ENTREPRENEURIAL PROCESS/START UPS:GOVERNMENT AS AN INNOVATOR

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

THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND:ENTREPRENEURIAL PROCESS >>

Entrepreneurship MGT602

Lesson 3

ENTREPRENEURIAL PROCESS/START UPS

LEARNING OBJECTIVES

1. To identify the basic types of start-up ventures.

2. To explain the role of entrepreneurship in economic development

3. To discuss the ethics and racial responsibility of

TYPES OF START-UPS

Life-Style Firms

A life-style firm exists primarily to support the owners and usually has little growth opportunity.

This type of firm may grow after several years to 30 or 40 employees.

Foundation Companies

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

grow in five to ten years from 40 to 400 employees.

High-Potential Venture

A venture has high growth potential and therefore receives great investor interest. The company may start

out like a foundation company, but its growth is far more rapid. After five to ten years the company could

employ around 500 employees. These firms are also called gazelles and are most important for the

economic development of an area.

ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT

The role of entrepreneurship in economic development involves initiating change in the structure of

business and society. One theory of economic growth depicts innovation as the key, not only in

developing new products, but also in stimulating investment interest. The new capital created expands the

capacity for growth (supply side), and new spending utilizes the new capacity and output (demand side.)

In spite of the importance of investment and innovation in the economic development of an area, there is

still a lack of understanding of few factors which are as follows:

The product-evolution process is the process through which innovation develops and

commercializes through entrepreneurial activity, which in turn stimulates economic growth. It

begins with knowledge in the base technology and ends with products or services available in the

marketplace.

The critical point in the process is the intersection of knowledge and a recognized social need,

called the iterative synthesis. This point often fails to evolve into a marketable innovation.

Most innovations introduced in the market are ordinary innovations, with little uniqueness.

Technological innovations refer to new products with significant technological advancements.

Breakthrough innovations mean the development of new products with some technological

change.

Regardless of the level of uniqueness or technology, each innovation evolves into and develops towards

commercialization through one of three mechanisms: the government, entrepreneurship, or

entrepreneurship. Entrepreneurship has assisted in revitalizing areas of the inner city. Individuals in inner-

city areas can relate to the concept and see it as a possibility for changing their present situation.

Entrepreneurship MGT602

GOVERNMENT AS AN INNOVATOR

A government active in commercializing technology is known as an innovative government.

Commercializing technology is frequently called technology transfer.

However, few inventions resulting from government-sponsored research have reached the commercial

market. Most of the by-products from scientific research have little application to any social need. The

government lacks the business skills needed for successful commercialization. Government bureaucracy

and red tape also often inhibit the timely formation of the business. Recently, federal labs have been

required to commercialize some of their technology each year and some are providing entrepreneurial

training.

Entrepreneurship

Entrepreneurship refers to entrepreneurship within an existing organization or business structure.

Entrepreneurship can also bridge the gap between science and the marketplace.

Existing businesses have the financial resources, business skills, and marketing and distribution system to

commercialize innovation successfully. Often the bureaucratic structure, emphasis on short-term profits,

and structured organization inhibit creativity. Some corporations have tried to establish an

Entrepreneurial spirit in their organization, some in the form of strategic business units (SBUs.)

Entrepreneurship

The third method for bridging the gap between the science and the marketplace is via entrepreneurship.

Many entrepreneurs have difficult time bridging this gap and creating new ventures. They may often lack

managerial skills, marketing capabilities, or financial resources. They frequently do not know how to

interface with banks, suppliers, customers, and distributors. Yet, entrepreneurship is the most effective

method for bridging the gap and creating new enterprises, these activities affect an areas economy by

building the economic base and providing jobs.

ENTREPRENEURIAL CAREERS AND EDUCATION

Since 1985 there has been an increased interest in entrepreneurial careers fostered by factors such as

increased media coverage of entrepreneurs and employment shifts.

A conceptual model for understanding entrepreneurial careers views the career stages as interacting with

other stages and events in the individual's life, the life-cycle approach. This approach conceptualizes

entrepreneurial careers in nine categories.

Educational environment

The individual's personality

Childhood family environment

Employment history

Adult development history

Adult family/non-work history

Current work situation

The individual's current perspective

The current family situation

Although there exist a common perception that entrepreneur are less educated than the general

population however studies have found entrepreneurs overall and female entrepreneurs in particular, are

far more educated than the general population. However, this education sometimes does not develop the

specific skills needed in the venture, especially for women entrepreneurs.

Entrepreneurship MGT602

Childhood influences have been explored, particularly in terms of values and the individual's personality

The traits most frequently researched are the need for achievement, locus of control, risk-taking, and

gender identity..

The research on the childhood family environment of the entrepreneur has had more definite results.

