16/10/2023, 02:54 Chapter Summaries Entrepreneurship

Chapter Summaries Entrepreneurship:

Chapter 1:

LO1. Entrepreneurship is the process by which individuals pursue opportunities

without regard to resources they currently control. A specific application of
entrepreneurship, called corporate entrepreneurship, is the conceptualization of
entrepreneurship at the organizational level. Entrepreneurial firms are proactive,
innovative, and risk taking. In contrast, conservative firms take a more “wait and
see” posture, are less innovative, and are risk averse.

LO2. The three primary reasons people decide to become entrepreneurs and
start their own firms are as follows: to be their own boss, to pursue their own
ideas, and to pursue financial rewards. Of these, the desire to be one’s own boss
or manager is the driving force of most individuals’ decision to commitment to
ethical business practices continues to strengthen.

The same situation exists with respect to social responsibility in that increasingly,
societies across the globe want organizations to be responsible for the effects of
their actions on stakeholders. Identifying opportunities is inherently a goal-
directed process through which opportunities are specified that have the
potential to help a person or an organization reach a valued outcome.
Sometimes, however, that valued outcome is not reached.
Entrepreneurial behavior also has a dramatic impact on society. It’s easy to think
of new products and services that have helped make our lives easier, that have
made us more productive at work, that have improved our health, and that have
entertained us in new ways. In addition, entrepreneurial firms have a positive
impact on the effectiveness of larger firms. There are many entrepreneurial firms
that have built their entire business models around producing products and
services that help larger firms increase their efficiency and effectiveness.

LO3. Passion for the business, product/customer focus, tenacity despite failure,
and execution intelligence are the four primary characteristics of successful
entrepreneurs. Of these four, being passionate about the firm the entrepreneur
intends to launch is the most common characteristic shared among successful
entrepreneurs. Commonly, the entrepreneur’s passion is demonstrated by a
belief that her/his firm will make a difference in people’s lives. Always
concentrating on the product or service as a means of satisfying a customer
need, being tenacious in pursuing an entrepreneurial opportunity, and the ability
to craft a business idea into a viable business operation are the other key
characteristics associated with successful entrepreneurs.

LO4. The five most common myths regarding entrepreneurship are that
entrepreneurs are born, not made; that entrepreneurs are gamblers; that

entrepreneurs are motivated primarily by money; that entrepreneurs should be

young and energetic; and that entrepreneurs love the spotlight. The issue with
myths is that, if unchecked, they can affect an individual’s orientation toward and
subsequent behaviors as an entrepreneur. The challenge for entrepreneurs is to
carefully examine myths and prevent each of them from negatively affecting
their approach to entrepreneurship.

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LO4. The five most common myths regarding entrepreneurship are that
entrepreneurs are born, not made; that entrepreneurs are gamblers; that

entrepreneurs are motivated primarily by money; that entrepreneurs should be

young and energetic; and that entrepreneurs love the spotlight. The issue with
myths is that, if unchecked, they can affect an individual’s orientation toward and
subsequent behaviors as an entrepreneur. The challenge for entrepreneurs is to
carefully examine myths and prevent each of them from negatively affecting
their approach to entrepreneurship.

LO5. There are three types of start-up firms. Entrepreneurial firms bring new
products and services to market by recognizing and seizing opportunities
regardless of the resources they currently control. Entrepreneurial firms stress
innovation, which is not the case for salary-substitute and lifestyle firms. In the
case of a salary substitute firm, the entrepreneur seeks to earn an amount of
income that is similar or identical to what she or he can earn by working as an
employee for another company. Lifestyle firms are ones through which an
entrepreneur can pursue a desire to experience a certain lifestyle (e.g., as a
hunting trip guide) and earn a sufficient amount of income while doing so.

LO6. The demographic makeup of those launching entrepreneurial firms is

changing in

the United States and around the world. There is growing evidence that an
increasing number of women, minorities, seniors, and millennials are becoming
actively involved in the entrepreneurial process. Evidence suggests that these
groups are capable of appropriately using the entrepreneurial process as a
foundation for developing a successful entrepreneurial venture.

LO7. There is strong evidence that entrepreneurship and the entrepreneurial

behavior associated with it have significantly positive impacts on the stability and
strength of economies throughout the world. The areas in which entrepreneurial
firms contribute

LO8. The four distinct elements of the entrepreneurial process, shown in Figure
1.3, are deciding to become an entrepreneur, developing successful business
ideas, moving from an idea to establishing an entrepreneurial firm, and
managing and growing an entrepreneurial firm. Each of these elements plays a
critical role in entrepreneurial success. As a result, we carefully examine these
elements in the book’s remaining chapters.

