also knows when the customer needs are changing and how it must change in order to serve the customer. Some companies put customers on the board of advisors or even the board of directors to insure sufficient customer input.

I n sid e t Pitfalls he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Entrepreneurial

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem empitfalls be r is underestimating your cash needs and overestimating your revenue One of the most common by Ar i Ginsber g etalmost al. and profit growth. Entrepreneurs always underestimateISBN:1587622238 the time to get to market or the hurdles Aspator e Books © 2003 (112 pages) that need to be overcome to reach profitable cash flow. They also want to give up as little equity as Fr om of ent repr eneur ship, fr om out of cash before they become possible or take on as outlining little debtthe so history they often times find themselves generating edible and a feasible from secur look ing at a forecast and assume you will cash positive. In valuing yourcrcompany, VC willideas, almost always financials to m anaging effectiv ely, this book pulls r eader s need twice the amount cash youofare and fr will cut your and profit forecasts in thr oughofall facets ent projecting repr eneur ship, omalso begin ning to revenue end. half for the first few years. It is well worth raising more money than you think you need to provide a Tacushion ble o f Con t en t s don’t go exactly as planned. If you have to go out and raise money in tight markets, if things I nside t he Minds—The of Entr epr eneurship—Th e Fundam All Business you may be forced toABCs accept onerous terms for the money,ent or als worse yet, close the doors to your Prbusiness. ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g

Along theseship lines, it is important Entr epr eneur Com esvery in Many Colors to carefully watch your cash and figure out how to do more with While manytofinancial statistics are important to monitor in a start-up or entrepreneurial venture, Brless. inging Solutions Pr oblems mostand important is Discipline—Fer cash flow. Cash king anSeeds early stage Frthe eedom I nfor m ed tile isSoil forinthe of Entrventure. epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization

Failure to execute . Many people have great ideas. The difference between those that make it and those that don’t is the ability to make it happen. Successful entrepreneurs have a bias towards action, The Science and Pr Entr epr eneur towards getting it ocess done.ofHowever it hasship to be done by building the right systems and infrastructure to Key Concepts of Entr epr eneurship handle a growing business. I once served as an advisor to a company that had not built sufficient capacity to manage its receivables and payables. The company was growing very rapidly but it could not issue its bills in a timely fashion, did not have the resources to follow up on collections and consequently could not pay its creditors or its employees on time. The company almost had to declare bankruptcy even though it had profitable revenue. Entr epr eneur ship and Str ategy

Developing a great, sexy technology that no one wants to buy . Many people get so enamored with a new technology or product that they forget to ask the basic questions. Who is the customer? How much are they willing to pay? How am I going to distribute the products? Do your market research first. Understand how the technology fills a need and if it can be developed at a cost people are willing to pay. Basically answer the question, will the dogs eat the dog food? Not understanding your true costs or not pricing correctly . Many entrepreneurs underestimate the real costs of their products/services. Oftentimes entrepreneurs look at the costs directly associated with producing the product and do not take into consideration the overhead costs of marketing, administration, legal, etc. Many think if “I just get the volume up I will eventually make money.” Unfortunately that is not the case. You need to determine the full costs for your product, add in an acceptable margin and then determine if the market can bear the resulting price. If you believe the price is acceptable, you should then be asking, “Can I charge more? What is the value of this product/service to the market? How much is the customer willing to pay?” However if the market pricing does not cover your full costs then your product becomes a “loss leader.” And with your first product or service, if the more you sell, the more you lose, you will not be in business for very long. Management teams that do not work well together . In an entrepreneurial business each hire is a critical one as resources are limited and everyone is expected to play multiple roles. If there is more than one founder and each is part of the senior management team, it is almost like being married. And business separations can be as nasty and complicated as divorces. It helps if members of the management team have worked together before and have an established working relationship. However if there is conflict among founders and senior managers it can become divisive to a small developing company and impact employees and their ability to execute the strategy. I have known a number of start-ups that failed because the founders could not agree on the strategy or could not work well together and one person would leave and take other employees with them. So in selecting your partners and management team, you should focus not only on the expertise they bring, but on the chemistry and ability to work well together as a team.

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e The Conclusion

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em be r In the beginning the entrepreneur needs to determine how he/she will measure the success of the by Ar i Ginsber g et al. money on the deal? WeISBN:1587622238 business. How will the investors make hear a lot about the IPO strategy, Aspator e Books © 2003 pages) this strategy is only for a few companies. Many taking your company public. However,(112 in reality Fr om outlining thedoing historyit for of ent repr eneur ship, or fr om companies that do an IPO are not creating liquidity wealth. It may be a strategy for raising cr edible andlimit feasible from secur ingand its investors from liquidating growth capital forgenerating a company and may bothideas, the entrepreneur financials to m anaging effectiv ely, this book pulls r eader s their holdings. thr ough all facets of ent repr eneur ship, fr om begin ning to end.

should be determined by your ability to grow the business and achieve your sales TaMore ble o flikely Con tsuccess en t s and profit projections.ABCs If you that then there willebe multiple options available. The company can I nside t he Minds—The of do Entr epr eneurship—Th Fundam ent als All Business Prcontinue ofessionals Should Know & Rem em ber to its investors and employees; the company could be sold to to grow and return dividends another you can leverage the Building value you in the The ABCs company; of Ent repreneur ship—Assessing, andbuild Connect in gcompany to acquire other companies; andepr you canship consider Entr eneur Com esan in IPO. Many Colors Br inging Solutions to Pr oblems

However, none of that will be possible unless you develop a viable vision for your business, communicate it effectively to potential investors, employees and customers, grow your customer base Fundamentals for Building an Entr epreneur ial Or ganization never losing sight of your customer’s needs, and execute your plan efficiently and profitably. Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Entr epr eneur ship and Str ategy

The Science and serves Pr ocessas of Executive Entr epr eneur ship and Clinical Professor of the Michael P. Polsky Center for Ellen currently Director Key Entrepreneurship Concepts of Entratepr the eneurship University of Chicago Graduate School of Business. Prior to this appointment

she spent twenty-five years in business management and entrepreneurial activities, primarily in healthcare and information services industries. She served as Chairman of Pacific Biometrics, a medical device company she co-founded; President of HCIA, and CEO of Healthcare Knowledge Resources, both healthcare information service companies; and Corporate Vice President of Baxter Healthcare and President and Founder of Baxter Management Services Division. Ellen also serves as Founder and Chairman of CEO Advisors, a consulting firm established in 1992. Since 1999, she has served as a Venture Partner with Inroads Capital Partners In 1987, Business Week named her one of the top 50 women in U.S. business. Ellen received an MBA from the University of Chicago and a B.A. from Vassar College. She serves on the boards of Liberty Mutual Insurance, Oxford Health Plans, Inc., Health Management Systems (HMSY) and NephRx. She has previously served on the board of Evanston Northwestern Healthcare. She has won numerous community honors and is a member of the Chicago Network, the Health Alliance, the Economic Club of Chicago, and a past member of YPO.

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Entrepreneurship and Strategy Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r

Gordon Walker by Ar i Ginsber g et al. ISBN:1587622238 Edwin L. Cox School ofe Business , Southern Aspator Books © 2003 (112 pages) Methodist University Professor& Chair, Strategy and Entrepreneurship Group Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end.

Entrepreneurship and Competitive Advantage

terms of tstrategy, as opposed to entrepreneurship, I look at start-up businesses and typically focus TaIn ble o f Con en t s

on them they’reABCs out ofofthe embryonic stage –e perhaps a year orBusiness two out (or longer), when they are I nside t he after Minds—The Entr epr eneurship—Th Fundam ent als All facing problems of growth and are not necessarily looking for money. Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g

One of the things I focus on is competitive advantage, which is basically both market positioning and defending that position – from a perspective of providing customers value at a cost which allows you to Br inging Solutions to Pr oblems make more money than your competitors. Many factors are important for achieving competitive Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship advantage, regardless of which stage your company is at. Entr epr eneur ship Com es in Many Colors

Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategyretention and also isolating mechanisms, which are those aspects of your Defense involves customer

business it difficult your competitors to copy you (or, in many instances, to counter, which The Sciencethat andmake Pr ocess of Entr for epr eneur ship is not necessarily doing the same thing you’re doing but offering the same value to the customer – Key Concepts of Entr epr eneurship maybe with a different set of processes which lead to the same cost, so you’re being matched even though they’re not doing exactly the same thing). The isolating mechanisms might be, for example, property rights such as legal constraints on copying patents or trademarks or service marks, or development costs, where you’ve developed a brand and it’s a sunk cost, as we will call it. It’s difficult for competitors to rationalize trying to develop a brand to compete against you since they have to incur development costs, but yours are already expended. Then there is causal ambiguity, which is the difficulty that competitors have in figuring out how you’re doing what you’re doing, assuming you’re doing it well. And there are what we call dedicated assets, which means having a special supplier or special distribution channel which is dedicated to you and which adds value to your customers and which competitors would have a great deal of difficulty replicating. So those are the isolating mechanisms. The idea is that you want to develop a capability to deliver the highest value to the customer at the lowest cost possible. That is true no matter what stage of your business you are in – from start-up all the way to General Motors. The next step is industry analysis, which is looking at your competitors and other forces in the industry which have an effect on your profitability. In the industry, customers determine value, you and your suppliers determine the cost to produce that value, and competition and industry forces determine the price. The price is what leads to how much your customer gets of the value minus the cost, and how much you get. So value minus price is the buyer’s surplus. Price minus cost, obviously, is your profit. So the stronger customers and competition are, obviously, the less you get, since everyone is trying to get the same buck and so prices go down and your profits go down. That’s one side of it. The other side of it is that when firms figure that out, they try to develop ways of cooperating with each other so that they’re not destroying the market. Then you have to examine what we call competing over time, which looks at four stages of industry development. The growth stage, which would be more classically entrepreneurial, is when there are many different ways of delivering the product and there are many different kinds of products; standards haven’t been set, and customers are a bit ignorant, but they still value the type of product compared to substitutes. Assuming that entrepreneurs can grow their companies, then the industry grows. At some point down the line, some firms develop such a superior delivery mechanism for the product that it becomes clear that entering the industry really isn’t as attractive as it used to be, so the rate of entry slows. In the second stage, the stronger firms start pushing out the weaker firms, and a shakeout takes place. The third stage is when the weak firms have been mostly culled from the industry, so the rate of exit slows and the rate of exit and entry become roughly the same. That’s when the mature stage sets in. At that stage there are many large firms, or perhaps not so many large firms but a few large firms and a lot of small firms competing in niches (which is obviously where a lot of entrepreneurial opportunity is in mature industries) – and then a few midsize firms that struggle, competing against the large and the small at the same time. The last stage is a rejuvenation of the