Entrepreneurs tend to have self-employed fathers, and many also have entrepreneurial mothers. The

family plays an important role in establishing the desirability of entrepreneurship as a career.

Employment history also has an impact on entrepreneur careers in both positive and a negative sense.

Entrepreneurs tend to have a higher probability of success when the venture created is in their field of

experience. Negative displacement (such as dissatisfaction with various aspects of ones job) also

encourages entrepreneurship.

Although no definite research has been done on the adult development history of entrepreneurs, it

appears to also affect entrepreneur's careers. One's development history has somewhat more of an impact

on women, since they tend to start businesses at a later stage in life.

There is a lack of data on adult family/non-work history and the available data adds little understanding

towards entrepreneurial career development.

Entrepreneurs are known for their strong work values, their long workdays, and their dominant

management style. They tend to fall in love with the organization and will sacrifice almost anything in

order for it to survive.

While in college, few future entrepreneurs realize that they will pursue entrepreneurship as their major life

goal. Relatively few individuals will start a business immediately after graduation. Entrepreneurship

education is a fast growing area in colleges and universities. While the courses vary by university, there is a

great commonality, especially in the initial few courses.

The skills required by entrepreneurs can be classified in to three main areas:

1. Technical skills involve such things as writing, listening, oral presentations, coaching, and technical

know-how.

2. Business management skills include those areas involved in starting, developing and managing any

enterprise.

3. Personal entrepreneurial skills differentiate an entrepreneur from a manager and include inner control

(discipline), risk taking, innovativeness, persistence, visionary leadership, and being change oriented.

These skills and objectives form the basis of the modular approach to an entrepreneurship curriculum.

Today entrepreneurs are recognizing the need to learn some of the "science" of management in an MBA

program in order to grow their businesses effectively in the global environment.

ETHICS AND SOCIAL RESPONSIBILITY OF ENTREPRENEURS

The entrepreneur must establish a balance between ethical exigencies, economic expediency, and social

responsibility. A managers attitudes concerning corporate responsibility tend to be supportive of laws and

professional codes of ethics. Entrepreneurs have few reference persons, role models, and developed

internal ethics codes. Entrepreneurs are sensitive to peers pressure and social norms in the community as

well as pressures from their companies.

While ethics refers to the "study of whatever is right and good for humans," business ethics concerns

itself with the investigation of business practices in light of human values. The word "ethics" stems from

the Greek êthos, meaning custom and usage.

Development of Our Ethical Concepts

Socrates, Plato, and Aristotle provide the earliest writings dealing with ethical conceptions; earlier writings

involving moral codes can be found in both Judaism and Hinduism.

American attitudes on ethics result from three principle influences: Judeo-Christian heritage, a belief in

individualism and opportunities based on ability rather than social status.

Entrepreneurship MGT602

Research on business ethics can be broken down into four broad classifications:

1. Pedagogically-oriented inquiry

2. Theory-building without empirical testing

3. Empirical research, measuring the attitudes and ethical beliefs of students and academic faculty

4. Empirical research within business environments

THE FUTURE OF ENTREPRENEURSHIP

In spite of the differences in definition of entrepreneurship, there are common aspects such as risk taking,

creativity, independence, and rewards. Entrepreneurship is currently being embraced by educational

institutions, governments, societies, and corporations. Schools are increasing their emphasis on

entrepreneurship in terms of courses and academic research. In Europe many universities have started

programs in entrepreneurship.

There has also been an increase in academic research, endowed chairs and centers of entrepreneurial

activity. Governments have also promoted the growth of entrepreneurship. Individuals are encouraged to

form new businesses and provided tax incentives, roads, and a communications system to facilitate this

creative process. Some state governments are developing strategies for fostering entrepreneurial activity.

The venture capital industry has benefited from lowering of capital gains tax rates and more relaxed rules

regarding pension fund investment.

Society's support of entrepreneurship is critical in providing motivation and public support. The media

has played a powerful role in developing public support. Media coverage uplifts the image of the

entrepreneur and growth companies. Articles have appeared in newspapers such as New York Times, The

Wall Street Journal, and the Washington Post. Business magazines such as Barrons, Business Week, Forbes, and

Fortune have provided coverage. Magazines such as Black Enterprise, Entrepreneur, Inc., and Venture focus on

issues of the entrepreneurial process. Television on both a national and local level has highlighted

entrepreneurship.

Large companies will continue to have a special interest in Entrepreneurship in the future. The largest 15

companies account for over 20 percent of the total U.S. research and development. Other companies will

create more new businesses through Entrepreneurship.

KEY TERMS

Product-evolution process

Process for developing and commercializing an innovation

Risk taking

Taking calculated chances in creating and running a venture.

Technological innovation

A new product with significant technological advancement

Technology transfer

Commercializing the technology in the laboratories into new products

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