Entrepreneurship

Entrepreneurship

Glenn Muske Micro Business Specialist Oklahoma State University

Outline

Entrepreneurship

Myths Defined Opportunity, Risk and Reward What the social sciences tell us

Entrepreneurs and the community

Entrepreneurs vs. small business owners & others Role of entrepreneurs in the local economy Building an entrepreneurial community

Entrepreneurial examples
Special entrepreneurial situations Final thoughts

Personal Passion
The freedom to pursue personal passion leads many to start businesses.

Nothing great in the world has been accomplished without passion.

George Wilhelm Friedrich Hegel German Philosopher (1770-1831)

Questions often asked but arent the most important

1.

What can I do? What business should I start? Can I get a grant? What business will earn lots of money? What about e-commerce?

2.

3.

4.

Questions often not asked but should be!!

1.

Am I an entrepreneur? Is there a market? Can I profitably tap that market? How do I get to market?
- E-commerce is just a means to market

2.

3.

4.

The Myths of Entrepreneurship

Myth #1
Get

Rich Quick!

Truth is
Life as an entrepreneur is not about money. Success rarely happens overnight. It's about what you want to do with your life.

Myth # 2
You

must be born an entrepreneur (trait theory)

Truth is:
some of the most successful entrepreneurs are the most unlikely. It is a lifestyle choice, not an accident.

Myth # 3
You

must be at the right place at the right time (environment theory)

Truth is:
successful entrepreneurs operate whatever the macroeconomic and structural factors are

Myth # 4
"I'll

have all this free time" is entrepreneurs work many

Truth

hours

advantages are:
control

of time variety of tasks

Myth # 5
It

get easier. is it gets more challenging

Truth

must work faster, smarter & longer must enjoy the battle

Myth # 6
If

you build it, they will come.

Truth is building your business is just the start.

Next is the real work: planning timing strategizing and more.

Myth # 7
It's

all about the bottom line.

Truth is that the bottom line is necessary but not sufficient

purpose and meaning to the business inspire customers and employees

Myth # 8
Entrepreneurs Truth

are risk takers

Entrepreneurs are calculators

Studies show entrepreneurs are only moderate risk takers

Myth # 9
You

have to have a great idea

Truth

Your Your Your Your

idea idea idea idea

must must must must

be be be be

good doable wanted or needed priced right

Myth # 10
It

takes a lot of money

Truth

Over 50% start for under $10,000

Also look for
Certain

business types Turn-around situations Possibility of using other peoples money

Entrepreneurs goal is
to create or capitalize on new economic opportunities through innovation

By finding new solutions to existing problems Or by connecting existing solutions to unmet needs or new opportunities

SOURCE: Lichtenstein & Lyons, Incubating New Enterprises: A Guide to Successful Practice, 1996

Entrepreneurship Definitions:
1.

2.

Creation of an innovative economic organization for the purpose of gain or growth under conditions of risk and uncertainty Self-employment through business ownership that includes significant elements of risk, control, and reward
(Coleman Foundation)

3.

Organizing a business venture assuming a certain amount of risk to make a profit

(Burns and Bolton)

More Definitions:
Profits

risk Purposeful activity to initiate and develop a profit-oriented business Moderate risk taking Creation of new organizations The pursuit of opportunity without regard to resources currently controlled

from bearing uncertainty and

Entrepreneurship: Basic Elements

1. 2.

Opportunity recognition Creation and/or innovation

3.

Resource gathering and the founding of an economic organization

Desiring the chance for gain while accepting risk and uncertainty

4.

Other Entrepreneurial Motivators

?? Tell a time when you were entrepreneurial ??

Were you successful??

Opportunity Recognition

An Entrepreneurial Opportunity defined:

A

situation in which changes in which changes in technology, or economic, political, social, and demographic conditions generate the potential to create something new or to remarket something existing.

Entrepreneurial Opportunity Grid

Product/Service Existing

Market

New

Existing

Market Penetration Market Development

New Offering Development

New

Diversification

What are opportunities?

Small steps

Little jumps
Huge leaps

"Don't be afraid to take a big step if one is indicated; you can't cross a chasm in two small jumps."
David Lloyd George

Opportunities can be...

Technical or scientific Political and regulatory Process or production method Organizing New market and marketing Personnel

Social & demographic changes New raw material Product obsolescence Corporate stagnation One-product vulnerability Chance

Think like a..

