Center for Management of Emerging Companies

Definitions of Entrepreneurship

Few topics in the business area have attracted more attention among academics and journalists than entrepreneurship and this report describes efforts to reach a consensus on a fundamental question: “what is entrepreneurship?”  Efforts to make the traits and characteristics of the individual “entrepreneur” have led to unsatisfactory results and it would appear that the more viable and useful approach is to view entrepreneurship as a process that includes the discovery, enactment, evaluation and exploitation of opportunities to create future goods and services. 

Factor and Framework Conditions for Knowledge-Based Entrepreneurship

A few months ago we featured a report on knowledge-based entrepreneurship in India.  Continuing with that theme, it seems relevant in these difficult economic times to take note of the various facilitating factors or framework conditions that researchers have identified for “knowledge-intensive entrepreneurship” to flourish and sustain.  For example, the Global Entrepreneurship Monitor has cited ten such factors or conditions, including financial support; government policies; government programs; education and training; research and development transfer; commercial and professional infrastructure; internal market openness; access to physical infrastructure; cultural and social norms; and intellectual property rights protection.  Gupta, focusing specifically on facilitating and supporting technology-based entrepreneurship in India, suggested similar types of supporting activities, including creating the right environment for success (i.e., entrepreneurs should find it easy to start a business; ensuring that entrepreneurs have access to the right skills, both entrepreneurial (i.e., how to manage, finance and grow businesses) and functional (i.e., technical, product development, marketing, human resources, etc.); ensuring that entrepreneurs have access to “‘risk capital” and enabling networking and exchange so that entrepreneurs can learn quickly from the experiences of others.  Policymakers should heed this advice in developing their plans for re-igniting real economic growth and dynamism.

Entrepreneurship in Vietnam

Entrepreneurship is an exciting and dynamic factor in Vietnam and this report provides an introduction to some of the drivers of entrepreneurial activity in that rapidly growing economy, including the influence of cultural and socioeconomic factors and the role of the State with respect to supporting and encouraging entrepreneurism.

Global Entrepreneurship and Development Index

An interesting and dynamic new tool for measuring and comparing knowledge- and technology-based entrepreneurship and emerging company activities on a global basis is the recently developed and announced Global Entrepreneurship and Development Index (“GEDI”).  The GEDI was created to address and overcome several of key shortcomings of existing measures of national entrepreneurship, including the failure of indexes such as the Global Entrepreneurship Monitor to incorporate the different impacts of businesses and ranking countries based primarily on the number of businesses without regard to their success from a financial perspective or in terms of job creation and improving the local knowledge base.  In the words of the US Small Business Administration: “The GEDI captures the contextual features of entrepreneurship by focusing on three broad areas.  The first is entrepreneurial attitudes, a society’s basic attitudes toward entrepreneurship through education and social stability.  The second area of focus is entrepreneurial activity, what individuals are actually doing to improve the quality of human resources and technological efficiency.  The final area is entrepreneurial aspirations, how much of the entrepreneurial activity is being directed toward innovation, high-impact entrepreneurship, and globalization.”  The dimension of “entrepreneurial aspirations” is particularly important to the study of emerging companies across borders since it incorporates, in the words of the researchers who developed the GEDI, “the efforts of the early-stage entrepreneur to introduce new products and services, develop new production processes, penetrate foreign markets, substantially increase the number of firm employees, and finance the business with either formal or informal venture capital, or both”.  The first rankings appeared earlier this year and were highlighted in a recent article in The Economist, which noted: “America is the most enterprising big economy. The EU comes second. The rest of the world, including India and China, is far behind.”  An interesting finding was that four of the five Nordic countries were in the top ten, with Denmark leading the pack at No. 1!  We’ll be revisiting the GEDI again in the future.

Knowledge-Based Entrepreneurship in India

There is intense interest in the formation and evolution of "emerging companies" in India.  Mani has referred to this type of entrepreneurial activity in India as “knowledge-based entrepreneurship”, which he defined as “entrepreneurship in the context of medium and high technology industries, both in the manufacturing and service sectors as well”.  With respect to India, the specific industries considered to meet the criteria for “knowledge-based” status include chemical and chemical products, metal products and machinery, electrical machinery, transport equipment, communication services, computer-related services and research and development services.

An analysis by Mani of the “hottest start ups” in India identified by the National Entrepreneurship Network as of 2008 revealed the following characteristics of technology-based entrepreneurship activities in the country:

• 40% of the companies were technology-based (i.e., information technology, Internet, software, telecommunications and mobile);
• Most of the companies—63%--were based in the larger cities (Bangalore (25%), Mumbai (19%) and Delhi (19%);78% of the companies had been in existence less than three years and the oldest companies had been formed in 2003;
• Just under half of the founders were still in their 20s and more than half of the founders were “first generation” entrepreneurs launching their first business; however, only 8% of the founders were women;
• 585 of the founders had either studied abroad or received their education in one of India’s “Tier I” institutions; and
• The number of employees ranged from five to 15.