industry – the industry disruption, as we call it. There are three possible types of disruption. One is a technological substitute, such as substituting I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e PVC for copper inFuplumbing, or semiconductors for transistors in electronics, or LCD screens for the nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow traditional monitor, PDAs forr paper-and-pencil calendars. Substitutes are one form of industry & or Rem em be disruption. The second kind is gdisruptive technology. This is a technology that has standard inputs so ISBN:1587622238 by Ar i Ginsber et al. the technologicalAspator advance isn’t quite as important as the low price driven by the low cost. Clayton e Books © 2003 (112 pages) Christiansen at Harvard wrote a book in 1997 called The Innovator’s Dilemma. He talked a lot about Fr om outlining the history of ent repr eneur ship, fr om how threatening this kind of cr disruption for incumbent disruptive technologies aren’t generating edible andwas feasible ideas, fromfirms. securThese ing financials to m anaging effectiv ely, low-tech. this book pulls r eader s highly advanced technologies, but actually rather But the companies that adopt them have allWal-Mart facets of ent eneur ship,Airlines fr om begin ning to come end. into the middle of the costs that are so thr lowough – like andrepr Southwest – that they market, and when customers see how cheap they are, and that they have adequate value, they move Ta ble o f Con t en t s toward them, and the incumbents are left holding the bag, the way incumbent airlines, like United, are I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business holding the bag.Know The last type Prleft ofessionals Should & Rem emof berdisruption is deregulation – for example, in natural gas, telecommunications, financial services, perhaps someday The ABCs of Ent repreneur ship—Assessing, and Building and Connect in gelectricity. That’s the third kind of disruption. Entr epr eneur ship Com es in Many Colors BrSo inging Pr oblems thereSolutions are fourtostages: growth, shakeout, maturity, and disruption. And with disruption, obviously, the Frwhole eedomthing and starts I nfor mover ed Discipline—Fer tile there Soil for the Seeds of coming Entr epr eneur shipindustry – start-ups that are again because are new firms into the Fundamentals for Building Entrtechnology epreneur ial or Orthe ganization betting their future on theannew new business model – and they’re competing against Entr epr eneur ship and Str ategy incumbents and trying to take share away from them, and off it goes again. The Science and Pr ocess of Entr epr eneur ship

Strategy execution is another key fundamental. This has to do with actually executing within the market Key Concepts of Entr epr eneurship

position once you’ve chosen it. Are you value oriented or cost oriented or are you somewhere in between? It really doesn’t make any difference in terms of how much money you make, although typically we like to think of the two ends of the spectrum as being more logical than in between, but that’s not necessarily the case. There are plenty of companies that are in between and doing much better than firms at either end. Execution is driven by resources that you build or buy (such as a brand or a distribution channel or a patent) and which you can protect, and also by capabilities (such as your ability to deliver on time or your ability to produce at a high level of quality or your ability to provide excellent service), which you can’t trade. Capabilities are developed by the way you organize your operations and train your people and your practices in general. Capabilities are developed in four ways: your coordination and control systems (how you’re structured, what your processes are), your compensation and incentive systems (what you pay people to do, what your business metrics are – what you measure and how you award people for performing on those metrics), your culture (highly cohesive or loose), and your consistency when you look at all the activities together in the organization. Do your activities all fit together to form a whole, supportive of your ability to execute within your market position, or are they inconsistent?

After execution, you have to look at the boundaries of the firm, which is something entrepreneurs will be sensitive to. Typically a small firm buys almost everything because they can’t afford to make it. But at what point do they decide that it’s more valuable to them to make something as opposed to buying it? When do they hire their first accountant? If they’re a manufacturer or an assembler, when do they start buying components? When do they go downstream and start selling through an in-house sales force as opposed to selling through manufacturer representatives? For software, when does the firm develop its own software as opposed to buying standard products off the shelf? Also, from the other side, when and what do they want to outsource? Maybe there are things they’ve done inside that they want to “variable-ize” – they don’t want the fixed cost of that operation internally. They find a supplier they think will give them sufficient control of its investment decisions relating to them, and the price is lower than their internal cost, so they outsource that activity. Then you have to look at partnering. So let’s assume that you’ve outsourced a strategically important activity, so you need a lot of control over it – how do you manage that partner? Why have we seen such a boom in partnering among small firms and large firms over the last 20 years? What about global alliances? You have to look at a list of partner selection and partnership management and partnership life cycle issues and questions, both in technology alliances and global alliances. In terms of global competition, we look at the single-business firm, the entrepreneur, competing not just for the domestic market but globally, and what advantage that entrepreneur gets from being in the U.S. – or from being in Japan or China. It’s also important to examine diversification, which is when the firm adds a new business to its original

business. Let’s say that the firm has become successful in its current business, but it is at the mature stage and profits are declining because competition is quite intense, buyers are more knowledgeable, suppliers are more powerful, and s: soTh on. perhaps firm oute and try to find another I n sid e t he Mind e So ABCs of En trthe ep re ne will ur shlook ip: Th opportunity to leverage the capabilities thatna it has Fu nd am ensources t als All and Bu sin ess Pro fe ssio ls Shdeveloped. ou ld Kn ow & Rem em be r

That leads us to multi-business diversified and have a number of by Ar i Ginsber g firms et al. – firms that have alreadyISBN:1587622238 businesses that they’re managing. The idea is that for a multi-business firm to survive, it needs to Aspator e Books © 2003 (112 pages) provide value to its businesses – more value than the businesses would receive from being Fr om outlining the history of ent repr eneur ship, fr om independent, which is quite important. the multi-business generating cr edible andOtherwise, feasible ideas, from secur ing firm suffers from what’s called the financials to m the anaging ely, this book s diversification discount, where firm’seffectiv market value is lesspulls as ar eader combination of businesses than the thr ough all facets of ent repr eneur ship, fr om begin ning to end. the value of the value of each of the businesses independently. The firm is actually degrading businesses by having them all together. Multi-business firms have to work very hard to justify being Ta ble o f Con t en t s diversified. General Electric is an example of a company that has managed to overcome that. There I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business many other companies that em suffer Prare ofessionals Should Know & Rem ber because they can’t convince investors that having all these businesses together in-house is really The ABCs of Ent repreneur ship—Assessing,worthwhile. Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

I n sid e t heTeam Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e The Management

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Remare emcritically be r Skills and background important in a management team; forget the personalities for the ISBN:1587622238 by Ar i Ginsber g etskills al. appropriate for the problems moment. Are the management’s the firm is currently facing? Very Aspator e Books © 2003 (112 pages) often that’s simply not the case. They don’t have a clue about how to compete in the markets that the Fr They om outlining the history repr eneur ship, frinom firm is currently in. may know quite a of bitent about competing other types of markets, but that’s generating cr edible and feasible ideas, from secur ing irrelevant. So matching the skills of management to competitive challenges is crucial. financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end.

Risk preferences are also important. In some situations, management needs to be more risk-seeking. needs to tbe willing to bet on the future of the market. It can demonstrate that by investing in TaItble o f Con enmore ts capacity order to generate a learning curve andethen actually money while the firm is growing in I nside t he in Minds—The ABCs of Entr epr eneurship—Th Fundam ent alslose All Business Prorder ofessionals Shouldvolume, Know & so Rem emitber to generate that can make a lot of money subsequently when its costs are much lower. If management have that Building risk-seeking orientation The ABCs of Ent repreneurdoesn’t ship—Assessing, and Connect in g and isn’t betting on the future of the market, it will lose to companies that do. However, sometimes management needs to be risk-averse Entr epr eneur ship Com es in Many Colors and be much more careful about expanding capacity – as we know from the amount of dark fiber Br inging Solutions to Pr oblems that’s sitting in the ground all over the world right now since there’s no demand to fill it with light. There Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship are many telecom companies there ial sitting on assets that are basically worthless until demand Fundamentals for Building an Entrout epreneur Or ganization comes back. Entr epr eneur ship and Str ategy The and Pr ocess Entr epr eneur ship AreScience the members of theofmanagement team lemmings rushing toward the cliff? Are they herd animals, Key Concepts of Entr epr eneurship or are they able to separate themselves from the herd? There are many companies in the late 90s and

early part of this century who invested simply because it seemed to be a good idea at the time and everyone else was doing it. That turned out to be a bad idea. Those who sat on the sidelines were viewed as nuts. But now they’re looking pretty smart. So do the executives go with the crowd, or are they more their own people, so to speak? If they are their own people, going against the crowd, how well can they manage the expectations of investors? How much control do they have over the capital market in order to maintain the position of the company, even if they take a contrary view?

Flexibility

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow Rem em between be r There is always a&trade-off commitment and flexibility. The more uncertainty there is, the ISBN:1587622238 by Ar i Ginsber g et al. it’s not clear that you make more flexible you want to be. However, any more money. Flexibility is really Aspator e Books © 2003 (112 pages) a survival-oriented strategy more than a profitability-oriented strategy. They both take a lot of guts. The omatoutlining the history ent repr ship, fr om and put his or her money on the flexible manager Fr will some point have toofstand upeneur and be counted generating cr edible and feasible ideas, from secur ing to putting money on both red and table and say, “I think the wheel is going to turn up red,” as opposed financials to m anaging effectiv ely, this book pulls r eader s black – because thr youough don’tallmake money putting your money facetsany of ent repr eneur ship, fr om begin on ningred to and end. black at the same time. You’re still alive, but you’re not making a whole lot of dough. I’m in favor of survival, so flexibility in Tauncertain ble o f Contimes t en t sis absolutely required. I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business PrIt’s ofessionals Should Knowto&be Rem em ber If a company isn’t flexible, its market share will slowly erode. absolutely essential flexible.