LO9. After studying this book, some readers will decide they do not want to
become entrepreneurs, others will conclude that becoming an entrepreneur at
some point is desirable, while still others will decide to launch an entrepreneurial
venture as quickly as possible. For all readers though, the tools, techniques, and

concepts discussed in this book will further develop some of your “employability
skills.” In particular, by studying entrepreneurship, you will learn about the
importance of using

Chapter 2:

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LO9. After studying this book, some readers will decide they do not want to
become entrepreneurs, others will conclude that becoming an entrepreneur at
some point is desirable, while still others will decide to launch an entrepreneurial
venture as quickly as possible. For all readers though, the tools, techniques, and

concepts discussed in this book will further develop some of your “employability
skills.” In particular, by studying entrepreneurship, you will learn about the
importance of using

Chapter 2:

LO1. An idea is a thought, an impression, or a notion. An opportunity is an idea

that has the qualities of being attractive, durable, and timely and is anchored in
a product or service that creates value for its buyers or end-users. Not all ideas
are opportunities. Once an opportunity is recognized, a window opens, and the
market to fill the opportunity grows. At some point, the market matures and
becomes saturated with competitors, and the window of opportunity closes.

LO2. Observing trends, solving a problem, and finding gaps in the marketplace
are the three general approaches entrepreneurs use to identify a business
opportunity. Economic forces, social forces, technological advances, and political
action and regulatory changes are the four environmental trends that are most
instrumental in creating opportunities. Through the second approach,
entrepreneurs identify problems that they and others encounter in various parts
of their lives and then go about developing a good or service that is intended to
solve the identified problem. Carefully observing people and the actions they
take is an excellent way to find problems that, when solved, would create value
for a customer. Finding gaps in the marketplace is the third way to spot a
business opportunity. Typically, the way this works is that an entrepreneur
recognizes that some people are interested in buying more specialized products,
such as guitars that are made for left-handed players or scissors for people who
are dominant left-handers.

LO3. Over time, research results and observations of entrepreneurs in action

indicate that some people are better at recognizing opportunities than others.
Prior experience, cognitive factors, social networks, and creativity are the main
personal characteristics researchers have identified and that observation
indicates tend to make some people better at recognizing business opportunities
than others.

LO4. Entrepreneurs use several techniques for the purpose of identifying ideas
for new products and services. Brainstorming, which is a technique used to
quickly generate a large number of ideas and solutions to problems, is one of
these. One reason to conduct a brainstorming session is to generate ideas that
might represent product, service, or business opportunities. A focus group, a
second technique entrepreneurs use, is a gathering of 5 to 10 people who have
been selected on the basis of their common characteristics relative to the issue
being discussed. One reason to conduct a focus group is to generate ideas that

might represent product or business opportunities. Careful and extensive

searches of a physical library’s holdings and of Internet sites are a third
technique. Here, the entrepreneur uses an open mind to sort through large
amounts of information and data to see if he or she can identify a problem that
could be solved by creating an innovative product or service.

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might represent product, service, or business opportunities. A focus group, a
second technique entrepreneurs use, is a gathering of 5 to 10 people who have
been selected on the basis of their common characteristics relative to the issue
being discussed. One reason to conduct a focus group is to generate ideas that

might represent product or business opportunities. Careful and extensive

searches of a physical library’s holdings and of Internet sites are a third
technique. Here, the entrepreneur uses an open mind to sort through large
amounts of information and data to see if he or she can identify a problem that
could be solved by creating an innovative product or service.

Chapter 3:

LO1. Feasibility analysis is the process of determining whether a business idea is

viable. It is a preliminary evaluation of a business idea, conducted for the
purpose of determining whether the idea is worth pursuing. The proper time to
conduct a feasibility analysis is early in thinking through the prospects for a new
business idea. It follows opportunity recognition but comes before the
development of a business model and a business plan.

LO2. A product/service feasibility analysis is an assessment of the overall appeal

of the product or service being proposed. The two components of product/service
feasibility analysis are product desirability and product demand.

A concept statement, which is a preliminary description of a product idea, is

developed during this particular aspect of the feasibility analysis process to see if
the proposed product or service makes sense to potential customers and if it has
any fatal flaws that require immediate attention. Using online tools such as
Google AdWords and Landing Pages and conducting library, Internet, and
gumshoe research are techniques entrepreneurs use to assess the likely demand
for a product or service.

