ENTREPRENEURSHIP

An entrepreneur is someone who conceives of new or improved goods and services and exhibits the
initiative to develop that idea by making plans and mobilizing the necessary resources to convert the
idea into reality.

The terms entrepreneur and small business manager are often used interchangeably, because most
entrepreneurs are also small business managers. Nonetheless, some entrepreneurs manage large
business (e.g. Tesla), and not all business managers are entrepreneurs (e.g. the manager of the local
hardware store who inherited it from her parents may not be an entrepreneur). Entrepreneurial
organizations are distinguished by doing something new, whereas small-and medium-sized enterprises
(SMEs) are defined by their size, not on the basis of whether they have done something new.
Governments such as those in Canada, the United States, and the European Union define a small
organization as one with fewer than 100 employees, and a medium-sized organization as one having
from 100 to 500 employees.

ENTREPRENEURSHIP AND FAMILY BUSINESS

As with SMEs, the idea of a family business is also sometimes confused with entrepreneurship, because
it is not unusual for start-ups to be managed by a family. A family business is an organization controlled
by two or more members of a single family, in cooperation or in succession.

Family businesses may enjoy at least three advantages. First, family members are often highly
motivated to see the organization succeed. Second, being a family firm can help in attracting customers
and partners. Third, the higher levels of trust and cooperation in families can simplify management and
reduce the financial cost of control. In particular, family firms have lower agency costs than non-family
firms. Agency costs refer to the expenses that owners pay to ensure that managers act in the interests
of the firm, rather than in their own self-interest. Agency theory uses the term moral hazard to
describe the risk that managers might use the firm’s resources to benefit other interests to the
detriment of the owner’s financial gain. Moral hazard arises when two conditions are met: (1) managers
and owners have misaligned incentives such that managers are rewarded for organizational outcomes
that the owners do not favor, and (2) there is information asymmetry between managers and owners
such that owners have trouble evaluating the performance and choices of managers due to the fact that
managers know more about organizational operations and can control what information is shared with
owners. Because managers in family-owned businesses are often family members, these firms will
generally have lower levels of misaligned incentives and information asymmetry, and thus lower agency
costs.

FBL, TBL, AND SET MANAGEMENT IMPLICATIONS

FBL entrepreneurs are most concerned with financial returns, and so are most likely to be concerned
with how new ventures contribute to economic activity and growth.
The TBL approach, in addition to job creation, will celebrate the fact that jobs created by
entrepreneurs are more satisfying, making employees more willing to stay, even when they are paid
less than large firms.

From a SET perspective, perhaps the most important benefit of entrepreneurship is its potential for
creating positive socio-ecological innovations. SET management value the greater connection that
small business often have with their surroundings. SET entrepreneurs have created so-called universal
family firms that take care of employees and other stakeholders as though they were family members.

THE FOUR-STEP OF ENTREPRENEURIAL PROCESS

Progressing from the initial inspiration for a new product or service all the way through to developing
and managing an organization which offers that product or service can be a long, complex, and difficult
process.

STEP 1. IDENTIFY AN OPPORTUNITY

Opportunity identification is the process of selecting promising entrepreneurial ideas for further
development. The biggest challenge of entrepreneurship is identifying good ideas, that is, ideas that fit
a genuine opportunity or need in the marketplace.

Sometimes the entrepreneurial opportunity involves purchasing an organization that is already

operating, rather than starting from nothing.

However, the most common entrepreneurial opportunities involve starting an entirely new organization,
and doing that requires identifying a new product or service opportunity. Having an entrepreneurial
mindset, which enables entrepreneurs to look at situations in new ways. (e.g. the founders of 31 bits,
who saw an opportunity to set up a business to help single mothers in Uganda)

SOURCES OF POTENTIAL OPPORTUNITIES

1. Trends: large-scale, ongoing patterns

Aging population, increasing wireless bandwidth and access, growth of terrorism, climate
change

2. Industry changes
Rise of preventive medicine, real estate bubbles or crashes, legalization of marijuana

3. Unexpected events
Global recession of 2008

4. Gaps: demands and needs that are not being met in the best way
 Microfinance, self-publishing, and music downloading arose in large part because customers
were dissatisfied with previous distribution models

5. Personal experience
Ideas may come from travelling in other countries, work experiences, talking with friends and
family, becoming aware of problems people are facing, and from hobbies

THE FBL, TBL, AND SET APPROACHES TO OPPORTUNITY IDENTIFICATION

FBL Approach TBL Approach SET Approach

FBL entrepreneurs are TBL entrepreneurs also see to SET entrepreneurs look for
constantly looking for more self- maximize financial return, but viable opportunities to increase
interested financially rewarding with a focus on opportunities to social or ecological well-being.
ways to meet needs and wants. profitability reduce negative In additional to achieving
They look for opportunities to social and ecological sustainable financial returns,
invest resources that will yield a externalities. they are seeking ways to
higher financial return than they For example, firms in the oil and improve employment
currently earn. gas industry are notorious for opportunities for the
They may focus on reducing their GHG emissions (negative marginalized of society or new
firm’s operating costs, even if it ecological externalities), even ways of caring for the
increases negative social or though they also create high- environment.
ecological externalities. paying jobs for their employees Sometimes SET entrepreneurs
and affordable energy for their even try to eliminate the need
customers (positive social for their product or service.
externalities).

STEP 2: TEST THE IDEA

The second step is to determine whether nor not it is a viable opportunity. Meaning if it is capable of
working successfully. This involves talking about your idea with potential customers, employees,
suppliers, and other stakeholders, as well as developing a prototype or conducting a pilot test.