There’s question about it. Even though the large to be competing in the mature The ABCs no of Ent repreneur ship—Assessing, Building and company Connect in happens g stage (whichship is typically see the large companies), they’re still engaged in severe Entr epr eneur Com es inwhen Manyyou Colors for customer dollars. Rich D’Aveni at Dartmouth calls it “hyper competition,” which is a Brcompetition inging Solutions to Pr oblems an race in innovation competing a number of products and a number of Frcombination eedom and I of nfor m arms ed Discipline—Fer tile Soil and for the Seeds ofover Entr epr eneur ship markets simultaneously many otherialcompanies. It’s highly uncertain in terms of innovations and Fundamentals for Building with an Entr epreneur Or ganization

value on the product side and also on the cost side, and it’s much more complex because you’re competing over so many different markets simultaneously. If you don’t have an entrepreneurial The Science and Pr ocess of Entr epr eneur ship orientation in that kind of competition, you’re going to be wiped out. It’s a very tough road. Not only do Key Concepts of Entr epr eneurship you have to be entrepreneurial, but you’re not going to make much money at it. Here’s an instance where a lot of change is almost self-induced in order to maintain your market position if you’re a large company. You can count the number of large companies that have failed to re-stimulate a sense of entrepreneurship and have died. It’s a common problem. There is a clear need for that ongoing innovation. Entr epr eneur ship and Str ategy

n sid e t hefor MindSuccess s: Th e ABCs of En tr ep re ne ur sh ip: Th e No Golden IRules

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Rem em be r I don’t think there&are any golden rules for success. If I knew what the rules were, I’d be out there ISBN:1587622238 by Ar i Ginsber g et al. who come through here and making the money. We have people say, “Do this one thing...,” and you Aspator e Books © 2003 (112 pages) listen to them and think, “Maybe in some circumstances, but certainly not in all.” It’s a highly contingent om statement, outlining theorhistory ent repr eneurof ship, fr om world. There’s noFrone even aofcombination them, about which we can say, “If you do generating cr edible andyou feasible ideas, from secur this, even under these circumstances, will be guaranteed aning above-average return.” I just don’t financials to m anaging effectiv ely, this book pulls r eader s think that’s true. There are cultural accept asend. reasonable, such as thr ough allcertain facets of ent reprattributes, eneur ship,which fr om we begin ning to steadiness, for example, and not ignoring feedback (in fact, searching for feedback is useful – Tasearching ble o f Confor t enit, t saccepting it, and changing in response to it, assuming you can validate it). That’s not a I nside he Minds—The ABCs of Entr epr eneurship—Th Fundam ent als All Business trivial ttask because sometimes feedback is false. eIt’s not even close to getting to the core of the issue. PrAofessionals Should isn’t Know & Rem em ber good consultant necessarily one who comes in and tells the entrepreneur what to do, as in, The ABCs Entnostrums repreneur ship—Assessing, Building in g “Here areofmy – go forth and do these.”and TheConnect good consultant is more one who shaves at the Entr epr eneur ship“Have Com esyou in Many Colors edges, saying, thought about...?” or “Don’t you think...?” The entrepreneur isn’t necessarily Brbeing ingingdirected; Solutionsthe to entrepreneur Pr oblems is being provided a different kind of feedback. There’s more money to Frbe eedom I nfor ed Discipline—Fer tileideological Soil for theoverhaul Seeds of of Entr epr eneur ship madeand that waym than there is in the the business based on a set of nostrums. I don’t think that works. an Entr epreneur ial Or ganization Fundamentals for Building Entr epr eneur ship and Str ategy

Gordon Walker is Professor and Chairman of the Strategy and Entrepreneurship Group at the Edwin L. Cox School of Business at SMU. He received his BA from Yale University and an MBA and PhD Key Concepts of Entr epr eneurship from the Wharton School, University of Pennsylvania. Dr. Walker has previously taught at the Sloan School, MIT; the Wharton School, University of Pennsylvania; and Yale University. The author of numerous articles, he is on the Editorial Board of Administrative Science Quarterly and the Editorial Review Board of Organization Science. He has received several grants from the National Science Foundation. The Science and Pr ocess of Entr epr eneur ship

Dr. Walker has consulted and performed contract research for a number of organizations. His executive training programs include senior management seminars at SMU, the Wharton School, Yale University and INSEAD. He was named among the best Business Policy teachers in the U.S. in 1994 and 1998 by Business Week magazine and received the President’s University Teaching Award in 1999 at SMU. He is listed in Who’s Who in the World, Who’s Who in America and Who’s Who in Management Science.

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e The Science and Process of Entrepreneurship Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r

John Sibley Butler ISBN:1587622238 by Ar i Ginsber g et al. The University of Texas at Austin Aspator e Books © 2003 (112 pages) Director, The IC2 Institute and the Herb Kelleher Center for Entrepreneurship Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end.

The History of Entrepreneurship

entrepreneurship has a long and distinguished history within the academy. The disciplines TaThe ble ostudy f Conof t en ts of Economics, Sociology, and Anthropology have developed theories and models that try I nside t he Minds—The ABCs Psychology, of Entr epr eneurship—Th e Fundam ent als All Business and account for the development of entrepreneurship, how entrepreneurship fits into economics, and Pr ofessionals Should Know & Rem em ber theABCs psychology of the entrepreneur. Research business and the history of technology has The of Ent repreneur ship—Assessing, Buildingonand Connecthistory in g also made great contribution. This literature is expansive and takes into consideration economic Entr epr eneuraship Com es in Many Colors

from 1000 BC to the present. Such a great amount of historical data contains richness so Brstructures inging Solutions to Pr oblems

that we can start to think of a “science of entrepreneurship.” This data also reveals that entrepreneurship has been tied to successful regions of different societies. What do successful Fundamentals for Building an Entr epreneur ial Or ganization regions, from the dawn of civilization to the present, have in common? Since I am a Professor at The Entr epr eneur ship and Str ategy University of Texas at Austin, a city that has concentrated on new venture development over the last The Science and Pr ocess of Entr epr eneur ship twenty years or so, I will talk about creating enterprises in cities and regions that place Key Concepts of Entr epr eneurship entrepreneurship at the very center of economic development. More importantly, what are the lessons of regions that can provide the ideas for experimentation as we enter the 21 st Century? Bringing this data together to create a “science” of entrepreneurship is one of the unstructured problems of this century that must be solved in the academy today. Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

One of the interesting things about the history of entrepreneurship is that successful wealth creation, a consequence of entrepreneurship, is related to the overall economic of a region. Although Adam Smith wrote about the wealth of nations, it is clear that regions and cities have been important in producing entrepreneurial activities throughout the centuries. This is because the entrepreneur has to be incubated. Put differently, financial resources, legal resources, and all of those things associated with new venture development must be available to the entrepreneur. What we call regional advantage is, I think, central to the entrepreneurial process. The propositions, and how those propositions are integrated in order to create theories that explain, must began with our earliest knowledge of regional competition. Moore and Davis tie together our present interest in regional advantage with the historical data that informs. Regional advantage concentrates on the creation of firms that are able to create wealth and jobs for economic security of populations through innovation. Moore and Davis note that scholars of this type of economy call it new or modern phenomena. But in their work they argue that the structures for today’s economic success in regions such as Silicon Valley, Route 128 in Boston, and Austin, Texas were present in the ancient word. They concentrate on international business history from Assyria 2000 BC through the Phoenician, Carthage, Greek and Roman empires, and end their analysis at 1 AD. They note that the Old Assyrian merchants of the second millennium BC perfected a thousand-year-old system of enterprise that was inherited form Sumer and Babylon. More specifically, they write, “Living and trading near the dawn of civilization, these corporate traders, moreover, were innovative to a startling degree, for the commercial structures they created may rightly be described as tone of the first attempts at the ‘entrepreneurial government’ being celebrated in the 1990s . Even more importantly, the business operated by the ancient Assyrian colonists constituted the first genuine multinational enterprises in recorded history.” , p. 26. Students of the ancient world recognize that not later than the early 6th millennium B.C., pottery was invented in the ancient East. From a theoretical point of view, one can say that the ancient Assyrians, who inherited a private property system from Sumer and Babylon, were largely responsible for its commercialization throughout the ancient world. It was made of skillfully fired clay and painted in attractive patterns that were valued throughout the ancient world. They also wove textiles with invented spindle whorls, used knives made of obsidian and chert, and used ax-shaped implements mad of stone (Albright, 1985). It was also around this time that it was discovered that when soft red-brown copper ore was mixed with tin in a very hot furnace, bronze could be produced. This made it possible for the production of sturdy plows, tools for construction, kitchen utensils, and a host of other items that

were commercialized around the ancient world. . The answer to ancient regional advantage given by scholars revolves around the introduction of new I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e technologies andFu their commercialization. In this case, the record clearly shows that between 3100 nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow and 29000 BC the & Bronze Rem emAge be r started and gained momentum. As a result, an urban revolution started as dense clustersbyofArcities suchg as Kish, Ur, Lagash, Hamazi, and Shurppak started to take shape. ISBN:1587622238 i Ginsber et al. Certainly the same phenomenon would take place in other parts of the ancient world. Regions such as Aspator e Books © 2003 (112 pages) Anatolia, the Indus Valley, Syria and northern Mesopotamia would experience growth. But it was the Fr om outlining the history of ent repr eneur ship, fr om Sumerians who saw peoplecrcrowding into cities ideas, searching new generating edible and feasible from for secur ingeconomic opportunities as they took to m anaging effectiv ely,and this urban book pulls r eader s . the lead in capitalfinancials formation, technology transfer development thr ough all facets of ent repr eneur ship, fr om begin ning to end.

Perhaps Joel Mokyr’s recent work, The Gifts of Athena: Historical Origins of the Knowledge Economy, Ta ble o f Con t en t s is one of the best expositions on the relationship between creating structures that enhance education, I nside t he Minds—The of Entr eprprosperity eneurship—Th Fundam ent als Business innovation, creativity ABCs and economy . AseMokyr seeks toAll explain innovation and economic Pr ofessionals Should Know & Rem em ber growth, there is little attention paid to traditional economic variables such as taxes, deficits, and The ABCs of Ent repreneur ship—Assessing, Building and Connect in g government policy. He notes that what are important are institutions, policies, and networks that Entr epr eneur ship Com es in Many Colors generate and disseminate useful knowledge. In Sumner, perhaps the first structure for the creation Brand inging Solutions to of Pr knowledge oblems dissemination was created as the region sought to create a competitive advantage Frineedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship the ancient world. Fundamentals for Building an Entr epreneur ial Or ganization

Ourepr consideration theategy ancient world is done because one must realize that the general proposition Entr eneur ship andofStr linking wealth wealth creation, and regional advantage has strong historical The Science andeconomic Pr ocess ofdevelopment, Entr epr eneur ship roots. Theseofentrepreneurs gave us things that we associate with the modern world, such as Key Concepts Entr epr eneurship

international currency and standardized shipping containers. The Assyrians, Phoenicians, Greeks and Romans all created regional economic advantages and thus outperformed other regions. Just as the sciences of medicine, chemistry, engineering, and mathematics, for example, started with knowledge that the ancient world developed, the “science” of innovation and entrepreneurship must give a consideration to structures that were created during the history of humans rather than started with modern times. Indeed, some scholars of wealth creation and structures have given a consideration to the importance of the ancient world. In The Wealth of Nations (1910), Adam Smith took as his starting point what we now call the gross national product and devoted chapters to “The Progress of Cities and Towns” and “How the Towns Improve the Country” as he provided an “early” explanation of the relationship between wealth creation and the dynamics of economy and society. Trevor I. Williams, A History of Invention: From Stone Axes to Silicon Chips , provides an interesting look at the regions within countries as innovation progressed through the centuries.