Manager

Problem solving

Entrepreneur

Exploitation

Opportunity

Opportunities
External

Unexpected event Technology changes and convergence Change in methods Demographics/market size, Changes in competition
Internal Other

methods

The Opportunity Myth

An Idea does not equal an

Opportunity

Creation & Innovation

Creativity Imagination is more important than knowledge - Einstein

The Creative Process

Planning

& definition

focus on building the RIGHT product

Design,

demonstration & customer support

focus on building the product RIGHT

Customer requirement

Product solution

NOT
Technology Product Find a consumer

Basic questions
What

is the customers need?

How large is the opportunity? How likely is it to happen? What is the market timing? Is it aligned with our organizational strengths?

Time is money!
Delays give others time to develop the same product.

Reduce product development time by 1/3 & you will triple profits & growth.

Exercise
In

groups of 3-4, think of 3 things you have observed externally lately that would be a potential business opportunity.

Resource Gathering
Resourced-based Theory of Entrepreneurship

Dimensions of Entrepreneurship
Individual Characteristics

Environment

New Venture Creation

Organization

Constraints in the Environment

Resource
any

thing or quality that is useful used to develop sustainable competitive advantage heterogeneous & immobile
you have them, others cannot easily get them

Strategic Resources
Valuable

Exploit an environmental opportunity Rare Not enough for all competitors Imperfectly imitable Cannot be merely copied Non-substitutable

Competitive Advantage
No Advantage Common Readily available & cheap Ordinary Many & easy Resource Dimension Valuable Advantage Exploits opportunities Unique & expensive Complex & ambiguous Difficult

Rare Imitable Substitutable

Types of Resources
Financial

Physical
Human Technology Reputation Organizational

Risk and Reward

If the business succeeds,

the entrepreneur reaps the

reward of profits; if it fails,

one takes the loss.

Business Failure Rate

80 60 40 20 0 0 2yrs 5yrs 6yrs 8yrs Number of business failures per 100 start-ups

Statistics
10% of small businesses fail each year 40 - 80% of small businesses do not survive for 5 years Most small businesses closures do not result in uncovered liabilities Majority of small business owners who fail will start another business

Why do businesses fail?

2 general categories Financial Nonfinancial

Financial Reasons
Under-capitalized Poor cash flow planning Lack of record keeping Inadequate financial forecasting and review Lack of accounting training Excessive debt

Nonfinancial Reasons
Loneliness Lack of management skills and training Little passion Impact of regulations Inefficiency Inexperience Lack of planning

"I never failed once. It just happened to be a 200l-step process."

Thomas A. Edison

Rewards

???

"In the realm of ideas everything depends on enthusiasm, in the real world all rests on perseverance." Johann Wolfgang von Goethe

The Social Sciences on What Makes an Entrepreneur

Trait Theory

Energy/motivation Business orientation Business attitude

People skills

http://www.sba.gov/starting_business /startup/entrepreneurialtest.html http://www.toolkit.cch.com/tools/dow nloads/swchek.rtf

Personality Characteristics

Need for achievement

Locus of control Risk-taking propensity

Career Anchors
Motivate vocational choices
Technical Managerial Security Creativity Autonomy

Sociological Characteristics

Negative displacement
Between things Positive pull

Positive push

Situational Characteristics

Perceptions of desirability
Perceptions of feasibility Entrepreneurial event

Desires
Change:
Your life A product or service

The environment

Entrepreneurs and the Community

CARE Model
(Dr. Mike Woods, Jack Frye, & Stan Ralstin)

Creation Attraction Retention Expansion

% of New Jobs Created

Attraction - 1%
Retention & Expansion 44% Creation 55%

We all want to find the next gazelle!!

Entrepreneurs vs. Small Business Owners

Carland, Hoy, Boulton, & Carland argue they are different
- Entrepreneurs and entrepreneurial businesses involve innovation & growth - Entrepreneurs goal-orientation is different
- financial success vs. other criteria - need for achievement/power
-

Entrepreneurs use strategic management practices

Small Business
Independently owned and operated, not dominant in its field, and does not engage in any new marketing or innovative practices Owner Establishes and manages for purpose of furthering personal goals. Business is primary source of income & consumes majority of time & resources. Owner perceived business as extension of personality, intricately bound with family needs and desires.

Entrepreneurial Venture
Engages in growth and profitability and innovation by introducing new products, new processes, opening new markets, or reorganizes the industry Entrepreneur Establishes and manages the business for growth and profit. Is innovative and employees strategic management practices.

??QUESTION??
Are entrepreneurs and small business owners the same thing?
Why?? Why not?? Does rural make a difference??

