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Title: Unit%201:%20Overview%20of%20Entrepreneruship


1
Unit 1 Overview of Entrepreneruship
  • Ace Institute of Management
  • BBA 6th Semester

2
Nature and Development of Entrepreneurship
  • The word entrepreneur stems from French, means
    between-taker or go between.
  • Our definition involves four aspects
  • 1. The creation process.
  • 2. The devotion of time and effort.
  • 3. The assumption of risk.
  • 4. Rewards of independence, satisfaction, money.

3
Tools have changed with advances in Science
Technology, Ability to innovate has been
present in every Civilization Do we all Agree ?
4
Nature Development Of Entrepreneurship
  • Historical Evolution Of Entrepreneurship
  • Earliest Period
  • Middle Ages
  • 17th Century
  • 18th Century
  • 19th 20th Century

THE ABILITY TO INNOVATE CAN BE OBSRVED THROUGHOUT
THE HISTORY
5
Earliest Period
  • Go-Between is Marco Polo
  • Sign contract with a money person(Venture
    capitalist) to sell his goods
  • VC passive risk bearer
  • Merchant Adventurer took active role in trading-
    active risk bearer (Physical, emotional)
  • Merchant Adventurer completes trip successfully
    profits were divided- VC taking 75 MA 25

6
Middle Ages
  • Actor person who managed large production
    projects
  • Individual didnt take risks but only managed the
    project using the resources provided
  • Usually by the Govt of the Country

Person in charge of architectural works- Castles,
public buildings, cathederals
7
17th Century
  • Emergent connection of risk with entrepreneurship
    developed
  • E person who entered into contractual agreement
    with the government to perform a service or to
    supply products
  • The contract price was fixed any profits or
    losses were of entrepreneurs.

Richard Cantillon E is a risk taker, observing
that merchants, craftsman, farmers other sole
proprietors buy at a certain price sell at an
uncertain price, therefore operating at a RISK
8
18th Century
  • Person with capital was differentiated from the
    one who needed capital
  • E was distinguished from the capital
    provided(Venture capitalist)
  • One reason for differentiation was the
    industrialization occurring throughout the world
  • Invention developed during this time were
    reaction to the changing world
  • Case of Eli Whitney and Thomas Edison

VC- professional money manager who makes risk
investments from a pool of equity to obtain high
ROR on the investments
9
19th 20th Century
  • In late 19th and early 20th Century E were viewed
    from Economic Perspective
  • E organizes operates an enterprise for
    personal gain
  • Pays prices for material consumed in the
    business, for land, personal services he employs,
    capital he requires
  • Assumes the chance of loss and gain
  • Residue of the annual receipts is retained for
    himself.
  • 20th Century- Notion of an E as an innovator was
    established
  • Innovation newness integral part of E
  • Difficult part for E to introduce something new

10

Entrepreneurship
  • Process of creating something new with value by
    devoting the necessary time and effort, assuming
    the accompanying financial, psychological, and
    social risks receiving the resulting rewards
    of monetary and personal satisfaction.
  • The process of initiating a business venture,
    organizing the necessary resources and assuming
    the associated risks and rewards.

11
  • Entrepreneurship can be described as a creative
    and innovative response to the environment.
  • Such responses can take place in any field of
    social endeavour business, agriculture,
    education, social work and the like.
  • Doing new things or doing things that are already
    being done in a new way is entrepreneurship.

12
Entrepreneurship
  • If we examine the common elements in these
    definitions then,
  • Creativity and innovation
  • Resource gathering and the founding of and
    economic organization
  • The chance of gain under risk and uncertainty.

13
What is an Entrepreneur?
  • An Entrepreneur is a person who recognizes a
    viable idea for a business product or service and
    carries it out. Any person (any age) who starts
    and operates a business, in a new way, is an
    entrepreneur.

14
What is an Entrepreneur?
  • Economist Who brings resources, labor, materials
    and other assets into combination that make their
    value greater that before and also one who
    introduces change, innovation.
  • Psychologist Drive by certain force or need to
    attain something or to escape authority of others
  • Businessmen Competitor, or an ally or source of
    supply or customer

15
Characteristics of an Entrepreneur
  • Hard Work
  • Desire for High Achievement
  • Highly optimistic
  • Independence
  • Foresight
  • Good Organizer
  • Innovative

16
Types of Entrepreneurs
  • View of Clarence Danholf
  • Innovating Entrepreneurs
  • Imitative Entrepreneurs
  • Fabian Entrepreneurs Great Caution and
    Skepticism in experimenting any change
  • Drone Entrepreneurs Refusal to adopt
    opportunities to make changes. Suffers losses but
    make no changes
  • Behavioral View
  • Solo operators, Active partners, Inventors,
    Challengers, Buyers, Life timers

