Entrepreneurship

Entrepreneurship is the process of identifying opportunities, marshalling the resources needed to take advantage of the opportunities, and creating a new venture for the purposes of providing needed products or services to customers and achieving a profit. The word “entrepreneurship” is taken from the French word entreprendre, which means “to undertake.” A person who engages in entrepreneurship is called an entrepreneur. Entrepreneur-ship occurs all over the world, but it is a particular characteristic of free-market economies. Countries with the highest rates of entrepreneurship include the United States, Canada, Israel, Italy, and Great Britain.

Entrepreneurship involves considerable risk, as the failure rate for new ventures is very high. Thus, to be successful, an entrepreneur must be able to tolerate and even thrive under conditions of risk and uncertainty. Successful entrepreneurship also requires innovativeness and creativity, as well as self-confidence, high levels of energy, and a strong need for achievement. Interest in entrepreneurship is at an all-time high. Most colleges and universities offer courses or even entire programs of study in entrepreneurship.

The process of entrepreneurship is complex and requires the aspiring entrepreneur to make many decisions. It begins with recognizing an opportunity and applying innovativeness and creativity to exploit the opportunity. The entrepreneur must engage in strategic thinking and identify a competitive advantage that will set the small business apart and provide customers a unique reason to patronize the business.

The outcomes of this strategic thinking should be a business plan, which is a written statement that provides a comprehensive blueprint for the new venture. Although every business plan should reflect the unique characteristics of the entrepreneur and the proposed new business, there are common elements that exist in most business plans. Typically, the business plan includes some or all of the following components:

• Executive Summary
• Description of the Firm's Product/Service
• Business Strategy
• Forecasted Financial Statement
• Loan or Investment Proposal

The executive summary provides a concise one to two page overview of the entire business plan. The description of the product or service should identify the key features and benefits of the product or service. The business strategy is the most detailed part of the business plan. Here, the plan provides the entrepreneur's vision and what he or she sees as the mission of the new venture.

This section must also lay out key strategies in the areas of operations, marketing, and finance. The forecasted financial statements should include monthly and/or quarterly projected cash budgets, income statements, balance sheets, and capital expenditures. The loan or investment proposal should identify the type of financing required and a plan for repayment.

Entrepreneurship is an important, if not the most important, component of a successful market-based economy. Free economies require individuals who are willing to take risks by creating, organizing, and successfully running new businesses. Most entrepreneurs operate in the areas of small business and/or family-owned business. These are the engines of economic growth. If small businesses are defined as those having fewer than 100 employees, 99 percent of businesses in the U.S. are small. Ninety percent of these small businesses employ fewer than twenty employees. Yet, it is estimated that small businesses have created 85 percent of the new jobs in the U.S. since the early 1990s. Further, most of these small businesses are family-owned. Family-owned businesses employ more than 50 million people and generate more than 50 percent of the nation's GDP. Thus, much emphasis is placed on public policies that will encourage entrepreneurial activity and nurture and sustain new ventures, small businesses, and family-owned businesses.

STARTING A BUSINESS

Once the business plan has been formed, the entrepreneur must find investors, form a business structure both legally and economically, and bring together employees with the necessary skills and tenacity to run a successful business around a common goal. These steps, especially those requiring financial backing, can be difficult for entrepreneurs. Professor Scott Shane, author of the 2008 article “Top Ten Myths of Entrepreneurship,” writes about some of these difficulties and few of the common misconceptions among those trying to start businesses.

First, it does not take a large amount of money to begin a business. The average amount is about $25,000, and successful entrepreneurs will have the skills necessary to run a company with a low amount of funding. Some of the tricks include paying beginning employees on commission, renting premises for the first couple of years, and offering conditional benefits. There are rarely large investors willing to fund starter businesses, unless they are promising computer or science companies. Most investors are not million dollar venture capitalists, and good entrepreneurs know how to work with limited resources.

Other entrepreneurs are hesitant to begin their businesses with debt, afraid that it will impede success. Actually, most entrepreneurial businesses are financed primarily by debt, with a little less than half their money coming from equity (approximately 47%). Conventional wisdom also insists that entrepreneurs search for loans among their friends, families, interested investors, and government entities, using banks only as a last resort. Banks, however, are the most common provider of loans toward entrepreneurial activities, and they are often willing to consider promising business plans.

The business an entrepreneur picks has an enormous effect on the success of his or her idea. Most entrepreneurs have difficulty spotting and entering industries that have potential. Those who began businesses in the tech industry several years ago had a far better chance of succeeding than those who chose other industries. What will be the industries of the future? What markets will open? A good entrepreneur will be able to choose an industry with potential, which will take a continuing commitment. Professor Shane's article says that only the top 10 percent of entrepreneurs make more money than their employees. The key is to defy the odds with superior innovation and work.