Comparing Entrepreneurs to Managers and Leaders

Entrepreneur Innovates Creates Sees opportunities Asks how and when Makes it happen Builds the team Manager Administers Maintains See problems Asks how and when Does things right Relies on control Leader Innovates Develops Sees the future Asks what and why Uses influence Inspires trust

Entrepreneurship is a style and a general method of operating, not just a set of business skills.
Jerry Gustafson Beloit College

Entrepreneurs
People who create and grow enterprises Aspiring entrepreneurs Survival entrepreneurs Lifestyle entrepreneurs Growth entrepreneurs Serial entrepreneurs Social entrepreneurs
SOURCE: WK Kellogg Foundation

Entrepreneurs and the Community

What they bring

Does it matter what they are called?

Both: Add income to the household and jobs and wealth to the community Add economic strength to a community Add stability to a community Provide the owner with the ability to achieve his or her goals Create new opportunities within the community - Multiplier

Who entrepreneurs are?

Classified

as:

Small business Micro business Home-based business Family business

Also:

Underground economy Informal economy Formal economy

Metro, Micro, Rural Comparison

20% of OK households own & run a business

Metro
(n=146)

Micro
(n=54)

Rural
(n=46)

Primary bus. Family bus. Home-based Spouse in bus.

Service Ag/For/Fish Ag/For/Fish Construction Service Construction, Retail Retail FIRE & Service

62% 66% 48%

74% 63% 46%

78% 70% 65%

Metro, Micro, Rural Comparison

Metro
(n=146)

Micro
(n=54)

Rural
(n=46)

Avg # empl Gross inc.

- Mean - Median

1.83
$241,891 $49,000

2.04
$333,589 $35,000

2.11
$162,190 $40,000

The numbers

Small businesses 16 million nonfarm

OK 290,000 (employer & nonemployer)

50% of private workforce

OK 54%

Create 2/3 of all new jobs 52% of all nonfarm output Micro businesses ???

OK 270,000 94%

+ 84,000 farm/ranch operations

The numbers

Family businesses 12.7% of households

OK 185,000 - $6.5 billion inc transferred to family South 3.3 million - $109 billion transferred U.S. 9.7 million - $348 billion transferred

Home-based businesses 5% - 18% of hh

OK 67,000 176,000

- $1 - $6.2 billion/year

Creating Entrepreneurial Communities

People

Formal Institutions

Informal Organizations

Entrepreneurial Communities
4 types
1. 2. 3. 4. Those Those Those Those that that that that develop entrepreneurs act entrepreneurially do both do neither

Entrepreneurship development
the infrastructure of public and private supports that facilitate entrepreneurship

Entrepreneurial communities
those where significant economic and social entrepreneurial activity exists and where there is an effective system of entrepreneurship development
SOURCE: WK Kellogg Foundation

Entrepreneurial Communities
1.

Has critical mass of entrepreneurs actively engaged in capturing new market opportunities Group of entrepreneurs recognizable within the community

2.

3.

Community as a whole is entrepreneurial

Social capital (Floras) Human capital-diversity (Florida)

Clusters (Porter)
Public-Private Partnerships (Tupelo-Grishom) Innovative Infrastructure (Feldman)

Theory Expansion

Social capital
Trust, networks, reciprocity, and collective action Horizontal, vertical, and flexible (not in the group at all times)

Human capital
Education
Beyond

high school Continuous and life-life long Include specific and general Inclusive pre-K older citizen Just-in-time

Knowledgeable and involved citizens

Theory Expansion
Clusters

Why? Based on economies of scale, technology transfer & availability of human capital (Eric Scorsone, Industrial clusters: Enhancing rural
economies through business linkages, SRDC 21st Century Series)

Innovative

infrastructure

Basics plus items such as a visionary government, day care, & technology

Creating an Entrepreneurial Climate

1. 2.

Entrepreneurship must be an explicit economic development strategy Community must embrace and nurture entrepreneurs
a. b. c. Goal - A continuous pipeline of entrepreneurs Supportive public policies Balances regulations with business needs Education early & on-going, formal and nonformal

3. 4. 5.

Access to capital banks, investment, angels Access to quality workers Recognize entrepreneurial efforts

Enterprise Development
Assistance to entrepreneurs in support of the creation, growth, and survival of their businesses Koven & Lyons (2003)
nonprofit, private, public service providers youth entrepreneurship programs micro enterprise programs business incubators manufacturing network small business development centers angel capital networks revolving loan funds technology transfer programs

Nurturing of Entrepreneurs
Mentors

and coaches Business/management assistance & support

Coordinated, seamless, and local
Access

to technology Technical assistance Inclusion of all into events, programs, & groups

Other Examples: How Communities Can Help

Purchase locally Help create new local businesses Develop human resources Free-up potentially productive space

Initiate local investment strategies (endowments, fundraising, microloan programs)

Mobilize external resources

Challenges for Sustainable Rural Economic Development

1.