17
Positive aspects of Entrepreneurship
  • Positive Aspects
  • Opportunity to gain control over your own destiny
  • Opportunity to reach your full potential
  • Opportunity to reap unlimited profit
  • Opportunity to contribute to society and be
    recognised for your efforts

18
Positive aspects of Entrepreneurship
  • Negative Aspects
  • Uncertainty of income
  • Risk of losing entire invested Capital
  • Long work hours and hard work
  • Lower quality of life
  • Emotional stress.
  • Complete responsibility

19
Distinction Between Entrepreneur and Manager
Description Entrepreneur Manager
Motive Initiate business for self satisfaction Provide service in business established by others
Objective Maximize Profit Receive high salary and other facilities
Status Owner of the business Employee of the business
Risk taking Takes all risks and uncertainty No Risk
Reward Receive profit, which is uncertain Receives salary which is certain and fixed
Innovation An innovator Uses innovation in practice
Qualification Need to have high achievement tendency, original thinking, foresightedness and capacity to risk taking Need the knowledge of the theory and practice of management
20
The Entrepreneurial Decision Process
  • Individuals have difficulty bringing their ideas
    to the market creating a new venture
  • Yet entrepreneurial decisions have resulted in
    several new businesses through out the world
  • Despite recession- inflation- high interests
    rate, lack of infrastructure-economic uncertainty
    high probability of failure

21
  • Deciding to become an entrepreneur by leaving
    present activity
  • Form new enterprise
  • Desirability of New Venture
  • Cultural
  • Subcultural
  • Family
  • Teachers
  • Peers
  • Possibility of New Venture
  • Government
  • Changing from present life style
  • Work Environment
  • Disruption

22
Changing from Present Lifestyle
  • Work Environment
  • Two environment have been for spawning new
    enterprises
  • RD individuals develop new product ideas
    leave to form their own companies when these
    ideas are not accepted by their employers
  • Marketing become familiar with customers
    unfilled needs wants- start enterprise

23
Changing from Present Lifestyle
  • Disruption
  • Negative force retired
  • Relocated due to a move by other family member in
    a dual-career family
  • Who have been fired
  • 12 new business listings in the yellow pages
    increased during layoff period
  • Educational degree-MBA
  • Student who is not promoted after receiving an
    MBA-frustrated start new company

24
Desirability of New Venture Formation Aspects of
a situation that make it desirable to start a new
company
  • Cultural
  • SubCultrual
  • Family
  • Teachers
  • Peers
  • American culture places a high value on beings
    ones own boss
  • In some countries establishing a new business is
    not are not as highly valued-failure might be
    disgrace
  • No culture is totally for or against
    entreprenshuip
  • Silicon valley- subcultures support even
    promote- forming of new company as one of the
    best occupations
  • High of the founders of Cos had fathers OR
    mothers who valued independence
  • Encouragement by teachers- influence to regard E
    as a desirable viable career path
  • No E courses a person takes-increases
    probability of starting Venture
  • Standford is in the Silicon
  • Meeting place where E potential entrepreneurs
    can discuss ideas-problems solutions spawns
    more new companies than an area where these are
    not available

25
Possibility of New Venture Formation
  • Provides infrastructure to help/support a new
    venture
  • Give roads-communication systems-transportation
    system-utilities- economic stability TAX RATE
    can suppress company formation-since Co wont have
    money to start grow
  • Government
  • Background
  • Marketing
  • Finance
  • Role Models
  • E must have necessary background-Education,
    previous business experience skills needed to
    form manage a new enterprise
  • Entrepreneurs are not born they develop
  • Presence of market of sufficient size- must also
    be a level of marketing know-how to put together
    the best total package of product, price,
    distribution promotion needed for successful
    product launching
  • A Co. is more easily formed when the driving
    force is more from market demand than a
    technology push
  • Financial resources must be readily available
  • Most start ups comes from personal
    savings-credit-friends-relatives, there is often
    a need for additional seed capital
  • Most powerful influence in making Co seem
    possible
  • see someone else succeed makes it easier to
    picture yourself engaged in a similar activity
  • Frequent comment of E if that person could do
    it, so can I

26
Types of Start Ups
  • Lifestyle Firm - A small venture that supports
    the owner and usually does not grow much (sole
    proprietorship).
  • Foundation company A type of company formed
    from research and development that usually does
    not go public (Private Ltd. Company).
  • High-Potential venture A venture that has high
    growth potential and therefore receives great
    investor interest. High potential venture may
    start as foundation company and later on convert
    itself into high potential venture by going for
    public investment (Public Ltd. Company).

27
Role of Entrepreneurship in Economic Development
  • Role of entrepreneurship in economic development
    involves more than just increasing per capita
    output and income
  • It involves initiating change in structure of
    business and society.
  • In spite of importance of investment and
    innovation there is still lace of understanding
    of product evolution process.