For purposes of determining eligibility as a “technology company”, the following criteria are used: (i) the company must own proprietary technology that contributes to a significant portion of the company’s operating revenues; (ii) the company must manufacture a technology-related product; and (iii) the company must devote a significant portion of its operating revenues to research and development.

There has also been a significant increase in the number of Indian companies included among the Deloitte Technology Fast 500 Asia Pacific, a collection of the fastest growing technology companies in the Asia Pacific Region.  Indian representation grew from just 12 firms in 2003 to 82 (engaged predominantly in information technology or software) in 2007, the second highest among all countries represented on the list that year.  By 2010, the number of Indian firms had dropped to 60, fourth among all countries represented behind China, Taiwan and Australia; however, India still outpaced traditional technology leaders such as Korea, Japan and Singapore.

Entrepreneurship as a Behavioral Phenomenon

Many have expressed dissatisfaction with the limited analytical utility of the traditional definitions of entrepreneurship and their focus on either economic functions or personality traits.  An instructive alternative was provided by Howard Stevenson of Harvard Business School in his 1983 note on “A Perspective on Entrepreneurship” in which he examined entrepreneurship as an approach to managing an enterprise based on a fundamental strategy of identifying and pursuing opportunities in the firm’s external environment without feeling limited by the actual resources that the firm currently has under its own control.  In order to understand how this “entrepreneurial behavior” works it is useful to compare the mindset and corresponding actions of “promoters” and “trustees” with respect to certain key dimensions of managerial activity.  A promoter is someone who is comfortable assuming the risks and challenges of pursuing new business opportunities regardless of whether or not he or she currently controls the resources necessary for the pursuit to have a reasonable chance of success.  On the other hand, the trustee falls at the opposite end of the spectrum and is continuously focused on efficient management and utilization of the firm’s existing resources.

Contrasts between the behaviors of promoters and trustees can be seen along several different dimensions of managerial activity and Stevenson described the following defining characteristics of the management philosophy of companies that can legitimately be classified as “entrepreneurial”:

• Strategy is driven by the perception of opportunities available in the environment and is not constrained by concerns relating to a current lack of control over the resources necessary to pursue the identified opportunities.
• Once opportunities have been identified and the decision has been made to pursue them, actions will be taken quickly following consultation with a limited group of constituencies.
• Resources are committed to the pursuit of new opportunities in stages and each commitment is limited to the minimum amount of resources necessary at each stage or decision point in order to manage exposure and permit rapid withdrawal and redeployment of the resources.
• When resources are needed to pursue an opportunity it is sufficient to borrow, lease or license those resources to complete the immediate action and defer acquisition of full control over such resources until the expense of the investment is justified.
• The optimal organizational structure is flat with minimal hierarchy and multiple direct information networks.
• The reward philosophy is value-driven, performance based and team-oriented.

As with many other aspects of the study of entrepreneurship there is no genuine agreement that entrepreneurs consistently apply some universal set of management principles to their pursuit of opportunities and innovation.  In fact, it is difficult, if not impossible, to clearly and definitively analyze and explain the decision process of an entrepreneur that embarks on a path toward innovation.  However, Stevenson does provide prospective entrepreneur-managers with some tangible guidelines. 

The content in this post has been adapted from material that will appear in Business Transactions Solutions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

 

Entrepreneurship and Innovation

Any attempt at starting a new business, regardless of the size of the firm or the sophistication of its products or services, falls squarely within the definition of entrepreneurship and generally carries the same levels of risk and stress for the persons involved in the process.  Entrepreneurship programs launched and administered by governmental agencies and non-profit organizations are primarily geared toward “small businesses” that often rely on readily available technologies and their goal is to ensure that interested persons have access to basic information about starting a business, complying with applicable laws and locating financing sources.  Proprietorships and small firms with less than 20 employees have always been an important part of the economic landscape and this should continue in the future as technology, such as the Internet, makes it easier for entrepreneurs to put their business ideas into practice and quickly and efficiently reach prospective customers and other business partners.