LO3. An industry/market feasibility analysis is an assessment of the overall

appeal of the market for the product or service being proposed. For feasibility
analysis, there are two primary issues that a business should consider in this
area: industry attractiveness and target market attractiveness. A target market
is a segment within a larger market that represents a narrower group of
customers with similar needs. Most start-ups simply don’t have the resources
needed to participate in a broad market, at least initially. Instead, by focusing on
a smaller target market, a firm can usually avoid head-to-head competition with
industry leaders and can focus on serving a specialized market very well. An
attractive industry has several desirable characteristics for a new venture,
including those of being (a) “young” rather than old or very well established, (b)
in the early rather than the late stage of the product life cycle, and (c)
fragmented (where a large number of firms are competing but no single firm has
a dominant market position) rather than highly concentrated (where a few large
firms dominate competition).

LO4. An organizational feasibility analysis is conducted to determine whether a

proposed business has sufficient management expertise, organizational

competence, and resources to successfully launch its business. There are two
primary issues to consider in this area: management prowess and resource
sufficiency. With respect to management prowess, the intention is to determine
the ability of the proposed venture’s initial management team. In terms of
analysis, resource sufficiency is concerned with determining if the proposed
venture would have the resources required to compete successfully.

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LO4. An organizational feasibility analysis is conducted to determine whether a

proposed business has sufficient management expertise, organizational

competence, and resources to successfully launch its business. There are two
primary issues to consider in this area: management prowess and resource
sufficiency. With respect to management prowess, the intention is to determine
the ability of the proposed venture’s initial management team. In terms of
analysis, resource sufficiency is concerned with determining if the proposed
venture would have the resources required to compete successfully.

LO5. A financial feasibility analysis is a preliminary financial analysis of whether a

business idea is worth pursuing. The most important areas to consider are the
total start-up cash needed, financial performance of similar businesses, and the
overall financial attractiveness of the proposed business.

LO6. First Screen is a template for completing a feasibility analysis. It is called

First Screen because a feasibility analysis is an entrepreneur’s (or group of
entrepreneurs’) initial pass at determining the feasibility of a business idea.

Chapter 4:

LO1. A business model is a firm’s recipe for how it intends to create, deliver, and
capture value for stakeholders. In essence, a business model deals with the core
aspects of how a firm will conduct business and try to succeed in the
marketplace. The quality of the business model a firm develops, as well as the
quality of how that model is executed, affect the firm’s performance in both the
short and long term. How well the different parts or elements of a business
model fit together and are mutually supportive affects its quality. The best
business models are developed and executed in ways that are difficult for
competitors to understand and imitate. Moreover, the greater the difference
between a firm’s business model and those of its competitors, and assuming that
the model has been effectively developed, the stronger the likelihood a firm will
be competitively successful. Thus, an entrepreneurial firm wants to develop a
business model that clearly specifies how the firm intends to be uniquely
different from its competitors and create value for stakeholders as a result.

LO2. There are several types of business models. However, it is important for an
entrepreneur to understand that no particular type of business model is
inherently superior to any other model. The “best” business model is the one that
allows a firm to effecttively describe the value it intends to create for
stakeholders and appropriately details the actions it will take to create that
value. Standard and disruptive business models are two well recognized
categories of business models. We say “categories” because there are several
types of standard models (see Table 4.1) and two types of disruptive models
(discussed here). Standard business models depict or reveal plans or recipes
firms can use to determine how they will create, deliver, and capture value for
stakeholders. Many of the standard models have been in existence for many

years. When selecting a standard business model, an entrepreneurial venture

believes that it can integrate the elements of that model uniquely as a means of
creating value while competing against rivals. Disruptive business models, which
are rare, are ones that do not fit the profile of a standard business model and are
impactful enough that they disrupt or change the way business is conducted in
an industry or in an important segment or niche of an industry. A new market
disruption and a low end market disruption are the two types of disruptive
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(discussed here). Standard business models depict or reveal plans or recipes
firms can use to determine how they will create, deliver, and capture value for
stakeholders. Many of the standard models have been in existence for many

years. When selecting a standard business model, an entrepreneurial venture

believes that it can integrate the elements of that model uniquely as a means of
creating value while competing against rivals. Disruptive business models, which
are rare, are ones that do not fit the profile of a standard business model and are
impactful enough that they disrupt or change the way business is conducted in
an industry or in an important segment or niche of an industry. A new market
disruption and a low-end market disruption are the two types of disruptive
models. A new market disruption finds a firm using a business model through
which it is able to address a market that wasn’t previously served (think of
Google as an example). A low-end market disruption is possible when firms
already competing in an industry are providing customers with products or
services that exceed their expectations or desires. This “performance oversupply”
creates an opportunity for an entrepreneurial venture to enter an industry for the
purpose of providing customers with the product or service functionality that
more closely approximates what they want. Low-cost business models are often
used to create a low-end market disruption (think of Southwest Airlines in the
United States and Ryanair in Europe as examples).