INTERNATIONAL ENTREPRENEURSHIP

International entrepreneurship refers to the practice of using technology and insight to develop an overseas company by highlighting a need in foreign nations that the entrepreneur can fulfill. Foreign markets have particular resources that an entrepreneur can capitalize on, making use of differing cultures, financial regulations, economies, and desires to create a successful global business. Most international entrepreneur-ship is conducted by well-established companies that have sufficient funds or backers to attempt expanding into foreign markets. Fortunately, more investors are becoming willing to support a global endeavor, especially if a company has clear plans to fill a specific niche in international business. Like local entrepreneurship, international business-building is a matter of opportunities and design.

Once a new element is introduced into a foreign market, there is a period of adaption that takes place in increments. An international market might at first be unwilling to admit a new entrepreneurial business, requiring more time for trial and acceptance of products or services. The number of other businesses trying to sell the same new ideas and the type of international market being entered will also affect the trial period for the entrepreneurial endeavor. Generally, entrepreneurs will encounter three different types of markets globally, as described by Jones and Dimitratos in their 2004 book Emerging Paradigms in International Entrepreneurship :

• Bazaar economies. Bazaar economies function on a flexible, personal level. Prices are usually negotiated, and competition involves cooperating with others in the same industry to form a reliable network of businesses. Loyalty is often based on personal treatment, customer to customer.
• Firm-type economies. In these markets, similar to many of the markets in America, firms have much more control over goods and services. Prices are usually set by the firms or the industry. They are based on customer demand but are not negotiable, and transactions are impersonal, resembling legal contracts more than personal connections. Since relationships are not so important, competition is generally more vigorous and direct. Complex strategy and business plans are commonplace in firm-type economies. Loyalty is generally directed toward a product or a name brand, and not the companies creating or selling the product. Decision-making power, instead of being displaced on a person-to-person basis, is centrally located at a main office.
• Multi-polar network economies. These markets are systems that incorporate both personal and transactional styles in their business. Relationship marketing is conducted, where companies form lasting connections with customers. Prices are usually negotiated in these markets, but not always. Relationship networks affect competition and decision-making, but at a wider scale than person-to-person. Power is not held by any main office, but is distributed along the relationship network of the business.

SOCIAL ENTREPRENEURSHIP

Social entrepreneurship, like international entrepreneur-ship, has risen in popularity over recent years. It involves developing unique ideas, usually from a business standpoint, to solve social problems. Often social entrepreneurs can create practices that revolutionize industries and create very successful companies, but the goal is always social welfare. Social entrepreneurs tend to judge success in terms of “social value” rather than the income generated by a business. They look for ways in which their society needs aid or needs a particular problem solved, then work to solve the problem in the same way a traditional entrepreneur does. A social entrepreneur deals with social potential, and seeks to create lasting change for the better.

Examples of social entrepreneurship abound. Medical practices centering around helping the patient achieve responsibility for their own health and treatment by teaching them about their ailments is a successful form of entrepreneurship beguninWorld WarIIbydoctors like Byrnes Shouldice. Another good example is strategies for police departments to deal with criminal behavior with new, results-oriented methods. Community programs designed to bring out talents in at-risk youth or help senior citizens become more independent function in the same way.

When considering a social enterprise, an entrepreneur must first decide what sort of business to create—nonprofit or for-profit. Nonprofit businesses find it easier to focus on the social endeavor, attract the right-minded employees, and effectively market their purpose without sounding pretentious. Nonprofit organizations also receive more donations, especially from taxpayers who can write off the donation. For-profit businesses, on the other hand, can often make a better profit, raise more money through investors and stockholders who are willing to keep the business focused on its social goals, and create more opportunity for growth than nonprofit organizations. Which type of business to construct is one of the first questions a social entrepreneur should ask when sitting down to outline the plan.

ELEVATOR PITCH

Many entrepreneurial businesses can hinge on very brief—even chance—proposals to investors, ventures capitalists, and banks. These short proposals have become so useful and widespread that they are referred to as elevator pitches, the name drawn from a scenario in which an entrepreneur encounters a high-ranking business executive or capitalist in an elevator, and has only the time both are in the elevator to make the pitch and win the necessary investment.

