THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:Possibility of New Venture Formation

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Entrepreneurship MGT602

Lesson 2

THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP

LEARNING OBJECTIVES

To introduce the concept of entrepreneurship and its historical development.

To explain the entrepreneurial decision process.

THE ENTREPRENEURIAL DECISION PROCESS

(Deciding to become an entrepreneur by leaving present activity)

Many individuals have difficulty bringing their ideas to the market and creating new venture. Yet

entrepreneurship and the actual entrepreneurial decisions have resulted in several million new businesses

being started throughout the world. Although no one knows the exact number in the United States.

Indeed, millions of ventures are formed despite recession, inflation, high interest rates, and lack of

infrastructure, economic uncertainty and the high probability of failure

The entrepreneurial decision process entails a movement from something to something-- a movement

from a present life style to forming a new enterprise.

To leave a present live-style to create something new comes from a negative force--disruption. Many

companies are formed by people who have retired, moved, or been fired. Another cause of disruption is

completing an educational degree.

The decision to start a new company occurs when an individual perceives that forming a new enterprise is

both desirable and possible.

Desirability of New Venture Formation

(Aspects of a situation that make it desirable to start a new company)

The perception that starting a new company is desirable results from an individual's culture, subculture,

family, teachers and peers.

American culture places a high value on being your own boss, being a success and making money

therefore, it is not surprising to find a high rate of company formation in the United States. On the other

hand in some countries making money is not as valued and failure may be a disgrace. The rate of business

formation in these countries is not as high. Many subcultures that shape value systems operate within a

cultural framework.

Studies indicate that a high percentage of founders of companies had fathers and/or mothers who valued

independence. Encouragement to form a company is also gained from teachers, who can significantly

influence individuals. An area having a strong educational base is also a requirement for entrepreneurial

activity. Peers are important, also, as is an area with an entrepreneurial pool and peer-meeting place.

Possibility of New Venture Formation

(Factors making it possible to create a new venture)

Although the desire of new venture formation derived from the individual's culture, subculture, family,

teachers and peers needs to be present before any action is taken, the second feature necessary centers

around this question "What makes it possible to form a new company?"

Formal education and previous business experience give a potential entrepreneur the skills needed to

form and manage a new enterprise. Although educational systems are important in providing the needed

business knowledge, individual will tend to be more successful in forming in fields in which they have

worked. The government also contributes by providing the infrastructure to help a new venture.

Entrepreneurship MGT602

The market must be large enough and the entrepreneur must have the marketing know-how to put

together the entire package.

Finally, financial resources must be readily available. Although most start-up money comes from personal

savings, credit, and friends, but there is often a need for additional capital. Risk-capital availability plays an

essential role in the development and growth of entrepreneurial activity.

KEY TERMS

Foundation companies

A type of company formed from research and development that usually does not go public.

Gazelles

Very high growth ventures.

Government as an innovator

A government active in commercializing technology

High-potential ventures.

A venture that has high growth potential and therefore receives great investor interest

Entrepreneurship

Entrepreneurship within an existing business structure

Iterative synthesis

The intersection of knowledge and social need that starts the product development process

Lifestyle firm

A small venture that supports the owners and usually does not grow

Ordinary innovation

Z new product with little technological change

Possibility of new venture formation

Factors making it possible to create a new venture

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