Feedbacks come from potential users of the good or service, industry expert, and potential employees.
One of the best ways to get this feedback is by using a preliminary elevator pitch. An elevator pitch is a
succinct description of the entrepreneur’s plan and the value it offers. It is a brief, persuasive speech
that you use to spark interest in what your organization does or with your product that could last for
30 seconds. A good elevator pitch focuses on the potential opportunity – what need the entrepreneur is
satisfying, how the need will be met, and the benefits of doing so. The elevator pitch must be brief and
focused on the most important details. It should:
 Identify the problem you propose to address
 Describe your proposed solution
 Recognize the major challenge or obstacle
 Explain how your plan benefits the customer
  Be 30 to 60 seconds long
 Be focused, clear, and delivered in a compelling and enthusiastic fasion

The most effective pitches and ideas will be persuasive, which means they will change the audience’s
thinking or motivate them to take some action. Remember that talking to your customers may help you
identify important product features that you overlooked. Talking to potential employees can identify
production issues before they become problems.

THE FBL, TBL, AND SET APPROACHES TO TESTING THE IDEA

FBL Approach TBL Approach SET Approach

The FBL approach focuses on The TBL approach includes The SET approach focuses on
financial data, such as the size these concerns, but also focuses soliciting feedback from the
of the market, price points, and on identifying a particular widest array of stakeholders,
production costs. negative social or ecological and is most likely to welcome
externality that can be input from stakeholders to co-
profitably addressed. develop the idea.

STEP 3: DEVELOP A PLAN

Once entrepreneurial opportunity has been identified and tested, the next step in the entrepreneurial
process is to develop a written plan that provides clear direction by laying out objectives and the
strategies that will be used to reach those objectives. First, the plan ensures that entrepreneurs think
though the different aspects of the new venture before they begin.

Once a new venture is started, the demands of running the organization leave little time for such
reflection. Second, preparing a plan forces entrepreneurs to establish goals and standards for
subsequent measuring performance. The most important reason to write a well-developed plan is to
win the support of other stakeholders, whether it is financers, suppliers, employees, or customers.

A business plan is a written document that describes the key features, actions, structure, and systems
for a proposed new organization that is designed to take advantage of an entrepreneurial
opportunity. The Entrepreneurial Start-Up Plan (ESUP) is a subset of a business plan. An ESUP
includes the elements of a business plan that are relevant for general management but does not focus
on aspects related to specific functional areas like marketing, finance, and operations.

Elements of a Generic Business Plan

Business Plan Element Content
1.Summary Executive summary of the whole
plan, highlighting key points and
exciting the reader.
 2.Description of the new Opportunity being pursued (e.g.,
venture relevant trends);
Target customers, size of market;
Mission and vision
Business strategy
Legal form
3.Description of product Key features of products/services
and competitors Analysis of completion (competing
and substitute product)
4.Management Top Management Team
(qualifications, roles);
Organization structure and systems
5.Staffing Details about employees: numbers,
required skills, recruiting, training,
compensation
6.Marketing Total and served available market,
target market;
Marketing plan, selling approach,
customer retention methods,
distribution, pricing
7.Operations Location, facilities, equipment,
methods, quality control, inventory
management, suppliers, purchasing
8.Finances Financial requirements, sources,
projected revenues and costs, break-
even analysis, cash flow
9.Timeline and Goals and milestones, achievements
contingency plans by dates, insurance

FBL, TBL, AND SET APPROACHES TO DEVELOPING A PLAN

FBL Approach TBL Approach SET Approach

The FBL approach prioritizes The TBL approach is very much The SET approach emphasizes
financial gains, developing a like the FBL, but in some ways is multiple forms of well-being for
strong business case is crucial even more demanding. TBL multiple stakeholders through
for gaining support. entrepreneurs take extra care active cooperation with those
FBL entrepreneurs place grate to reassure potential investors stakeholders.
emphasis on providing detailed that resources devoted to A SET entrepreneur may be less
information about potential reducing negative externalities able to anticipate and define
customers and comparable will in fact enhance the everything in advance. As a
firms’ operating costs and organization’s financial result, SET entrepreneurs have
similar data. performance. often placed less emphasis on
detailed and specific plans.

STEP 4: TAKE ACTION

The final step in the entrepreneurial process is the most difficult. It is one thing to write an excellent
plan, and it is another to implement it and launch a new organization. Because writing a great
business plan and implementing it are two different things.

Qualities of Entrepreneurs:
1. Being conscientious
2. Open to new experience
3. Extraverted
4. Emotionally stable

A strong desire for achievement also contributes to entrepreneurial success, as does having a high
level of self-efficacy, which is one’s confidence and belief that they can accomplish a task successfully.
In addition to personal attributes, individuals’ life situations can also influence whether or not they take
action as entrepreneurs.

FBL, TBL, AND SET APPROACHES TO TAKING ACTION

FBL Approach TBL Approach SET Approach

FBL and TBL entrepreneurs, with their focus on high returns for SET entrepreneurs do not
invested capital, are well positioned to appeal to traditional prioritize the maximization of
financial institutions and similarly-motivated investors. financial gains, and therefore
may encounter poor responses,
or even trouble, if they seek
financing from sources
managed based on and FBL
approach.

Even with such regulatory changes, SET entrepreneurs may have trouble financing their organizations,
since most debt and equity financing is controlled by FBL-oriented organizations. The most important
of these is crowdfunding, which involves entrepreneurs receiving small amounts of money from a
large number of people, often in exchange for a reward.

Crowdfunding is the practice of funding a project or venture by raising many small amounts of money,
typically via the internet. It works through individuals or organizations who invest in (or donate to)
crowdfunding projects in return for potential profit or reward. Investing this way can be very risky, so
make sure you know what you’re doing.