While the ancient literature answers the question of the presence of entrepreneurial societies, other classical literature struggled with the question of who becomes an entrepreneur. Writing in the late 1800s, the German scholar and sociologist Georg Simmel was fascinated by the introduction of entrepreneurial behavior into hunting and gathering societies. What fascinated him was the fact that entrepreneurs, or those who introduced market economies to these societies, were hardly ever from local communities. It is not surprising that Simmel called the people that he studied strangers. Scholars who write in the tradition of Simmel argue that these “strangers” came at a time when subsistence agriculture and home crafts were in decline and represented the city, cosmopolitan values, and customs that were strange and a different way of life (Butler & Green, 1977, Hamilton, 1978, Bonancich and Model, 1980, Sjoberg, 1960). In the tradition of early scholarship in Europe, Simmel identified strangers as distinctive ethnic groups (at that time all groups had an ethnic tag) who occupied the position as business people because they were new to communities and could not find work in established jobs of the state. In addition, entrepreneurship, money lending, and commerce were not considered prestigious and, indeed, looked down upon. It was the strangers, therefore, who were forced into this activity for economic stability. Simmel’s work produced scholarship on all continents that examined strangers and business activities in the “old world.” This literature includes Greeks in Singapore, the Coptive Christians in Egypt, Jews in Europe, Ibo in Africa and Nigeria, Scots in South Africa, Armenians and Greeks in the Balkans, the Huguenots in France (who became our Puritans in America), the Quakers in England, and the Polish in Russia and Eastern Prussia. The theme of this research is the stranger as trader and the trader as stranger (Weber, 1930, Rinder, 1958; Simon, 1983; Zinner, 1991; Hamilton, 1978). From a theoretical point of view, this literature from the experiences of old world merchants makes a structural contribution to the study of entrepreneurship, in the sense that is socially embedded and emerges from the experiences of individuals and their group. As such, the approach is strictly sociological. This is opposite of the psychological literature, which concentrates on traits of individuals

(Hornaday & Abound, 1971; McClelland,1961; Borland, 1974). We can also add that this early research provides the theoretical reasoning for the strong tradition of immigrant entrepreneurship in America (Light, I.H., 1972; 1991; Butler Greene, 1997; Min., 1998, Pierce, I n sid e t heLevenstein, Mind s: Th e1995; ABCsButler, of En tr ep re ne ur sh& ip: Th e 1947; Aldrich, 1990). Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r

Max Weber, another of the stranger in the development ISBN:1587622238 by Arclassical i Ginsberthinker, g et al. acknowledge the importance of business activity, but argued that after the Reformation there was a change in the value structure of Aspator e Books © 2003 (112 pages) The Protestant Ethic and the Spirit of Capitalism, the society and entrepreneurship was embraced. In Fr om outlining the history of ent repr eneur ship, fr om he argued that the ideas developed by Protestants legitimated the generating cr edible and feasible ideas, from secur ingprocess of business development. financials m anaging effectiv ely, this book pulls r eader s Weber argued that the firsttopeople to develop the economic system in now modern times, as opposed thr ough facets of ent repr eneur ship, omProtestant begin ning sects. to end.Their methods of hard to ancient societies, wereall merchants who belonged to fr the work, or what is called the Protestant Ethnic, soon lost its original religious tone and became Ta ble o f Con t en t s thoroughly secular. In his later work Weber turns from arguments about the origin of the spirit of I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business how individuals respond to opportunities within the economy and questions of Prentrepreneurship ofessionals ShouldtoKnow & Rem em ber innovation and business creation. Now we understand The ABCs of Ent repreneur ship—Assessing,that Building and Connectthat in g scholars have always thought about entrepreneurialism, let us turn to the more practical entrepreneurial process. Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

I n sid t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e The Process ofe Entrepreneurship

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Remon ementrepreneurship be r The massive literature tells us that incubation (surrounding yourself with by Ar i Ginsber g etbeal.at the forefront of how youISBN:1587622238 knowledge and know-how) must think about entrepreneurship. Your Aspator e Books © 2003 (112 ideas about a new venture can evolve frompages) this incubation, as you surround yourself with people who Fr omentrepreneurial outlining the history of entThey repr eneur ship, the fr om are concerned about activities. become live case studies of your experience. generating cr edible feasibleand ideas, from secur ing You want to be like them, share theirand success manage the failures. As noted by Wilson Harrell in financials to m anaging effectiv ely, this book pulls r eader s For Entrepreneurs Only, “There is no way to prepare for entrepreneurial terror-no college course or thr ough all facets of ent repr eneur ship, fr om begin ning to end. training will prepare you for this special hell, but you are not alone, and the rewards are worth it. Spit Taon bleterror.” o f Con.t en t s I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business PrAny ofessionals course on Should entrepreneurship Know & Rem em will bertake you from process of starting a venture to how to manage it,

or how that venture. You mustBuilding remember starting The ABCstoofharvest Ent repreneur ship—Assessing, and that Connect in g a new venture is not new. What is called the entrepreneurial revolution Entr epr eneur ship Com es in Many Colorsof the 1990s must be seen in the tradition of the ancient world theSolutions experiences the Western World. Even modern technologies such as the computer had its Brand inging to Prof oblems in earlier years. Can you being around when the printing press was invented and Frcounterparts eedom and I nfor m ed Discipline—Fer tile imagine Soil for the Seeds of Entr epr eneur ship commercialized? Wouldan you liked to have there when entrepreneurs looked at the Fundamentals for Building Entr epreneur ial been Or ganization

commercialization of flight, radio, or television? What about the commercialization of chocolate and ice cream? The point is that you are entering a world that has an outstanding history and have created The Science and Pr ocess of Entr epr eneur ship wealth and jobs for centuries. As we talk about process, we must understand how strong the roots of Key Concepts of Entr epr eneurship entrepreneurship grow through the soil of history. Entr epr eneur ship and Str ategy

My students at the University of Texas at Austin are introduced to the entrepreneurial process. But since Austin is a special place with “live” case studies, the process comes to life with former students, entrepreneurs, lawyers, enabling organizations, and financial institutions. Indeed, during the entrepreneurial revolution of the 1990s, Austin became a natural laboratory for business creation. In my classes, written case studies take a backseat to the actual people who have helped to shape many companies in Austin, including those who shaped Dell Computers. When one speaks of entrepreneurial process, one thinks of identifying a business opportunity, creating a business plan to refine that perceived opportunity, developing a team, raising capital, creating customers, developing a relationship with legal and financial institutions, and deciding weather or not to develop the enterprise as an on-going concern or harvesting the business. Because we have a very successful incubator at The University of Texas, the entrepreneurial process is taught within the context of regional advantage and networking within the city. It was started in 1989 by George Kozmetsky and serves as the research laboratory for the IC2 Institute (Institute for Innovation, Creativity and Capital). At this time, I have the opportunity to direct this dynamic institute. The incubator has had a global as well as a local impact. At this time, for example, MBA students in classes called process and growth have a chance to interact with more than twenty-five companies in the Austin Technology Incubator. Over the years, it has been very successful. Consider the following history, which is divided into accomplishments and wealth creation:

Accomplishments Founded in 1989 to create wealth, generate jobs, diversify Austin’s economy, and be a learning laboratory for UT faculty, students, and staff First Director: Ms. Laura Kilcrease NBIA Incubator of the year in 1994 Incubated incubators in Silicon Valley, Houston, Texas and Charleston, South Carolina International reputation by recruiting start-ups from Brazil, Israel, Canada, Austria and Japan 110 plus member companies over ten years 65 companies that graduated 18 current companies

Four NBIA award winning companies I n sid e t hejobs Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Created 2,850 high paying

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r

Wealth Creation by Ar i Ginsber g et al.

ISBN:1587622238

Aspator e Books © 2003 (112 pages)

ATI companies generated 280 million revenues in year 2000; 1.2 billion since 1989 Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing

Three companiesfinancials are public NASdaq: DTM, Concero and Encore to on m anaging effectiv ely, this book pulls r eaderOrthopedics s thr ough all facets of ent repr eneur ship, fr om begin ning to end.

A dozen graduate companies from ATI has been purchased, including Metrewerks by Motorola for Ta$95M, ble o f EXTI Con t en byt sBMC for $100M, Exterprise by CommerceOne for $75M, DTM Corporation by 3D I nside t he Minds—The of Entr epr eneurship—Th e Fundam ent als All Business Systems CooperationABCs for $45M. Pr ofessionals Should Know & Rem em ber

Companies have raisedship—Assessing, greater than $300M in last yearsin g The ABCs of Ent repreneur Building andtwo Connect Entr epr eneur ship Com es in Many Colors

Innovation

Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

DTM corporation and silicon metrics spun of UT Engineering Fundamentals for Building an Entr epreneur ial out Or ganization Entr epr eneur ship and Str ategy

CEDRA Corporations spun out of Radian Corporation and Exterprise Corporation spun out of 3M

The Science and Pr ocess of Entr epr eneur ship

Key Concepts Entr epr eneurship Fourth StateofTechnology first spin out of Sematech and ETI first spin out of MCC