28
Role of Entrepreneurship in Economic Development
  • Iterative synthesis Intersection of knowledge
    and social need that starts the product
    development process
  • Ordinary innovation New product with little
    technological change
  • Technological innovations New product with
    significant technological advancement.
  • Breakthrough innovations New product with some
    technological change.
  • Regardless of the level of uniqueness each
    innovation evolves into and develops toward
    commercialization through one of three mechanisms.

29
Role of Entrepreneurship in Economic Development
  • Government as an Innovator
  • Intrapreneurship Entrepreneurship within
    existing organization
  • Entrepreneurship

30
To Sum up the Role
  • Promotes Capital formation
  • Optimum utilization of resources
  • Promotion of employment opportunities
  • Balances regional development
  • Reduced concentration of economic power
  • Backward and forward Linkage
  • Promote foreign trade
  • Industralization

31
Sources of New Ideas (1 of 2)
  • Consumers
  • Informal formal monitoring of potential ideas
    and needs- express their opinions.
  • Idea need represents a large enough market to
    support new venture .
  • Existing Companies
  • Potential (Entpr Intraprnrs) should also
    establish a formal method for monitoring
    evluating competitive products services on the
    market
  • Distribution channels
  • Channel members-Excellent source of new ideas
    bcoz of their familiarity with the needs of the
    market
  • Help in marketing the newly developed products
  • Example salesclerks suggesting entrpr changing
    color of product

32
Sources of New Ideas (2 of 2)
  • Federal government
  • Files of the Patent Office contain numerous new
    product possibilities.
  • Suggest more marketable product ideas
  • Official Gazette, published summarize list of
    patents for license or sale
  • New product ideas can come in response to
    government regulations. (OSHA- eliminating unsafe
    WCs in industry)
  • Research and development
  • Largest source of new ideas is the entrepreneurs
    own research and development efforts. May be
  • A formal endeavor connected with ones current
    employment.
  • An informal lab in a basement or garage.

33
Methods of Generating New Ideas
  • Focus groups
  • number of group members from 6-12
  • Moderator focuses discussion of the group in a
    directive or nondirective manner.
  • Co. womens slipper-concept of warm
    comfortable slipper thats fits an old shoe 12
    women focus group
  • An excellent method for initially screening ideas
    and concepts.
  • Brainstorming
  • A Group method for obtaining new ideas
    solutions

34
Brainstorming Conti....
  • 4 Rules should be followed
  • No criticism is allowed by anyone in the group
  • Freewheeling is encouraged-wilder the idea the
    better
  • Quantity of ideas is desired- greater the no. of
    ideas the greater the likelihood of the emergence
    of useful ideas
  • Combinations and improvements of ideas are
    encouraged- ideas of others can be used to
    produce still another new idea

35
  • Focus group and brainstorming is different in the
    sense that FG is structured or moderated...while
    BS is not a debate or discussion like that....its
    people giving lots of ideas without criticism
    allowed

36
Methods of Generating New Ideas
  • Problem inventory analysis
  • Instead of generating new ideas themselves
    consumers provided with list of problems in
    general product category
  • Then asked to identify discuss products in this
    category that have particular problem
  • Can be used to test a new product idea.
  • Effective method since its easier to relate known
    products to suggested problems arrive at a new
    product idea than to generate an entirely new
    product idea by itself
  • Results must be carefully evaluated as they may
    not actually reflect a new business opportunity.

37
Family Business
  • A family business is characterised by direct
    involvement of family members in ownership and
    functioning. An existing family business is
    inherited from parents or relatives. Family
    business is an ongoing concern. The new owner
    replaces the old owner. It is all in the family.
  • Family business is the simplest way of entering a
    small business. Succession can be planned or
    unplanned.

38
  • Advantages of Family Business
  • Minimal Risk there is no risk involved. Family
    business is a going concern with track record.
    Generation of revenue and profits is likely to
    continue. Competitors are known.
  • Reputation The business has an established
    image. Goodwill exists. Relationships have been
    established with customers, suppliers, banks,
    creditors and employees. There is commitment for
    quality and customer service.
  • No start-up headaches There are no headaches
    associated with start-up of a new business. The
    market is established. Employees are in place.
    Production facilities are operational.
  • Location The location is proven for successful
    operations.
  • Taxation There are no taxation problems. The
    owner assumes all tax-related liabilities.

39
  • Disadvantages of Family Business
  • Lack of interest The inheritors may lack
    interest in operating the business. They may be
    attracted towards other opportunities, such as
    salaried employment. The interests of inheritors
    may differ, This can create conflicts.
  • Lack of skills The inheritors may lack talent
    skills and competencies to run the business. They
    may also lack experience.
  • Overlap Business interests may overlap with
    family interests.
  • Relationships The inheritors may not be able to
    maintain amicable relationships with employees,
    customers, suppliers, banks and creditors.
  • Legal hassles Legal problems may arise related
    to inheritance of business. This happens where
    succession planning is lacking.