An important niche within the entrepreneurial community, which has been readily filled by universities, focuses on new business formation for the purpose of identifying, developing and commercializing relatively risky and unproven technologies and business processes.  The study of entrepreneurs and their firms that are involved in these sorts of activities is referred to as “entrepreneurship and innovation.”  A number of different definitions and explanations of “innovation” have been offered by academicians and commentators.  For our purposes, it is useful to think of innovation as the process of successfully acquiring and implementing new ideas within a business organization.  As suggested by this formulation, new ideas can be developed and created internally, or can be borrowed or purchased from other organizations.  New ideas are not confined to new products and services, but also include new or improved processes that enhance productivity or reduce costs associated with manufacturing or distributing existing products.  Put another way, innovation involves firms doing new things in new ways to increase productivity, product development, sales and profitability, including finding new ways of identifying the needs of new and existing clients and making and marketing products that satisfy those needs. 

In his book, Innovation and Entrepreneurship, Peter F. Drucker forcefully promoted the interrelatedness of entrepreneurship and innovation and the need for entrepreneurs to recognize and learn the disciplines and principals of innovation and practice them in the planning for their ventures:  “Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service.  It is capable of being presented as a discipline, capable of being learned, capable of being practiced.  Entrepreneurs need to search purposefully for the sources of innovation, the changes and their symptoms that indicate opportunities for successful innovation.  And they need to know and apply the principles of successful innovation.”  Drucker believed that entrepreneurship could be understood as a systematic process and that opportunities for successful entrepreneurship could be uncovered through purposeful innovation and exploration of identified sources of innovation including incongruities, process needs, industry and market structures, demographics, changes in perception, new knowledge and unforeseen events.

Certainly there are important and obvious differences between launching a small shoe repair shop and developing and commercializing a cutting-edge pharmaceutical product to fend off cancer; however, those who link entrepreneurship and innovation believe that any new venture, be it a separate start up business or a product development project within a large company, can increase its chances for success by understanding and applying the principles that have been gleaned from studies of what has been referred to as the “innovation process”.  Of course, while opinions vary on exactly what that process might be it has traditionally flowed sequentially through the following phases: idea generation, concept development, resource acquisition, ramp up and launch.  Studies have shown that many the elements required for successful innovation are constant across industries and business activities and include an emphasis on product innovation, a strong customer orientation and a firm commitment to high quality reliable service.  Presumably these findings can be effectively deployed by all entrepreneurial ventures; however, it is should be understood that additional innovation strategies may be required in response to specific competitive factors in particular industries.

Others who have studied whether it is possible to differentiate “entrepreneurs” from small business owners have concluded that merely conceiving a new business was not sufficient to qualify as entrepreneurship and that the term was appropriate only for those persons who identified and created combinations of resources for the purpose of seeking profit and growth and then pursued those goals through innovative behavior and the implementation of creative management practices.  This position is consistent with the perspective taken by those who believe that strategy, rather than the personal characteristics of the founders and senior managers, is the most important and accurate predictor of whether or not a new firm will be successful in achieving its goals with respect to profits and growth.  For persons in that camp the entrepreneurial event is a moving target composed of parts that are in constant motion.  While certain personal characteristics of the founders and other members of the senior management team are important, particularly their leadership skills, it is their ability to develop and execute the appropriate strategy that is the most crucial success factor.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (Winter 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

 

Entrepreneur’s Personal Skills Assessment

Research indicates that the likelihood of success for a new venture is linked as much to the knowledge and characteristics of the founders as it is to the product or service being sold.  To see if you have what it takes try and answer some of the questions listed below in order assess whether you have the personal skills to be an entrepreneur.  Be sure to ask trusted friends and business colleagues to review the worksheet questions with you to provide candid and unbiased feedback.

• Are you a self-starter?
• Are you self-motivated and able to persevere and keep yourself moving forward and try new solutions?
• Do you believe in yourself and feel confident about your professional and personal skills and your ability to leverage them successfully in your new business?
• Are you willing to work harder than you've ever worked before and for long hours without the security of a steady paycheck and no promise of ultimate success?
• Are you healthy and do you have a regular program of exercise and diet in place that will sustain your energy level?
• Are you willing to take responsibility for situations, make tough decisions on your own, and accept the risks of failure with respect to such decisions?
• Are you creative and innovative and consistently able to find new ways of doing things?
• Do you know your strengths and weaknesses?
• Have you identified the values—honesty, service, quality, innovation, teamwork—that you believe will be most important for the operation and success of your business and have you prepared a brief description of how each of the chosen values will be used in the business?
• Do you know what is really important to you and are you clear about the ethical values you will refer to when making decisions about your business and your actions?
• Do you have the business skills you need to run a business?
• Do you have managerial experience?
• Have you worked in a business like the one you want to start?
• Have you thoroughly researched your business and its industry?
• Do you have the technical skills you will need to operate your particular business?
• Have you evaluated your experience and talents with respect to the key skills and knowledge necessary for operating a business—planning, product or service knowledge, financial management and budgeting, marketing, sales, and recruitment and management of human resources?
• Have you created a plan for obtaining information or assistance with respect to those skills and knowledge as to which you lack experience and/or talent?
• Do you have business partners or advisors who can compensate for your weaknesses?
• Are you a good planner and do you have the vision to see in advance the steps and tasks that it takes to get something done?
• Are you a good listener and do you take the time to listen to and really understand what others may be thinking or feeling?
• Can you deal effectively with other people and do you enjoy maintaining relations with others?
• Are you an effective leader, motivator, and communicator?
• Are you willing to delegate authority and responsibility to others?
• Do you project a professional image to your customers and other business partners?
• Can people trust what you say and that you will do what you say you will do?
• Do you have the skills and other resources necessary to perform an adequate feasibility study of the key concepts underlying your idea for a new business?
• Have you established and follow a plan for continuously monitoring events and changes in your target market?
• Do you belong to a trade association or other business organization that provides you with opportunities to meet with other entrepreneurs and executives in your industry?
• Do you belong to local clubs and organizations that provide opportunities to meet prospective business partners and create a positive image in your community?