True Dimensions spun out of NASA research Isocron Data Corp and several other Moot Corp. winners spun out of U.T. Business School Opportunities for students from UT to interact with the ATI process of wealth creation The major point of the incubator is that one must surround oneself by different kinds of resources, both financial and others. Sometimes these resources can come from family and friends, an entrepreneurial society, angel investors, or very rarely venture capital firms. Put another way, when idea identification, idea refinement, and other steps in the established entrepreneurial process is done, it is better to incubate. I would say that incubation, in its various forms, interact with the “can-do” spirit of the entrepreneur to create a success venture. But how do you start your own enterprise, or where do ideas come from? The popular literature on entrepreneurship is full of stories that trace the start of an enterprise to a hobby. Sometimes it is based on your experiences at the workplace; after you learn a business, you feel that you have the spirit to create the same kind of enterprises. Sometimes it can come from a research laboratory, or one engages in what we call commercialization of technology. I like people to write down all of the ideas that they have, or what they know how to do, and then think about how these things can be commercialized. Once one has an idea, and decides that the opportunity will be developed, the entrepreneur should develop a relationship with a lawyer. We must remember that an enterprise is a legal organization. Then one starts to raise money (usually from family and friends) and the enterprise of choice is on the runway. One should also read as much as possible and build the team as the enterprise develops. I also like to read the history of successful entrepreneurs and write a “reverse” business plan. This plan utilizes data from books so that one can reconstruct both the business side of the enterprise and the experiences that that helped to shape the enterprise. The academic study and the process of entrepreneurship are both exciting. The tradition is long and the rewards are what create jobs, wealth, and dreams. John Sibley Butler is Professor of Management and Sociology at The University of Texas at Austin. He is director of the IC2 Institute and the Herb Kelleher Center for Entrepreneurship in the McCombs School of Business. His research areas are organizational behavior and new venture development. He has published works on incubation, wealth creation, the entrepreneurship process, immigrant entrepreneurship and the military as a work organization. This past year he was named to the distinguished Libra Chair, as a Visiting Professor in Entrepreneurship, at the University of Southern Maine. He worked with this city on technology transfer and wealth creation. Last year he also worked

with the World Bank to do a series of lectures (real time up-link) to countries in Sub-Saharan Africa and Eastern Europe on technology transfer and new venture start-ups. As Director of the IC2 Institute, Professor Butler has been growth andThrenewal in Austin and around I n sid e t heinvolved Mind s: with Th e entrepreneurship, ABCs of En tr ep re ne ur sh ip: e the globe. For theFulast six en summers, hesin has held professorship at Aoyama Gaukin nd am t als All Bu ess Proafedistinguished ssio na ls Sh ou ld Kn ow & of Rem em be r University, School International Business and Finance in Tokyo, Japan. Also, as an IC2 Fellow, he ISBN:1587622238 works with the Austin by Ar Technology i Ginsber g et Incubator. al. Aspator e Books © 2003 (112 pages)

His major books include Immigrant and Minority Entrepreneurship: The Rebuilding of American Cities Fr om outlining the history of ent repr eneur ship, fr om (with George Kozmetsky , forthcoming), Self-Help Among Black Americans: A generating cr edible and Entrepreneurship feasible ideas, fromand secur ing Reconsideration financials of Race and to mEconomics anaging effectiv and All ely,That this We bookCan pullsBe r eader (withsCharles C. Moskos). He has thr ough all facets of ent repr eneur ship, fr om beginreceived ning to end. published extensively in professional journals. Professor Butler his undergraduate degree from Louisiana State University in Baton Rouge and the Ph.D. from Northwestern University in Ta ble o f Con t en t s Evanston, Illinois. I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

ReferencesI n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem be r The Ancient Near East: A History. New York, Harcourt, Brace and Hallo, W. W. a. W. K. S.em (1971). ISBN:1587622238 by Ar i Ginsber g et al. Jovanovich. Aspator e Books © 2003 (112 pages)

Harrell, W. (1985). Foroutlining Entrepreneurs Onlyof. Hawthrone, Career Press, Inc. Fr om the history ent repr eneurNew ship, Jersey, fr om generating cr edible and feasible ideas, from secur ing

Mokyr, J. (2002). financials The GiftstoofmAthena: anagingHistorial effectiv ely, Origins this book of thepulls Knowledge r eader s Economy , Princeton University Press. thr ough all facets of ent repr eneur ship, fr om begin ning to end. Ta ble o f Con t en t s

Moore, K. a. D. L. (1999). Birth of the Multinational: 2000 Years of Ancient Business History From

I nside Minds—TheDenmark, ABCs of Entr epr eneurship—Th e Fundam entPress. als All Business Ashurt he to Augustus. Copenhagen Business School Pr ofessionals Should Know & Rem em ber The ABCs of A. Ent(1994). repreneur ship—Assessing, Building andand Connect in g Saxenian, Regional Advantage: Cultural Competition in Silicon Valley and Route 128 . Entr epr eneur ship Com es in Many Colors Cambridge, Harvard University Press. Br inging Solutions to Pr oblems

The Wealth tile of Nations. New York,of Alfred A.eneur Knoff, Inc. (1911/1991). FrSmith, eedom A. and I nfor m ed Discipline—Fer Soil for the Seeds Entr epr ship Fundamentals for Building an Entr epreneur ial Or ganization

www.Ic2.org.

Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

I n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Key Concepts of Entrepreneurship Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow & Rem em be r

Paul J. Magelli, Sr. by Ar i Ginsber g et al. The Illinois MBAAspator Program e Books © 2003 (112 pages) Director, Office for Strategic Business Initiatives

ISBN:1587622238

Fr om outlining the history of ent repr eneur ship, fr om generating cr edible and feasible ideas, from secur ing financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end.

The Entrepreneurial Lifestyle

entrepreneurship can be viewed as a career, more importantly it should be viewed as a TaAlthough ble o f Con t en t s

lifestyle. a lifestyleABCs choice, areepr you prepared fore 24/7? Are prepared to meet a payroll? As the I nside t he As Minds—The of Entr eneurship—Th Fundam entyou als All Business entrepreneur-owner, the CEO, the president, whatever the title you select, at the end of the day you Pr ofessionals Should Know & Rem em ber have an obligation to meet it(perhaps theBuilding sole responsibility. Are The ABCs of Ent repreneur ship—Assessing, and Connect in g you prepared to work on Christmas, theepr high holidays, New Year’s, perhaps 363 other days of the year? Entr eneur ship Com es in Many and Colors Br inging Solutions to Pr oblems

The work of the entrepreneur is all-embracing and all-encompassing; it’s something that you carry home with you – unlike when you are working for a consulting firm or for a pharmaceutical where it’s Fundamentals Buildingelse’s an Entr epreneur ial Or ganization most usually for someone responsibility. What do you do when your COO calls and says, “I have an Entr epr eneur ship and Str ategy emergency at home; I need to care for the children.” And you realize, “Oh, his children are a higher The Science ocess of Entr epr eneur shipCOO for my business?” It may, in fact, be the person you priority thanand myPrbusiness? Is this the right Key Concepts of Entr epr eneurship need, but this simply means that as the entrepreneur-owner you must view your management and your colleagues in a different context. You must determine how to adapt and how to step in when an employee informs you that something in their personal life is more important than your fledgling business. Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

Are you prepared to mortgage your home – and your life? Many entrepreneurs do. Some “max” out their credit cards and take out second mortgages on the family home. Others, perhaps many, endanger their financial and personal survival. Have you ever heard the term, “a family and friends round?” Entrepreneurs are not hesitant to ask for and accept financial resources from their families and friends. I raise each of these issues to provide a stark portrayal of an entrepreneur—an individual who carries an extraordinary set of responsibilities as well as opportunities. So, ask yourself, “Do I want to manage these as well as the business?” “Am I up to the challenge?” “Is my psychological, physiological, educational, emotional, financial makeup such that I can and want to put it all on the line?” I would like to introduce you to the “Four S’s.” The concept is not my own, but one that I borrow from a very respected colleague—a consummate entrepreneur, Fran Jabara from Wichita, Kansas. Fran, current CEO of Jabara Ventures, also has been the CEO of LearJet and is a lead partner in real estate developments in Palm Springs, California. Have you ever heard of Big Horn Golf Course? Have you ever heard of Tiger Woods? Well, Big Horn is the course that sponsors on ABC the million dollar Monday night golf challenge. Fran has been my mentor for more than 30 years. I borrow the term from one of his presentations—“The Four S’s of Entrepreneurship: Stop Spending, Start Saving.” If you are a young person considering an entrepreneurial lifestyle, whether it’s in the near-term or the far-term, it is fundamental that you understand that it’s going to take cash. Co-investors are more inclined to be interested in participating in your venture if you stake some of your own risk capital in it. Don’t be dissuaded – it’s not hard to accumulate cash in the 21 st century. Sure it may take two or more jobs to do so—about the same number of hours you will be working once you launch your enterprise.

I n sid eof t heEntrepreneurship Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Key Concepts

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Rem em be What are the key&concepts of rentrepreneurship? I tend to revise this question by asking, “What is the by Ar i Ginsber g et al. key concept of entrepreneurship?” Based on my personal andISBN:1587622238 professional experiences, I always Aspator e Books © 2003 (112 pages) begin with cash flow. My experiences include private and university research on entrepreneurship, a Fr ombrothers outliningfor the history of ent repr ship, relationships fr om partnership with four over a decade, andeneur working with entrepreneurs. generating cr edible feasible from secur ing Through my experiences and those and of my highlyideas, respected colleagues, we find that the Achilles heel of financials to m anaging effectiv ely, this book pulls r eader s the majority of new is theof“burn rate” – the rate at which scarce financial resources are thr start-ups ough all facets ent repr eneur ship, fr om begin ning to end. utilized. Why does the miscalculation occur? Is it over-optimism with regard to the market plan, pricing Taof blethe o fproduct/service, Con t en t s or overzealousness? Or, is it that the firm has failed at market intelligence, I nside t he Minds—The of Entr epr eneurship—Th e Fundam ent als All Business competitive analysis,ABCs or management? Pr ofessionals Should Know & Rem em ber

Others and arguably so, that the most important consideration is personnel. I understand The ABCscontend, of Ent repreneur ship—Assessing, Building and Connect in g their Entrepreneurs must be willing to identify and hire individuals that, at least in their Entr eprcontention. eneur ship Com es in Many Colors are brighter, by some set of specific indicators, than they are. And, more importantly, the Brjudgment, inging Solutions to Pr oblems should be threatened by the InEntr general, andship I offer this consideration Frentrepreneur eedom and I nfor m ed not Discipline—Fer tile Soil for possibility. the Seeds of epr eneur

based upon aforhalf century theepreneur business and in higher education management, there exists a Fundamentals Building an in Entr ial sector Or ganization

general tendency for individuals to not make hires or appointments once they sense that a prospective employee has skill sets, competencies, or a level of literacy that is greater than their own. However, as The Science and Pr ocess of Entr epr eneur ship an entrepreneur you should calculate the competency sets required by the firm and determine how Key Concepts of Entr epr eneurship these skills complement those already existent within your business. In the final analysis, it’s all about the quality of individuals that you hire—individuals who understand where and how they fit within the organization, what needs to accomplished now, in time period T+1, T+n, etc. Entr epr eneur ship and Str ategy