2.

3.

Translating models to placebased strategies - no silver bullet Implement strategy with tangible benefits - taxpayers see return on investment Need to create good jobs - self-sustaining wages

Challenges for Sustainable Rural Economic Development

(cont.)
4.

5.

Need for strategies that build on all assets - young, old, men, women, ethnicities Shortage of resources in most small towns.
SOURCE: Emery, Wall, Macke, 2004

Shortcomings of Enterprise Development

#1 Tool-Driven-Not Needs-Focused
Worked one-place and one-time Solutions in search of a client base Voice of the customer-the entrepreneur-is missing

Entrepreneurial Needs

Hard for entrepreneurs to articulate Entrepreneurs may not trust those asking the questions Entrepreneurs difficult to identify and reach
SOURCE: Lichtenstein, Lyons, Kutzhanova, 2004

Shortcomings of Enterprise Development (continued)

#2 Fragmented and Categorical Creaming we need more than a quarterback #3 Too Little Focus on Execution Various gurus crisscross the country then go home Gap between ideas and education
#4 The Broken Learning Cycle Best practices vs. successful practices
SOURCE: Lichtenstein, Lyons, Kutzhanova, 2004

Shortcomings of Enterprise Development (continued)

#5 Focus on the Business, not the Entrepreneur
#6 Missing Function: Responsibility for the Communitys Supply of Entrepreneurs #7 Funders, not Clients, Drive the Program #8 Impact is not Scalable Community-wide impact
SOURCE: Lichtenstein, Lyons, Kutzhanova, 2004

Successful Entrepreneurial(?) Communities

1.

Acceptance of Controversy

2.
3. 4.

Ability to Depersonalize Politics

Surplus Income to Invest Willingness to Take Risks

5.
6. 7. 8.

Ability to Define Community More Broadly

Networking Ability Emphasis on Academics

Flexible, Dispersed Leadership

SOURCE: Flora and Flora

SOURCES FOR THIS PRESENTATION

Lichtenstein, Lyons, Kutzhanova Building Entrepreneurial Communities: The Appropriate Role of Enterprise Development Activities Journal of the Community Development Society, 2004
Emery, Wall, Macke From Theory to Action: Energizing Entrepreneurship (E2), Strategies to Aid Distressed Communities Grow Their Own Journal of the Community Society, 2004

Entrepreneurs We Know

Do you know who they are?

Stan

Clark Frank Epperson Fred Smith Bill Bowerman & Philip Knight Dr. John Pemberton & Asa Chandler

Do you know who they are?

Jeff

Bezos Cohen and Greenfield Ray Kroc Tom Monaghan Bill Gates Howard Schultz

Entrepreneurs
All are not equal, nor do they want to be!!

Entrepreneurs
People who create and grow enterprises

Aspiring entrepreneurs Survival entrepreneurs Lifestyle entrepreneurs Growth entrepreneurs Serial entrepreneurs Social entrepreneurs
SOURCE: WK Kellogg Foundation

Family Business Names

Wal-Mart Ford Weyerhaeuser Michelin Gap Anheuser-Busch Tyson Foods Dillards Cargill Koch Industries Ikea Cox Communication Enterprise Rent-A-Car Hallmark Levi Strauss Kohler

Family Businesses

Generate 62% of nonfarm business receipts - $16.8 trillion in 1996

Even greater impact in midwest economy

Dominate form in agriculture, retail, wholesale, and distribution sectors Employ 54.8% of workforce 69.5 million Provide higher than average household income and net worth

Only 1% of households are poor vs. 11% overall

Sustainable Family Business Model

PROCESSES
Time of Stability Interpersonal Transactions Resource Constraints Times of Change Interpersonal Transactions Resource Transactions

Available Resources and Constraints

Achievements Objective Success Subjective Success

Disruptions in Family/Business Transactions

Responses to Disruptions in Family/Business Transactions

Sustainability

PROCESSES Time of Stability Interpersonal Transactions Resource Constraints Time of Change Interpersonal Transactions Resource Transactions

Available Resources and Constraints

Achievements Objective Success Subjective Success

BUSINESS

More info

www.hce.osu.edu/fambus http://www.human.cornell.edu/ne167/

Home-based Business Names

Hewlet-Packard

Nike
Coke Mrs.