The content in this post has been adapted from material that will appear in Business Transactions Solutions (Winter 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

When to Ignore Expert Advice

Entrepreneurs are encouraged to seek the advice of experts in areas in which the founder has little or no personal experience.  It is impossible for one person to know everything about each issue or activity that is crucial to the success of a business during the start-up stage or later when the company is growing and looking to expand capacity and/or move into new markets or product/service areas.  However, the dilemma that often arises for the entrepreneur is determining when he or she should override the opinions of experts when making a particular decision.  The answer depends on several factors including the level of experience and training that the entrepreneur has with the subject matter of the expert advice and how much experience the entrepreneur has in a general management capacity.  For example, an entrepreneur that has participated in product development projects in the past may have seen and heard enough to critically evaluate the opinions of marketing experts about the design and promotion of the start-up company’s new product.  General management experience is a much more difficult hurdle for many entrepreneurs to overcome since they often have spent most of their careers in a single functional area and may struggle when they are suddenly called upon to oversee the whole range of value-creation activities.  In the entrepreneur has little or no general management background he should consult trusted advisors with appropriate experience to gather input on the consequences of accepting or rejecting tendered expert advice.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

Entrepreneur's Skills Inventory

While starting and operating a business, particularly a business that expect to grow rapidly, is a team effort, each member of the founding team should not move forward without closely and carefully analyzing and evaluating his or her personal skills, strengths and weaknesses and then comparing them to the skills and other attributes that are expected to be necessary in order to successfully operate the chosen business.  If a founder is not strong in a particular area, he or she must be mindful of the fact that the weakness needs to be addressed by recruiting qualified individuals to work with the business, either as an employee or as a key outside consultant.

Sales and Marketing: The first area to consider is a founder’s skills with respect to sales and marketing.  In addition to the ability to set and execute sales and marketing strategies, the founder will need to be able to manage a group of sale representatives and communicate with customers to handle complaints and solicit feedback on the company’s products and services.  The founder will also be involved in launching and managing advertising campaigns and negotiations with prospective distributors.

Financial Management: Many entrepreneurs find themselves unequipped to deal with preparation of budgets and financial statements.  This is one of the main reasons that a controller or chief financial officer is one of the first positions filled on the management team.  Among the tasks that will need to be handled are billing procedures, negotiations with vendors and customers regarding payments and credit terms, and tax payment and reporting requirements.

Human Resources: A founder needs to understand his role as an employer and as the leader and motivator of the company’s human resources.  While entrepreneurs may have exceptional vision regarding the creation and implementation of new technologies, they often have little or no background in managing other people.  The founder needs to think about whether he or she is a good judge of people.  Consideration also needs to be given to whether the founder is able and willing to train employees and communicate the founder’s vision for the business.  Finally, the founder must be prepared for the unpleasant task of disciplining and firing employees.

Organization and Management:  The founder’s organizational and management skills should also be evaluated.  It is one thing to develop an innovative technology, product or service; however, the work will generally be of little importance unless the founder has the discipline to develop a long-term strategic plan for the business and establish realistic goals and milestones.  Entrepreneurs often run into trouble in delegating specific tasks to others in the organization.  However, it is essential that the founder strike the proper balance between directing employees and leaving them free to pursue the best method for achieving a particular objective.

Stress Management: Starting a new business can be a stressful experience.  The founder needs to assess his or her ability to manage risk and, possibly, failure.  He or she needs to be prepared for long hours and hopefully will have the capacity to both work alone and interact well with the group of other founders.  It is also important that founders have the support of their families in the effort.