With regard to the “ideal” business model, I tend to introduce the Jack Stack Model. Jack is the CEO of the SRC Holding Company of Springfield, Missouri. In his book, The Great Game of Business , he presents the “open-book management” model. In this model, all employees are engaged in the business’s decision making – whether its marketing, finance, operations, new business development – in a very orderly manner. The concept is underpinned by profit sharing. Profit sharing is the driver. Employees have access to the company’s books, i.e., the company’s finances, in great detail. Openness generates employee trust, empowerment, and creativity that fuels interesting innovation and invention. The latter has led to the conceptualization and development of nearly three-dozen new enterprises in which employees have equity share. A sometimes overlooked phenomenon of this model is the value of the literacy that is residual, often latent, in the firm’s employees (he may prefer to call them associates). Reciprocally, the respect generated in individuals is expressed through their commitment to the firm, in their willingness to bring forward product enhancement ideas, new product possibilities, and to incur risk-with its associated success or failure. In a word, the model identifies and nourishes the entrepreneurial traits of a firm’s most critical resource – it’s human capital. Overall, SRC is an exemplary illustration of how an entrepreneurial venture can lead to the continued creation and growth of new ventures and, by example, of how an injection of entrepreneurship into a business’s modus operandi can contribute to the success of the company. I see the valuation of competencies as an example of how best to advance both the interests of the organization and its personnel. The great game of business model is an exemplary example. It’s required reading for every entrepreneur. The third concept that I advocate is that as an entrepreneur you should “walk, not stalk.” Understandably, the entrepreneur has a great deal at stake. However, as the CEO, the leader, the president, the visionary, you must embrace the collaborative model. If you can develop a personalized collaborative model you will be successful, without expecting it, in developing employees that literally “walk through fire” for the firm and for you. The key is to view employees as more than just persons on your payroll and more as individuals who will join the 24/7 club. They will embrace your vision because they see themselves as individuals who seek to fulfill the same purposes as the firm’s founder. Two other concepts merit consideration and serious contemplation. The two concepts are profit maximization and loss minimization. In the United States, we tend to emphasize profit maximization. I stress that there are occasions, particularly with regard to new start-ups, when the other side of the coin should be considered and questions should be asked: “When is it time to exit? When does the entrepreneur, however painful, walk from the business? When do you sell, even if there is loss

involved? Who do you merge with? When do you seek to expand the business through merger or partnership? And, under dire conditions, close it?” There is a certain kind of marketplace efficiency that dictates that if there is enot he compelling need for this particular I n sid Mind s: Th e ABCs of En tr ep re neventure, ur sh ip: at Ththis e point in time or in this geographical area, business should close. This when of loss minimization becomes Fu the nd am en t als All Bu sin ess Pro fe is ssio na lsthe Sh concept ou ld Kn ow & Remdo emnot be rcontinue to resuscitate a business and give it a life beyond what the crucial; in other words, ISBN:1587622238 marketplace intends. that you should not ignore the signals of the marketplace – it has a by ArIi underscore Ginsber g et al. Aspator e Books © 2003 (112 pages) very interesting way of market self-correction. Fr om outlining the history of ent repr eneur ship, fr om

All of these concepts and considerations shouldideas, be incorporated into your business plan. The business generating cr edible and feasible from secur ing to mwith anaging effectiv ely, roadmap this book for pulls r eader s plan for those notfinancials acquainted the term is the your enterprise—from conceptualization all facets of repr eneur ship, fr om begin to end. to implementationthrtoough modification. In ent preparing the business plan,ning a variety of questions must be addressed. How do you know if you have a product or service or product/service? How do you conduct Ta ble o f Con t en t s appropriate market research to determine whether or not you can confirm that the market is I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business need for the&proposed product or service? Or, are you trying to create a need in the Prexpressing ofessionals aShould Know Rem em ber market? If there is a demonstrable need in the market, how will The ABCs of Ent repreneur ship—Assessing, Building and Connect in g you calculate your share of the market? How do you know if you have properly priced the product or service? Have you built a Entr epr eneur ship Com es in Many Colors dynamic financial model using market and price information that will provide answers to all of the Br inging Solutions to Pr oblems “what-if” questions? Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship

Fundamentals for Building epreneur ial Or To me, the business plananisEntr always a work in ganization progress and never a finished product. At best, the Entr epr eneur ship and Str ategy business plan is a snapshot of a business at a specific point in time. So how can the entrepreneur The Science and at Prthe ocess of Entr eneur ship move forward margin toepr measure the vitality of the business? What are the milestones? How do Key Entr epr eneurship youConcepts measureofwhether or not you are realizing planned goals and whether or not your organization can

truly move to the next stage and beyond?

n sid e t he Mind s: Th e ABCs of En tr ep re ne ur sh ip: Th e Measuring ISuccess

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em r The definition of success is be elusive. So, how do you measure the success of an enterprise? Of all by Ar i Ginsber g et captures al. basic business concepts, this one my interest. I have ISBN:1587622238 asked this question a few hundred times Aspator e Books © 2003 (112 pages) and I’ve had more than a few hundred different answers. Some entrepreneurs speak of increasing om outlining history of ent eneur ship, fr om annual sales andFrrevenue, whilethe others focus onrepr increasing profit share, or increasing the rate of generating cr edible feasible ideas, from secur ing one of them has a pecuniary return and reducing debt load. I findand it interesting that virtually every financials to m anaging effectiv ely, this book pulls r eader s orientation. Is it really all about money? thr ough all facets of ent repr eneur ship, fr om begin ning to end.

agree thatt en money is an essential component; however, I stress to my students that success is this – TaIble o f Con ts whent you turn the key at the endepr of eneurship—Th an operationale day, whatever theBusiness time, that the firm is financially, I nside he Minds—The ABCs of Entr Fundam ent als All Prmorally, ofessionals Know &auditable. Rem em berSure, this has a financial orientation and money is one of the key andShould intellectually indicators success. But morally, have Building you turned the best The ABCs ofof Ent repreneur ship—Assessing, and out Connect in g product that you can? Does the product meet environmental safety and other regulatory standards? Are you producing a product for Entr epr eneur ship Com es in Many Colors rightSolutions reasons?toWhat is the health and mind-set of individual workers, in terms of the workplace Brthe inging Pr oblems thatmyou’ve created? And do you have best people that you can possibly Frenvironment eedom and I nfor ed Discipline—Fer tile intellectually, Soil for the Seeds of Entr eprthe eneur ship engage to move the venture forward? Are engaging or exploiting their intellect? In terms of the Fundamentals for Building an Entr epreneur ial you Or ganization entrepreneur’ssuccess, you must be willing to learn as well as to lead. To be successful, entrepreneurs need to be flexible, adaptable, and responsive within their work environment.

Entr epr eneur ship and Str ategy

The Science and Pr ocess of Entr epr eneur ship

Key of economy Entr epr eneurship TheConcepts American places an emphasis on success. What about failure? I approach the question

of success by also examining the issue of what contributes to a firm’s demise or failure. In doing so, I stress the importance of whether the firm really understands “best practices” within its industry sector. If a firm does understand, then it needs to focus on how to “out-quality,” “out-service,” and “out-followthrough” its competition. From age fourteen through twenty-six, I was in the supermarket business – this is what the Italian boys of my generation did. But what we also did was to out-quality, out-service, out-follow-through with our customers. What our firms were able to do, (relatively speaking) as smaller and potentially more vulnerable enterprises, was to offer competitive advantages that were impossible for the larger, more impersonal, corporate competitors such as A&P, Kroger’s, Albertson’s, and Safeway. From this experience, I ask those who are seeking the entrepreneurial lifestyle to determine how, not if, their enterprise can overpower the competition by taking care of the client or the customer. Finally, in reviewing what makes an entrepreneur and an entrepreneurial firm successful, let’s talk about how you can identify the “drive” or “passion” that is so indigenous or residual to those engaged in entrepreneurial ventures. For example, let’s go back to Jack Stack and how he develops this through a “management style.” He goes down to the level of each individual and literally asks, “What’s going on in your head? Do you have anything to contribute above and beyond what you are expected to do in this organization? Do you know of a better process? Do know of a better product? Is there a way to improve the existing product?” Some of the key concepts that I have discussed with students and colleagues include the mechanisms for creating a successful organization – for example, empowerment, total quality management, and change management, among others. Each of these mechanisms is part of entrepreneurial drive. Successful entrepreneurs must be entrepreneurial detectors with the ability to identify and utilize those qualities that are residual within each individual and to fully engage those abilities to move an enterprise forward. In the final analysis, the success of the enterprise is the aggregate of the drive of those persons who comprise it.

sid e t he Mindin s: Th e ABCs of En tr ep re ne ur shin ip: the Th e United States Trends andI nChanges Entrepreneurship Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem em be r entrepreneurship or new business development has only been taught From an academic perspective, ISBN:1587622238 by Ar i Ginsber g et al. within the last half century. In most colleges and universities, the teaching of entrepreneurship is still a Aspator e Books © 2003 (112 pages) very early stage industry. Recently, several students and I completed a comprehensive inventory of Fr omcolleges outliningand theuniversities history of ent ship, fr om over three thousand onrepr theeneur status of educational entrepreneurship. One of generating edible and ideas, from secur ing the goals of the study was tocrdevelop anfeasible understanding of the breadth, depth, and scope of financials to m anaging effectiv ely, this book pulls r eader s entrepreneurial coursework, as well used. The research thr ough all facets of as entthe reprmethodology eneur ship, fr om begin ning to end. team determined that entrepreneurship has not yet been accepted as a “thought” discipline in American higher education, Taespecially ble o f Conwithin t en t s schools of business. In December 2002, the team was able to identify only four I nside t he Minds—The ABCs Entr epr eneurship—Th e Fundam ent als All Business academic departments of of entrepreneurship in more than three thousand colleges and universities. Pr ofessionals Should Know & Rem em ber