LO3. Comprehensive in scope, the Barringer/ Ireland Business Model Template

features 4 major categories and 12 individual parts (see Figure 4.2). As a tool,
entrepreneurs can use this business model template to describe, project, revise,
and pivot its intended actions until they are convinced that the model’s elements
are integrated in a way that will yield a viable business firm. Core strategy, which
describes how the firm plans to compete, is the first of the four major categories.
The firm’s mission, basis of differentiation, target market, and product/market
scope are the parts of the core strategy category. Resources, the second
category, are the inputs a firm intends to use to sell, distribute, and service its
product or service. Core competency, which is a specific factor or capability that
supports a firm’s business model and differentiates it from competitors and key
assets, or the assets a firm owns that enable its business model to work, are the
critical resources a firm needs to execute as called for by its chosen core
strategy. The third category, financials, is concerned with how the firm intends to
earn money. Revenue streams, which deal with the exact ways a firm earns
revenue, cost structure, which includes the most important costs (both fixed and
variable costs) the firm will incur to support the execution of its business model,
and funding/financing (dealing with how the firm will support or cover its costs)
are the parts of the financials category. Operations is the fourth and final
category featured in the Barringer/Ireland Business Model Template. The product
(or service) production part of this category details the firm’s intended
production methods. The channels part specifies how products or services will be
delivered to customers, while the key partners’ part identifies others with whom
the firm intends to collaborate as a means of supporting its operations.

Chapter 5:

LO1. To compete successfully, a firm needs to understand the industry in which it

intends to compete. Industry analysis is a business research framework or tool
that focuses on an industry’s potential. The knowledge gleaned from this analysis
helps a firm decide whether to enter an industry and if it can carve out a position
in that industry that will provide it a competitive advantage. Environmental
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Chapter 5:

LO1. To compete successfully, a firm needs to understand the industry in which it

intends to compete. Industry analysis is a business research framework or tool
that focuses on an industry’s potential. The knowledge gleaned from this analysis
helps a firm decide whether to enter an industry and if it can carve out a position
in that industry that will provide it a competitive advantage. Environmental
trends and business trends are the two main components of “industry trends”
that firms should study. Environmental trends include economic trends, social
trends, technological advances, and political and regulatory changes. Business
trends include other business-related trends that aren’t environmental trends but
are important to recognize and understand.

LO2. Firms use the “five forces model” to understand an industry’s structure. The
parts of Porter’s five forces model are threat of substitutes, threat of new
entrants, rivalry among existing firms, bargaining power of suppliers, and
bargaining power of buyers.

LO3. What entrepreneurs should understand is that each individual force has the
potential to affect the ability of any firm to earn profits while competing in the
industry or a segment of an industry. The challenge is to find a position within an
industry or a segment of an industry in which the probability of the firm being
negatively affected by one or more of the five forces is reduced. Additionally,
successfully examining an industry yields valuable information to those starting a
business. Armed with the information it has collected, firms are prepared to
consider four industry-related questions that should be examined before deciding
to enter an industry. These questions are: Is the industry a realistic place for a
new venture? If we do enter the industry, can our firm do a better job than the
industry as a whole in avoiding or diminishing the threats that suppress industry
profitability? Is there a unique position in the industry that avoids or diminishes
the forces that suppress industry profitability? Is there a superior business model
that can be put in place that would be hard for industry incumbents to duplicate?

LO4. There are five primary industry types of entrepreneurial firms to consider
when choosing the industry in which they will compete. These industry types and
the opportunities they offer are as follows: emerging industry/ first-mover
advantage; fragmented industry/consolidation; mature industry/emphasis on
service and process innovation; declining industry/leadership, niche, harvest,
and divest; and global industry/multidomestic strategy or global strategy.