40
Family business and Succession strategies
  • Succession
  • Handing over the business to family members.
  • Succession Planning
  • Planning in advance regarding the continuity of
    the business after retirement of the owner.
    Developing and selecting heir to the business.

41
Family business and Succession strategies
  • Barriers to successful succession planning

Founder/ Owner Family
Death Anxiety Death as taboo Discussion is a hostile act Fear of loss/abandonment
Company as symbol Loss of identity Concern about Legacy Fear of Sibling rivalry
Dilemma of Choice Change of Spouses position
Generational envy Loss of power
42
Key Factors in Succession
  • Pressure and Interest inside the firm
  • Family members family members are also employees
  • Non family members Employees
  • Pressure and Interest outside the firm
  • Family members Family members who are not
    employee
  • Non family members Competitors, Regulatory
    agencies
  • Forcing Events Death, illness, legal problems,
    financial difficulties
  • Sources of Succession
  • Environmental Forces

43
Family business and Succession strategies
  • Developing a Succession strategy involves steps
  • Understanding The contextual aspects
  • Time Early the better
  • Type of venture Venture with high tech and based
    on personal business contacts are difficult to
    replace
  • Skills, desires and abilities of heirs.
  • Entrepreneurs vision
  • Identifying successors quality
  • Sufficient knowledge of business
  • Interest.
  • Honesty and capabilities
  • Health, energy, maturity, perseverance, problem
    solving.
  • Agreement with the owners philosophy about the
    business

44
Family business and Succession strategies
  • Understanding the influencing forces
  • If ideal successor is not found than they should
    be developed
  • Family and business culture issues Business
    cultures, stage of firms development, business
    traditions and norms, family culture and
    strengths.
  • Owners concern Relinquishing power and
    authority, defining family members future role in
    business, assuring competent future leader,
    educating family and non family members about key
    roles in business.
  • Family members concern Gaining and losing of
    control of family assets. Control over decisions
    by successors in years to come. Getting money
    from business, Assurance that business will
    continue.

45
Family business and Succession strategies
  • Carry out succession plan
  • Identify successor
  • Groom
  • Agree on a plan
  • Consider outside help.

46
Succession Strategies
  • Transfer to Family Members
  • Can create internal problem with employees
  • Knowledge of business required for successor
  • Helpful if entrepreneur stays around for a while
    as advisor
  • Old employees may resent the younger family
    member taking control
  • Successor may prove his ability and run business
    successfully

47
Succession Strategies
  • Transfer to Non Family Members Three Choices
  • Train a key employee and retain some equity
  • Question of how much of equity to be retained
  • Retain control and hire a manager
  • Sell the business outright ( Harvesting Strategy
    )
  • Direct Sale ( buyer outsider )
  • Employee Stock Option Plan
  • Management Buyout ( Buyer Loyal employee )
  • Initial Public Offering
  • Merger

48
Fundamental Issues of Entrepreneurship
  • Strategic Planning and decision making issues
  • Should be participative and decentralized.
  • Staffing issue should be based on expertise,
    knowledge and talent and not with relationship
  • Technological issues Should have non imitable,
    unique, cutting edge technology
  • Infrastructure issue Should have adequate
    infrastructure, water, power supply

49
  • Issues of entrepreneurial skills and strategies
    Entrepreneurs should posses various skills and
    strategies
  • Financial issues Sources of funding should be
    well identified so that they can be made
    available at the time of expansion and crisis
  • Issues of governmental support The government
    should provide supportive policies and facilities
    so that new starts ups can flourish easily

50
  • Market issue An entrepreneur should be able to
    create their own market
  • Structural and leadership issue most appropriate
    organizational structure should be formed and
    leader should possess required quality to drive
    the system according to the strategy adopted.

51
Questions
  • Define entrepreneurship. How is an entrepreneur
    different entrepreneurship.
  • Entrepreneurs are catalyst of economic
    development. Explain
  • What is entrepreneurship? What roles
    entrepreneurs can play for national economic
    development?
  • Define Creative process. Identify and briefly
    describe the sources of new business ideas.
  • Entrepreneurship is the process of exploiting
    opportunities by using the new ways of organizing
    resources and managing the resulting reward.
    Explain

52
Questions
  • What is family business? Briefly explain the
    challenge and succession strategies of family
    business.
  • Define family business. Why should the owner of a
    family business plan for succession of business
  • What is entrepreneurship? Differentiate between
    roles of an entrepreneurs and a manager.
  • Conflict and friction are the major challenges of
    family business. Explain briefly the ways of
    dealing with these challenges and exit strategies
    of family business.
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