ThisABCs is not that programs, majors, minors, and specializations are not The of to Entimply repreneur ship—Assessing, Building andacademic Connect inconcentration, g available to ship undergraduate andColors graduate students. Each, in fact, exists in some form and to some Entr epr eneur Com es in Many more than one half of these institutions. In higher education it has been observed that an Brextent inginginSolutions to Pr oblems is as much astilea Soil political andSeeds budgetary as itship is an intellectual entity. In Fracademic eedom anddepartment I nfor m ed Discipline—Fer for the of Entrentity epr eneur other words, for academic have in the political arena as being defined entities with Fundamentals Buildingdepartments an Entr epreneur ial votes Or ganization

recurring budgets. It also means that these same departments can contribute to limiting, as well as to expanding, the number of intellectual departments that can be developed. A more cynical observer of The Science and Pr ocess of Entr epr eneur ship the process made the following observation: “If the Edsel had been an academic department, it would Key Concepts of Entr epr eneurship have continued to be produced.” Even so, the teaching of entrepreneurship is a growth industry within American higher education. Should the corporate sector continue to experience downsizing, the demand for entrepreneurial education is more likely to continue to grow. Entr epr eneur ship and Str ategy

In the twenty-first century, it is essential that entrepreneurship be examined at both the global and domestic levels. It is essential that Americans understand potentially competing business development trends at the global level. Historically, especially in the early twentieth century, immigrants who came to the United States from Western Europe created enterprises that became the giants of the industrial sector. Their entrepreneurial successes are legendary. Another observation that I offer the students is from more recent observations: “You do not have to teach entrepreneurship to the Asians; you just have to give them permission.” Asians tend to have intrinsic entrepreneurial instincts. During my recent visits to mainland China, in particular, I am struck by the entrepreneurial frenzy – everywhere I went I saw goods for sale that undoubtedly were the product of cottage industries. This tendency contrasts with the United States where individuals have permission but “have to be taught it.” At this simple level of distinction, what accounts for the difference? Does it go back to the fact that fewer Americans know how to make things with their hands or to conceptualize and to construct products? Does this signal the lack of some level of invention or innovation that drives entrepreneurship, new business development, or the modification of an existing enterprise? I have a personal theory on this matter. An area of research I have engaged in is human capital development. In this context, without getting into great detail, I think that one of the major issues facing the United States is a “literacy crisis.” Some professional colleagues disagree. They see it more as “employee disengagement from their specific workplace” – something of a “why should I care attitude.” I attribute the literacy crisis more to the lack of fundamental skill sets from a weak educational system. Spend a day at any American supermarket, hardware store, or service-oriented business, and I am certain that you will be given a wrong item or an incorrect charge ticket, or you will encounter a sales person who did not care whether you walked in, walked out, or did not exist. Perhaps this is a harsh assessment but it may take a harsh assessment to improve a service provider system that is cracking under the weight of under-prepared employees. I attribute this circumstance to the lack of literacy, to an understanding of what makes organizations, especially entrepreneurial organizations, work. In this respect, I think the United States is in a crisis – a crisis that will impact the development and success of entrepreneurial firms. Business enterprises that are experiencing a literacy crisis should address it through the identification, selection, training, and retention of their employees. Bonuses, profit-sharing, and other provisions assist in fully integrating employees into an organization. Entrepreneurs must compete for the attention and engagement of individuals in firms that are sometimes riskier and more vulnerable and unable to match the benefit packages of the competition. I have observed the hesitation of individuals,

particularly students who are completing baccalaureate and graduate degrees to join small, emerging entrepreneurial firms. They and those who have not completed a post-secondary degree are risk adverse and reduces entrepreneur’s access I n sidthe e t he Mind s: Th e ABCs oftoEntalent. tr ep re ne ur sh ip: Th e Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

This literacy crisis&encompasses Rem em be r the quality, mindset and availability of workers. Eighty percent of the time and energy of issues rather than “soul” issues of ISBN:1587622238 by employees Ar i Ginsber gisetspent al. on what I label as the “soup” their enterprise. The terms are extrapolated from the phrase, “people, in general, are more concerned Aspator e Books © 2003 (112 pages) about the lukewarmness of their soup than the lukewarmness of their souls.” Insofar as Fr om outlining the history of ent repr eneur ship, fr om entrepreneurshipgenerating is concerned, I useand an feasible adaptation of from this statement cr edible ideas, secur ing to explain some entrepreneur’s financials to m anaging effectiv thisthan book80 pulls r eaderofs their time on the soup issues management style. Most entrepreneurs spendely, more percent thr ough all facets ent repr eneur ship,entrepreneurial fr om begin ning firm’s to end.inability to attract the very of their organization. In part, this isofattributable to the best talent to the firm. Ta ble o f Con t en t s I nside he Minds—The ABCs of Entr epr other eneurship—Th Fundam ent als Alllearned Business Fromt consulting engagements and businesse endeavors, I’ve that, in virtually all Pr ofessionals Should Know & Rem em ber

instances, what management and staff are spending their time on have nothing to do with where the business is going, what it needs to do to get there, and how they are engaged in the process. The latter Entr epr eneur ship Com es in Many Colors isthe soul issue. The former are issues of mediocrity by the shirker and the no-show. The soul issues Brare inging Pr oblems the Solutions burn rate,toprecise execution on the business plan and the budget, the degree of engagement Frof eedom and I nfor m and ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship the employees, the like. The ABCs of Ent repreneur ship—Assessing, Building and Connect in g

Fundamentals for Building an Entr epreneur ial Or ganization

Entrepreneurship is Str fundamental to the continued success, if not the survival, of the American Entr epr eneur ship and ategy enterprise as we it.eneur If youship examine the American business sector—firms from the The Science system, and Pr ocess of know Entr epr Fortune 25 toofsomebody’s 100 or 1000, whatever the measure – collectively these firms are searching Key Concepts Entr epr eneurship for ways to reinvent, reengineer, and reinvigorate themselves. Most of these firms have been through the TQM, empowerment, and re-invention exercises. They are seeking ways to create new streams of revenue; of how to turn sunk costs into cash; of how to more fully engage employee intellect; and consider the pent-up ideas of its workforce. A specific example is the huge amount of intellectual property that has been acquired through patents and copyrighted materials by the business sector. Historically, much of the intellectual property – inventions and innovation – has been locked in the vaults of the proprietors. Now firms are organizing themselves to turn their intellectual property into revenue streams through licensing agreements, the development of new start-ups, and alliances. Each of these has an important entrepreneurial characteristic in that new business and/or new business enterprises are being developed. An illustration of this movement is Delphi Incorporated, a firm that was recently renamed (Delphi Automotive) when it spun off from General Motors. Delphi Incorporated, a more than $31 billion a year enterprise, historically has been extremely creative. Delphi seeks to generate revenue from its warehouse of intellectual property and includes these expected revenues in the company’s growth projections. Another example, among the hundreds of American corporations who are moving in this direction, IBM is regarded as one of the most successful corporations to do so. For the past fifty years, research laboratories in the corporate sector have produced important innovations and inventions that have been protected through the patent and copyright process. Historically, if inventions were not viewed as part of the core competencies, firms shelved the patents in their vaults. If infractions on the patent were discovered, the firm sought to collect money from the patent violators. Operationally, this practice has given way to new business development. Many of these firms have developed new business development units and through alliances, partnerships and licensing agreements, are creating new and enhanced products, businesses, and revenue streams. In doing so, these firms have introduced an entirely new concept—corporate entrepreneurship. In thinking about the future, I draw a sharp distinction between entrepreneurship in a definitional sense and entrepreneurship as it relates to one or two person businesses. In publications and in conversations, there is a tendency to look at start-ups and to label them as entrepreneurial ventures. Realistically, not all of these are entrepreneurial ventures. Some are cottage industries; many are oneperson efforts that involve a telephone and/or a computer. Investigations into the nature of new businesses reveal that women establish many of these static-growth companies – the stay-at-home moms who seek to create a revenue stream for the family. Many of these start-ups are not particularly interested in business expansion. It’s acceptable to separate static-growth businesses from traditional entrepreneurship. Admittedly, some of these start-ups may be creative, inventive, or resourceful. However, it’s important not confuse

the development of such businesses from the launch of a new growth-oriented business. True entrepreneurship seeks to develop and grow through specific stages and includes an exit strategy to expand, to merge, to create IPO.of En tr ep re ne ur sh ip: Th e I nto sidgrow, e t heorMind s: Th ean ABCs Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

Entrepreneurship–from development of new businesses to the offering of courses and programs in & Rem the em be r entrepreneurshipby in Ar higher education—is an early stage industry in the United States. The analogy that ISBN:1587622238 i Ginsber g et al. I use in the classroom is parenthood. Virtually anyone can have a child – and virtually anyone can start Aspator e Books © 2003 (112 pages) a business (the lesson of the dot.com era). Beyond the conceptualization and birth of a child, the Fr om outlining the history of ent repr eneur ship, fr om important consideration is how you raise the child or how you raise generating cr edible and feasible ideas, from secur ingthe venture. financials to m anaging effectiv ely, this book pulls r eader s

The infrastructurethrofough entrepreneurship emerging. Important educational materials, formal all facets of entisrepr eneur ship, fr om begin ning to end. coursework and programs in entrepreneurship, trained professional resources, financial support, Ta ble o f Con t en t s experienced advisors and consultants are available, many on a pro bono basis. With the advent of I nside Minds—The ABCs of Entr eprin eneurship—Th e Fundam ent als All Business theset he resources, entrepreneurship the United States is moving to the next stage of its development. Pr ofessionals Should Know & Rem em ber Superb bibliography, excellent case studies, and highly visible successes will contribute to its history, The ABCs of Ent repreneur ship—Assessing, Building and Connect in g sustenance, and growth. Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship

I n sid e t he Mind s: Entrepreneurs Th e ABCs of En tr ep re ne ur sh ip: Th e Advice for Prospective

Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow

& Rem For individuals who wantem to be ber entrepreneurs, the most important element to learn is “industry analysis ISBN:1587622238 by Ar i Ginsber g et very al. term sometimes terrifies and competitive intelligence.” The the prospective Aspator e Books © 2003 (112 pages) entrepreneur—particularly if s/he has not had post-secondary courses in new business development. Fr om outlining history of enterprises, ent repr eneuror ship, fr om While reviewing business plans,the visiting new in speaking to organizations on the subject generatingentrepreneur, cr edible and feasible ideas, from secur ingthat prospective entrepreneurs of becoming a successful I am repeatedly reminded financials to m anaging effectiv ely, this book pulls r eader s have never heardthr ofough these Sure, about competition, but their allconcepts. facets of ent reprthey eneurtalk ship, fr om marketing begin ning and to end. comprehension of the concepts is limited. Ta ble o f Con t en t s

However, with the advent and the availability of als electronic databases, the quality and the I nside t he Minds—The ABCs of of the EntrInternet epr eneurship—Th e Fundam ent All Business Prdepth ofessionals Should Know & Remshort em berof incredible. Therefore, with minimal effort or training, it is of information is nothing possible to Ent access information critical to Building the development of ina gcreditable business plan. In my The ABCs of repreneur ship—Assessing, and Connect experience, the weakest ofColors most business plans is the marketing plan. Those who do not agree Entr epr eneur ship Com es in part Many thisSolutions assertiontoare those who maintain, “The firm failed because it had weak financials.” Weak Brwith inging Pr oblems are typically derived from tile inadequate market Poor market data is a result of feeble Frfinancials eedom and I nfor m ed Discipline—Fer Soil for the Seedsdata. of Entr epr eneur ship

competitive intelligence, failing accurately Fundamentals for Building an Entrto epreneur ial Ordetermine ganization the firm’s real market share, not establishing a

clear market niche, and improper product pricing–given all of the companion elements. Entrepreneurs, who are able to calculate and calibrate market share and price, can accurately project revenue.