Fields Cookies Microsoft Dell

Home-based Business Facts

Nine-state study (1988)
Typical home-based worker
44

year old male, married, with children, 14 yrs. education, & a homeowner Mean gross business income - $53,164 Mean net business income - $15,628 Mean household income - $42,263

Had medical insurance from some other source As # children increased, number of work hours decreased (1 day per child on average) Had greater longevity in the community

Copreneurs
Defined Couples in business together
31% of family businesses Have more children, lower educational levels, rural location, business manager earns less per year, more likely home-based, and have fewer employees Make significantly less business income and business profits (by factor of 5) & feel business is less successful Copreneurs more likely to view business as a way of life as opposed to a way to earn income

Copreneurs cont.
More likely to intermingle money between business and family More often family to business

Also use more ways of intermingling

Approximately 20% of couples discontinued the copreneurial relationship (but stayed together as a couple) in a 3-year period

Made less money & saw the business as less successful.

Another 20% started a copreneurial relationship

Made most money of all 3 groups, run by older men with more education, had fewer dependents, and spouse worked fewer hours in business.

Value-Added Opportunities

Value-Added
Defined: Adding consumer-desired features to raw materials Done by: 1. Additional processing 2. Marketing - change from the current method of distribution 3. Use existing resources to produce a new, more valued product/service 4. Some combination

Reap New Profits:

Marketing Strategies for Farmers & Ranchers

Farmers Markets

People dont come all the way out here to get cheap food. They come because its fun and the berries are absolutely fresh.
-- Earnie Bohner, Persimmon Hill Berry Farm

Pick Your Own

E N T E R T A I N M E N T

F A R M I N G

O T H E R

Farm Stands

Community supported agriculture (CSA) Cooperatives

Restaurant sales Mail order/ Internet/ Direct marketing

O P T I O N S

Resources:

USDA Sustainable Agriculture Research and Education (SARE) www.sare.org Farmers Markets www.ams.usda.gov/farmersmarkets Alternative Farming Systems Info Ctr

www.nal.usda.gov/afsic

USDA Farmer Direct Marketing www.ams.usda.gov/directmarketing

North American Direct Marketing Assn. www.familyfarms.com

Minorities and Women

General Information

Small business ownership rates for women and minorities are increasing faster than for white males Still men start new businesses at twice the rate of women
Women 9.8% own businesses
Translates

Firm receipts average about 2/3 of all bus. Proprietor income averages about 50% of all other businesses Firms employee fewer people

Minorities Ranges from 5% (Blacks) to 10.4% (Asian)

to over 50% of all businesses

Special Issues
Access

to capital Acceptance by business community Acceptance by family and friends Networks are smaller and more family-focused Most often in retail or service industries
Industries with highest failure rates and lowest profits

Barriers to Entrepreneurship

A lack of:
1. 2. 3. 4. 5. 6.

7.
8.

Steady stream of want-a-bes Can-do attitude held by the entrepreneur and the community Coordinated, accessible, long-term support network Coaches and mentors Capital Available human capital Multi-faceted healthy community Supportive regulatory environment

The man who makes no mistakes does not usually make anything."
Edward John Phelps, American lawyer and diplomat (18221900)

"Nothing great was ever achieved without enthusiasm." Ralph Waldo Emerson

Highlights

Highlights
Entrepreneurship is an ever-continuing, growing trend Entrepreneurs contribute to their household and to their community Entrepreneurship is a learned talent Entrepreneurs form our economic base Entrepreneurship allows people to remain in a community Communities can encourage entrepreneurship

Entrepreneurs: - See opportunity - Are innovative in developing that opportunity through creativity and resource gathering - Seek gain while accepting risk and uncertainty

The key to success is a great idea

The keys are:

One Last Myth

Good idea

Great plan

Passion!

How Extension can help?

1. Awareness of owners priorities 2. Comfort with subject matter

One-on-one Mentoring Advocating Partnering Community support Awareness of other programs

Education

Resources

Southern Rural Development Center

http://srdc.msstate.edu/

Kansas City Federal Reserve Bank

Center for the Study of Rural America

http://www.kc.frb.org/RuralCenter/RuralMain.htm

Rural Policy Research Institute (RUPRI)

http://www.rupri.org/

Resources cont.
Adult

Cashing In On Business Opportunities NeXt Level/Fasttrac/other commercial OSU

Putting

It All Together Food Based Business: The Owners Guide An Exploration of Entrepreneurship Visual Merchandising
Educational program Demonstration program
Mapping

Your Marketing Future

Magazines, i.e. Entrepreneur

Resources cont.
Youth

Mini-Society Be the E: Entrepreneurship (4-H CCS) http://youngbiz.com/ http://www.celcee.edu/ - clearinghouse

General

http://www.entre-ed.org/index.htm

Entrepreneurship

Glenn Muske Micro Business Specialist Oklahoma State University