1	The Entrepreneurial Process Entrepreneurship Dr. Jeff Shay
2	Module #2 This module will: Dispel some myths about entrepreneurship Discuss the advantages and disadvantages of being an entrepreneur Provide a definition of entrepreneurship Discuss the three most critical factors for entrepreneurial ventures Present the various components of entrepreneurial ventures Suggest some initial ways for evaluating opportunities
3	Dispelling the myths about entrepreneurship: Many of you have probably heard people say or you might have even said the following about why you are interested in starting your own business: “If I started my own business, I would…” “Be able to start living off the business immediately” “Be my own boss” “Get rich overnight” “Have nothing to lose: I’ll incorporate and use other people’s money”
4	Let’s take a look at each of those more closely… “If I started my own business, I would be able to start living off the business immediately” The reality is that most entrepreneurs start their business while continuing to work at their original jobs. Entrepreneurial ventures can take 2-3 years to break even and during that time investors or banks will not be willing to provide you with a salary reflective of your market value. Thus, you should plan on making very little money from your new business at first and will most likely not be able to live off the salary you can draw from it.
5	Let’s take a look at each of those more closely… (continued) “If I started my own business, I would be my own boss” Many entrepreneurs truly believe this when they start their own business and there is some truth to it. You will have more freedom in the decision making process. However, the reality is that your investors or the banks who lend you money to get your business started will be your bosses too. You will need to report to these individuals and organizations when making significant changes in your business.
6	Let’s take a look at each of those more closely… (continued) “If I started my own business, I would get rich overnight” Very few entrepreneurs actually get “rich” quickly. The reality is that most new businesses take a long time to get started, and only then can the entrepreneur make a significant profit on selling the business or earning a high salary from the business.
7	Let’s take a look at each of those more closely… (continued) “If I started my own business, I would have nothing to lose: I’ll incorporate and use other people’s money” We’ll talk about this in one of the modules later, but you should know up front that incorporating does not necessarily protect your person assets. In most cases, entrepreneurs must pledge their personal assets in order to acquire the necessary financing to get the business started.
8	Dispelling some additional myths, this time about entrepreneurs How many times have you heard people say the following about entrepreneurs? “Entrepreneurs are gamblers” “Entrepreneurs are motivated solely by money” “If an entrepreneur is talented, success will happen in a year or two” Let’s take a closer look at each of these…
9	“Entrepreneurs are gamblers” Some entrepreneurs could be considered gamblers…unfortunately these are usually also the entrepreneurs who are unsuccessful Most successful entrepreneurs take calculated risks based on their own experience and on research
10	“Entrepreneurs are motivated solely by money” Some entrepreneurs are motivated by money, but the majority are not Most entrepreneurs are motivated by a market opportunity and the chance to make a difference in a particular industry. Some other entrepreneurs are motivated by the opportunity to make a contribution to society. So it’s not always money that is the driving force
11	“If an entrepreneur is talented, success will happen in a year or two” Again, this is another myth There are surely cases in which talented entrepreneurs are successful within their first few years of starting a new venture However, it is more common for even talented entrepreneurs to take several years before being successful One of the keys in entrepreneurship is to maintain commitment to the new business through the long period of getting it off the ground
12	So, what are some of the advantages and disadvantages to entrepreneurship? Here are a few… Advantages At least a sense of autonomy Being able to make your own decisions about the business to some extent Challenge of being involved in a start-up Positive feelings from knowing this is your creation Financial control Ability to mold the business to meet your goals Disadvantages Burden of responsibility Never being able to leave the job at work Little margin for error Your future is at stake You forego things like pensions Personal sacrifices Time away from your family and other activities that you enjoy
13	What is an entrepreneur? Here are some useful definitions… A person who destroys the existing economic order by introducing new products and services, by creating new forms of organization, or by exploiting new raw materials - Schumpeter Someone who perceives an opportunity and creates an organization to pursue it – Bygrave
14	What is an entrepreneurship? Entrepreneurship is… A way of thinking and acting that is opportunity obsessed, holistic in approach and leadership balanced for the purpose of wealth creation - Babson College
15	Start-up Stats Approximately 2 million new businesses are started each year in the United States About 700,000 entrepreneurs actually register and these businesses will probably grow However, the eight year survival is only about 50% So, how can we evaluate the potential of a new venture?