LO5. A competitor analysis is a detailed analysis of a firm’s competition. It helps

a firm understand the positions of its major competitors and the opportunities
that are available to obtain a competitive advantage in one or more areas. Direct
competitors, indirect competitors, and future competitors are the three groups of

competitors a new firm faces. Successful competition demands that a firm

understand its competitors and the actions they may take—both today and in the
future. There are a number of ways a firm can ethically obtain the information it
seeks to have about its competitors, including attending conferences and trade
shows; purchasing competitors’ products; studying competitors’ websites; setting
up Google e-mail alerts; reading industry-related books, magazines, and
websites; and talking to customers about what motivated them to buy your
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a firm understand the positions of its major competitors and the opportunities
that are available to obtain a competitive advantage in one or more areas. Direct
competitors, indirect competitors, and future competitors are the three groups of

competitors a new firm faces. Successful competition demands that a firm

understand its competitors and the actions they may take—both today and in the
future. There are a number of ways a firm can ethically obtain the information it
seeks to have about its competitors, including attending conferences and trade
shows; purchasing competitors’ products; studying competitors’ websites; setting
up Google e-mail alerts; reading industry-related books, magazines, and
websites; and talking to customers about what motivated them to buy your
product as opposed to your competitor’s product. A competitive analysis grid is a
tool for organizing the information a firm collects about its competitors. This grid
can help a firm see how it stacks up against its competitors, provide ideas for
markets to pursue, and, perhaps most importantly, identify its primary sources
of competitive advantage.

Chapter 9:

LO1. The liability of newness refers to the fact that entrepreneurial ventures
often falter or even fail because the people who start them can’t adjust quickly
enough to their new roles and because the firm lacks a “track record” with
customers and suppliers. These limitations can be overcome by assembling a
talented and experienced new-venture team.

LO2. A new-venture team is the group of people who move a new venture from
an idea to a fully functioning firm. Company founders, key employees, the board
of directors, the board of advisors, lenders and investors, and other professionals
are the primary elements involved with forming a new-venture team. A
heterogeneous founding team has members with diverse abilities and
experiences. A homogeneous founding team has members who are very similar
to one another. The personal attributes that affect a founder’s chances of
launching a successful new firm include level of education, prior entrepreneurial
experience, relevant industry experience, and the ability to network. Networking
is building and maintaining relationships with people who are similar or whose
friendship could bring advantages to the firm. A skills profile is a chart that
depicts the most important skills that are needed in a new venture and where
skills’ gaps exist. Finding good employees and effective new-venture team
members is challenging. Founders may draw from their personal networks to find
the needed talent or may ask existing employees for referrals. A board of
directors is a panel of individuals who are elected by a corporation’s shareholders
to oversee the management of the firm. It is typically made up of both inside and
outside directors. An inside director is a person who is also an officer of the firm.
An outside director is someone who is not employed by the firm. When a high-
quality individual agrees to serve on a company’s board of directors, the
individual is in essence expressing an opinion that the company has potential
(why else would the individual agree to serve?). This phenomenon is referred to
as signaling.

LO3. An advisory board is a panel of experts who are asked by a firm’s

management team to provide counsel and advice on an ongoing basis. Along
with lenders and investors and, potentially, consultants, advisory board members
are the source of an entrepreneur’s efforts to “round out” their new-venture
team. We say “round out” because the roles these groups play in a new-venture
success are less direct and less frequent compared to the influence of the other
elements associated with forming a new venture team Most entrepreneurial
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as signaling.

LO3. An advisory board is a panel of experts who are asked by a firm’s

management team to provide counsel and advice on an ongoing basis. Along
with lenders and investors and, potentially, consultants, advisory board members
are the source of an entrepreneur’s efforts to “round out” their new-venture
team. We say “round out” because the roles these groups play in a new-venture
success are less direct and less frequent compared to the influence of the other
elements associated with forming a new-venture team. Most entrepreneurial
firms have between 5 and 15 members on a board of advisors. Typically, these
individuals are paid a small honorarium for their services. Lenders and investors
have a vested interest in the entrepreneurial firm’s success. As the size of their
investment increases, lenders and investors tend to be more involved in
supporting the new venture’s efforts to gain traction in the marketplace as a
foundation of organizational success. Helping to recruit key employees, providing
information about the industry in which the venture intends to compete, and
serving as a sounding board for potential competitive actions are examples of the
issues lenders and investors address with new-venture team members.

LO4. The primary reason new ventures turn to consultants for help and advice is
that although large firms can afford to employ experts in many areas, new firms
typically can’t. Consultants can be paid or can be part of a nonprofit or
government agency and provide their services for free or for a reduced rate.

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