Entr epr eneur ship and Str ategy

The Science and Pr ocess of Entr epr eneur ship

Key Concepts of Entr epr eneurship Students continually ask, “What is the Golden Rule of Entrepreneurship?” This, for me, is the toughest,

if not impossible, of all questions. There are occasions when I would ignore the question. Predictably, there is a host of answers. My consistent response is that there must be a demonstrable need for the product and/or service in the marketplace. And Jack Stack would add (and insist), “Does it have sizzle?” From this follows: Is the product and/or service distinctive? Is it potentially an industry-wide solution? Can it be sustained over time? What is the half-life of the initial product and/or service? Persistence and success in the marketplace must meet these criteria. If the product and/or service are unable to do so, then, it is very unlikely that the new firm is going to be a long-term success—at least in the minds of potential investors. The second most important criterion (although many argue that this is the most important) is whether or not the company has the kind of leadership that can attract the resources – intellectual, financial, physical – it needs to produce a product or service that fulfills real marketplace demand. Of all the entrepreneurial characteristics I most frequently hear about is “passion,” but passion can be a two-edged sword. I believe that you can have too much passion and become blinded or disillusioned when problems emerge. I have observed entrepreneurs, who, come hell or high water, moved forward with an idea just because it was a lifelong dream. While unbridled enthusiasm is essential, I prefer entrepreneurs who demonstrate integrity, resilience, a strong assessment of the market, and the ability to motivate and collaborate within and outside of the firm. An important prerequisite skill is that the entrepreneur has the ability to wisely and dispassionately analyze ideas or technology – the ability to be harsh if necessary. The entrepreneur must have strong communication skills given the range of individuals that s/he interacts with, including the ability to accept both positive commentary as well as criticism. Another important leadership characteristic is the ability to be comfortable with risk. I do not mean foolish, uncalculated risk taking but rather the ability to deal with ambiguity and anxiety in an unflappable manner. It is also important to adapt quickly under the pressure of a fickle and rapidly changing marketplace, and in the midst of others imbued with a sense of urgency. To be successful, the entrepreneur must be adaptable, flexible and resilient. Entrepreneurs have a tendency to fall in love with their idea and are unwilling to read signals from the marketplace that urge them to adjust and modify. Another tenet is whether or not the firm is willing to make mid-course corrections and modifications – whether in product, personnel, price or location, among others. I have observed that the firm becomes so entrenched or enamored with the launch team, of agreements that have been struck with customers or employees, of product line and the like, that it as a minimum becomes entrenched and, as an extreme, paralyzed. Once this has occurred, the firm is unable to effect essential changes in its modus operandi. The most sensitive area of these, in my experience, has been with personnel.

From my perspective, if there are personnel issues, then, a fair amount of dispassionate analysis and action is appropriate, particularly as it relates to the firm’s leadership team. Too frequently, the founder n sid is e tunable he Mind Th e ABCs of En tr ep reand ne ur sh ip: Thand e unwilling to consider is over-managingI and tos:delegate responsibility authority Fu nd am en t als All Bu sin ess Pro fe ssio na ls Sh ou ld Kn ow turning the reins to new leadership who is able to move the firm to its next level of growth. & Rem em be r

ISBN:1587622238 Ar i aGinsber g et like al. gnats. They are relatively Entrepreneurs, tobyuse term, are hard to keep track of – they Aspator e Books © 2003 (112 pages) consistently flit about. And when the flitting begins, their attention is diverted, their energy is diffused, outlining the history of accounts ent repr eneur fr om and effectivenessFrisom diminished. This, to me, forship, an observation that they tire of the venture edible and feasible ideas, from secur ing and want to movegenerating on to the cr next idea, the next venture. In my experience, one of two situations typically financials to m anaging effectiv ely, this book pulls r eader s existed. The former – the entrepreneur is anxious to move on to the next venture but has not planned thr ough all facets of ent repr eneur ship, fr om begin ning to end. for management transition and the other – it is time for the founder to move on but no one in the firm Taor bleamong o f Conthe t eninvestors ts wants to deliver the message.

I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business latter is Should especially true in the PrThe ofessionals Know & Rem emcase ber of technology start-ups. Good technologists do not necessarily

make good CEOs. However, the intellectual property that underpins the new firm is the property of the The ABCs of Ent repreneur ship—Assessing, Building and Connect in g technologist andCom s/heeswill not hand the IP over to someone else’s leadership. One of the golden rules, Entr epr eneur ship in Many Colors emerges – to determine Brthen, inging Solutions Pr oblemsprecisely when it is essential to sever the relationship and to move on, so second can betile brought theSeeds firm. of Entr epr eneur ship Frthat eedom and Istage nfor m leadership ed Discipline—Fer Soil fortothe Fundamentals for Building an Entr epreneur ial Or ganization

Another rule is for the entrepreneur not to fall in love with his/her own idea. I have never met a technologist or an entrepreneur who did not think that his/her technology or ideas was the end-all of The ScienceI believe and Pr ocess of Entr eprmust eneurbe ship end-alls. the assessor harsh about it. It is almost a certainty that one will run the risk Key Concepts of Entr epr eneurship of offending someone because they are embryonically connected to the technology or to the idea. However, the wise adviser will be dispassionate and will advise them to fall out of love with whatever it is they are proposing or doing because the marketplace will not absorb it. Entr epr eneur ship and Str ategy

With all of these demands, the entrepreneur having opted for this lifestyle, nonetheless, must maintain a sense of balance and style – balance to provide time for private reflection and contemplation and time for personal needs like friends, family and fantasy. I disagree with those who insist it must be either/or. It is possible to partake, manage and experience all of life’s opportunities. The entrepreneur who can contemplate, consider, embrace and adapt most assuredly will optimize the possibilities of success and achieve a soul-feeding life experience, especially, if s/he does so while ensuring the financial, moral and intellectual integrity of the firm. Does this appear to be overwhelming, hardly achievable or realistic? I don’t think so. It’s the very least that we should expect of those who conduct America’s business. Paul J. Magelli, Sr., is the director of the Office for Strategic Business Initiatives, MBA Program University of Illinois at Urbana-Champaign and has held the post since 1996. He has held several positions as a Dean, including, Assistant Dean of Students, University of Illinois at UrbanaChampaign, 1958-1965, Assistant Dean, College of Liberal Arts & Sciences, University of Illinois at Urbana-Champaign, 1966-1968, Associate Dean, College of Liberal Arts & Sciences, University of Illinois at Urbana-Champaign and Associate Director, Midwest Universities Consortium for International Activities (MUCIA), 1966-1969, and Fairmount College of Liberal Arts & Sciences, Wichita State University, Wichita, KS 1969-1983. Magelli was the Vice President for Academic Administration, Drake University, Des Moines, IA, 19831984, the President, Metropolitan State College, Denver, CO, 1984-1987, and the President of Parkland College, Champaign, IL from 1987-1989. He served as a visiting Professor of Economics, University of Illinois at Urbana-Champaign, 1989-1992, and as the Assistant Dean for MBA Programs, University of Illinois at Urbana-Champaign from 1992-1996. At present, Magelli serves as a retained consultant for Deloitte & Touche, Chicago, Illinois. He has held posts on the Advisory Board, Center for Entrepreneurial Education, Kauffman Foundation, Kansas City, Missouri, on the Board of Directors, Entrepreneurial Education Foundation, Denver, Colorado and as a co-founder of the Alliance for Global Business, (comprised of 12 international universities of substantial stature), at present. During the 14 years Magelli served as President, Vice President and Dean, he have been involved in the development of new departments of: Administration of Justice, Computer Science, Minority Studies, and Religion; academic programs in Gerontology (B.S. with M.S. with external funding in

excess of $1 million), Urban Studies, Center for Women’s Studies and Services, International Studies, Creative Writing (A.B. emphasis and M.F.A.), American Studies, Archaeology (with external funding of nearly of $750,000), Astronomy (minors external funding to Th develop a $275,000 regional I n sid e t he Mind s: Th e only, ABCswith of En tr ep re ne ur sh ip: e observatory), Public Administration, Community Psychology (M.A.), Fu nd am en t als All Bu sin ess Pro fe ssio na ls (M.S.), Sh ou ldCommunications Kn ow & Rem em be r Biochemistry, Iowa Studies (B.A.), Nursing (B.S. and M.S.) Bachelor of General Studies, and Master of ISBN:1587622238 Arts in Liberal Studies, by Ar i Ginsber and institutes g et al. of Gerontology, Intercultural Studies, Entrepreneurship and Creativity, and International Aspator e Books Studies. © 2003Recently, (112 pages)Magelli was awarded the University of Illinois Chancellor’s Distinguished Service Award,of1999. Magelli received Fr om outlining the history ent repr eneur ship, fr oman A.B., an M.S and a Ph.D., in generating cr edible andatfeasible ideas, from secur Economics, by the University of Illinois Urbana-Champaign, ining 1959, 1960 and 1965 respectively. financials to m anaging effectiv ely, this book pulls r eader s thr ough all facets of ent repr eneur ship, fr om begin ning to end. Ta ble o f Con t en t s I nside t he Minds—The ABCs of Entr epr eneurship—Th e Fundam ent als All Business Pr ofessionals Should Know & Rem em ber The ABCs of Ent repreneur ship—Assessing, Building and Connect in g Entr epr eneur ship Com es in Many Colors Br inging Solutions to Pr oblems Fr eedom and I nfor m ed Discipline—Fer tile Soil for the Seeds of Entr epr eneur ship Fundamentals for Building an Entr epreneur ial Or ganization Entr epr eneur ship and Str ategy The Science and Pr ocess of Entr epr eneur ship Key Concepts of Entr epr eneurship