So, how does an entrepreneur form a perfect elevator speech? Professor Jack Raiton, in his 2007 article, “Mastering the Elevator Pitch,” has several good pieces of advice:

• An elevator pitch should not be directed at making a sale. That is a lot to shoot for in a very short amount of time. Instead, the pitch should be designed to pique interest, to give valuable tidbits of information, and to secure some sort of return communication. A successful entrepreneur will win an e-mail, phone call, or interview after an elevator pitch.
• The problem or need the entrepreneur intends to solve should be presented in the elevator pitch. This should be explained in concise, vivid language.
• Since attention spans are not notably long, an elevator pitch should sound interesting—about 30 seconds of spontaneous, memorable conversation. “Spontaneity” can be achieved through extensive practice, rehearsing the speech until it flows naturally and sounds unstilted. A script and a mirror both help prepare for a good elevator pitch.
• The pitch should include the particular advantages the entrepreneur can offer, wrapped up in a nutshell. The title to a book is a good metaphor to apply. The title should be clear, explain the abilities and status of the book, and not run on all over the cover—neither should the elevator speech.
• Nothing complex should be included in an elevator pitch. If it can be simplified, simplify it. Otherwise, do not include it. An idea that is too complex can ruin the entire pitch.

The structure of the elevator speech can be formed using the guidelines above. There are many other tips entrepreneurs may find useful as well. It is a good idea, for instance, to begin by giving a statistic or other arresting fact concerning the pertinent industry, introducing the problem or general situation immediately. Technical or scientific language, in any form, should be avoided in the pitch; even though it may impress, the use of unfamiliar terms ultimately confuses and bores any investor listening. Contacts can also be used in elevator pitches to catch attention, whether it be the dropping of a significant name or previous work experience at a prestigious company. The most important thing is that the entrepreneur feels comfortable and excited giving the pitch under any circumstances.

ANGELS

Business angels are resourceful investors who have a medium amount of capital available to contribute to starting businesses and are known to save or start entrepreneurial endeavors. They are not as difficult to find or win over as the major-investment venture capitalists, and so much of an entrepreneur's selling efforts are directed toward angels. Angels can exist individually and as part of sponsoring networks.

As a way of life, entrepreneurship has several advantages. It offers individuals the chance to be their own boss and to enjoy an independent lifestyle. It provides individuals the opportunity to develop and grow a new business that makes an impact on their community. And, of course, successful new ventures offer the tantalizing prospect of almost unlimited profit potential. However, as a lifestyle, entrepreneurship also has its downside. It requires a tremendous amount of personal commitment and long work hours, particularly in the early stages of new business startup. Uncertainty of income and the potential for financial loss are also potential negatives.

SEE ALSO Angel Investors and Venture Capitalists; Business Plan; Initial Public Offering; Strategic Planning Tools; Strategy Formulation; Succession Planning; SWOT Analysis

BIBLIOGRAPHY

Cowan, David. “Practicing the Art of Pitchcraft.” Who Has Time for This? 2008. Available from: http://www.whohastimeforthis.blogspot.com/2006/01/practicing-art-of-pitchcraft.html.

Dees, Gregory J. Strategic Tools for Social Entrepreneurs. New York: John Wiley and Sons, 2004.

“Global Entrepreneurship Monitor.” Available from: http://www.gemconsortium.org.

Jones, Marian V, and Pavlos Dimitratos. Emerging Paradigms in International Entrepreneurship. Edward Elgar Publishing, 2004.

Kawasaki, Guy. “What Is an Angel Investor?” Inc.com, 2008. Available from: http://www.inc.com/.

“Nonprofit vs. For-profit Social Ventures.” SmartMoney, 2008. vailable from: http://www.entrepreneur.com/startingabusiness/smsmallbiz/article195242.html.

Oviatt, Benjamin M. “Defining International Entrepreneurship and Modeling the Speed of Internationalization.” Entrepreneurship: Theory and Practice, 2005. Available from: http://www.allbusiness.com/management/557273-1.html.

Raitin, Jack. “Mastering the Elevator Pitch: 5 Steps to Entrepreneurial Success.” Professor Raitin's Inside Perspectives, 2007. Available from: http://www.mstblog.ohsu.edu/index.php/2007/11/13/mastering-the-elevator-pitch-5-tips-to-entrepreneur-success/.

Shane, Scott. “Top Ten Myths of Entrepreneurship.” How To Change the World, 2008. Available from: http://www.blog.guykawasaki.com/2008/01/top-ten-myths-o.html.

Zimmerer, T.W., and N.M. Scarborough. Essentials of Entrepreneurship ond Small Business Management. Upper Saddle River, NJ: Prentice-Hall, 2002.