16	The Three Primary Components of a new business There are three primary components that entrepreneurs should consider about their potential new venture The Opportunity The Resources The Entrepreneur and possibly the Entrepreneurial Team Now, let’s take a closer look at each one…
17	"We like to consider the..." We like to consider the Opportunity in terms of “The 3 M’s” #1 Market demand #2 Market size and structure #3 Margin Analysis
18	Opportunity #1 Market demand is a key ingredient to measuring a new business opportunity The are a few specific criteria that investors and lenders typically use to evaluate the opportunity 20% market share within the first five years Business is in a market that is growing at 20% or greater Products and services are durable: people will want them for a long time into the future Business has customers that are reachable Customers have a sense of payback on their purchase within one year (i.e., a feeling as though the purchase had some value)
19	Opportunity
20	Opportunity
21	Opportunity You may be discouraged after reading the criteria for the 3 M’s on the previous pages but you shouldn’t be There are three categories for new business ventures: Lifestyle Foundation High Growth
22	Opportunity Your business might fall into the Lifestyle or Foundation categories In which case, you can still acquire a loan and potentially get some family or friend investors For many entrepreneurs, these types of businesses are exactly what they are looking for In fact, most new ventures fall into these categories However, you won’t attract venture capital if your business doesn’t have potential for high growth
23	Where do I find opportunities? Inc., Forbes, Business 2.0 Existing job Personal experience Friend or family member experience And many other sources...
24	Resources There are many resources for your business that you should consider. First, however, you must consider what your goals are. If your goal is to retain control and ownership fo a small entity, then you want to focus on minimizing the use of external resources If your goal is to grow your business into a very large entity, then you want to focus on maximizing the use of external resources The key with resources is to unleash your creativity. That is, seek out all resources that could potentially benefit your company
25	Resources Many entrepreneurs think that you need a great deal of money to get started. This is definitely not the case. Consider the statistics below on the Fortune 500… Fortune 500 start-up capital 25% started with less than $5,000 50% started with less than $25,000 75% started with less than $100,000 Fewer than 5% began with more than $1 million
26	Where does start-up capital come from? Debt Loans from financial institutions Equity from your own resources Outside investors such as: Venture capitalists Family Friends Informal Angel investors Sweat equity – money that you’re putting into the company by not drawing a salary when getting started
27	Financial impact of starting your own business Before starting your business, you should give careful consideration to the following: Salary Your salary is likely to be much lower than that you are currently earning for the first few years. Can you afford to live on a lower salary? Benefits Most companies offer benefits. Can you afford to cover your own medical insurance and make investments into a retirement account? Return on personal investment Does it make sense to invest your money into the business based on the returns that you might make investing the money elsewhere?
28	Entrepreneurial Frugality is a Key to Success Many entrepreneurs get excited when they acquire a loan or investment dollars However, successful entrepreneurs realize the following keys to success Maintaining low overhead costs allows for greater financial flexibility Your team should insist on the highest productivity levels possible for all work Whenever possible, avoid making large capital expenditures in fixed assets. Leasing or renting provides great flexibility and does not tie up cash.
29	The Entrepreneurial Team The “lead” entrepreneur is the key to the success of the new business The quality and diversity of team is also very important An old adage is important to consider here: An “A” team with a “B” idea is better than a “B” team with an “A” idea
30	Here are some of the qualities that you should seek in forming your team Tolerance of risk and ambiguity Motivation to excel Leadership Creativity Communicators Commitment and determination Team locus of control Adaptability
31	These are the most important qualities Relevant industry experience New businesses formed by teams with significant industry experience are generally more successful Opportunity obsession Team members should be obsessed with seeking out new opportunities and better ways of competing Passion for the new business, its product, and its team It is a long road to success and only those who are truly passionate about the new business are likely to succeed
32	Summarizing, there are three critical factors for start-ups: #1 Entrepreneur #2 Opportunity #3 Resources
33	Next Module In the next module, we’ll introduce you to the methods for “Recognizing Opportunities”