Students-entrepreneurship.pdf

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ENTREPRENEURSHIP Professor Cezar Scarlat, Ph.D. Department of Entrepreneurship & Management - FAIMA University “Politehnica” of Bucharest - Romania

Entrepreneurship Contents: Introduction 1. The entrepreneur 2. Theories on entrepreneurship and enterprise 3. Enterprise and economy 4. Enterprise typology 5. Starting a business 6. Innovative business ideas 7. Entrepreneurial environment 8. Business information 9. Business opportunity Activity evaluation

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

Introduction Course objectives: §

§

§ §

Students understand small business and entrepreneurship – as well as their role in society; entrepreneurial environment Students understand similarities and differences between entrepreneur and owner-manager Students learn to identify new venture ideas Students are able to use the necessary tools in order to identify and evaluate business opportunities

§

Contribute at developing the students’ entrepreneurial skills

§

Students are able to integrate the knowledge from other courses/modules

In addition, the course aims at developing the students’ presentation skills as well as their abilities to solve problems by teamwork

Overall objective: create the background for the business planning Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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Introduction Good balance: individual / team work; classroom / homework; oral / written

Reference: Stokes, D. and Wilson, N. Small Business Management and Entrepreneurship. Sixth Edition. South-Western Cengage Learning, Andover, UK, 2006.

Students’ purpose: getting the credits! Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

1. The entrepreneur n

Entrepreneurship and entrepreneur

n

Defining the entrepreneurship

n

Entrepreneur vs. Owner-manager

n

Entrepreneurial traits and entrepreneurial profile

n

What a manager is and does

n

Managers typology

n

Entrepreneurial vs. Administrative managers

Assignment No.1: Successful entrepreneur Assignment No.2: Cultural print Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

1. The entrepreneur Entrepreneurship = about entrepreneurs and their enterprises Definitions of entrepreneurship n n

n

n

Competitive behaviours that drive the market process (Kirzner, 1973) Process by which individuals – either on their own or inside organizations – pursue opportunities without regard to the resources they currently control (H. Stevenson & Jarillo, 1990) Process of creating something new of value by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence (Hisrich & Peters, 2002) Entrepreneurship is a dynamic process by which individuals systematically identify economic opportunities, to which they respond by developing, producing and selling goods and services. This process requires qualities such as self-confidence, capacity to take risks and sense of personal commitment (EC, 1998) Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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1. The entrepreneur Entrepreneurship – two perspectives: Individual perspective (“the entrepreneur”)

n

- entrepreneur’s profile - how opportunities are discovered - by whom - how opportunities are evaluated and further exploited Organization perspective (“the enterprise”)

n

- creation of new [innovative] organizations - entrepreneurship within large organisations Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

1. The entrepreneur Entrepreneurship – several understandings of the concept: Set of activities undertaken by the entrepreneur; process (as presented by the definitions)

n

n

Body of knowledge

n

Subject to research

n

Subject to teaching and learning Area of concern for strategists and policy makers (more and more)

n

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

1. The entrepreneur Entrepreneur vs. Owner-manager n

Entrepreneur - person with certain entrepreneurial traits (characteristics) - most of the entrepreneurs start and manage their own firms - however, there are entrepreneurs who – for various reasons – don’t have and run their own firm

Which might be the reasons ? n

Owner-manager - business owner and manager - most business owner-managers are entrepreneurial characters - however, some of them miss the entrepreneurial traits

Which might be the consequences ? Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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1. The entrepreneur Owner-manager vs. Manager Characteristics Position in the company

Owner-manager

Manager

owner and top-manager

employed manager

Current objective Development objective Area of concern Dynamics

profit

salary

company

career

whole company

functional area

change

stability

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

1. The entrepreneur Entrepreneurial traits and entrepreneurial profile n

Risk taking

n

Confidence of success

n

Desire for independence Energy in pursuing goals Measurement of success by wealth

n n

Mindset: “entrepreneurs are risk takers”

Example E-WORLD Project (2008-2011) – global research project on international entrepreneurship – researchers from 37 countries participated http://www.missouristate.edu/eworld/ Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

1. The entrepreneur What a manager is and what a manager does n Managers are made of: - knowledge - experience - talent n

Managers make … decisions! - decision making process (decision cycle) - management functions

n n

“Golden triangle” of management Delegation

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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1. The entrepreneur What a manager is and does Managing is (management functions): n

Planning

n

Organizing

n

Leading

n

Controlling

n

Coordinating

Where is the decision making process? Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

1. The entrepreneur Managers typology n

Authoritarian (Autocratic)

n

Paternalist

n

Consultative

n

Participative

n

Democratic

Discussion: Which type is the best ? Blake-Mouton typology n

Process orientation

n

People orientation Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

1. The entrepreneur Entrepreneurial vs. Administrative managers n

Entrepreneurial manager - Opportunity over resources

n

Administrative manager - Resources over opportunity

Discussion: Which element is more important – opportunity or resources ? Which type of manager is better ? Are owner-managers entrepreneurial or administrative managers ? Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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1. The entrepreneur Assignment: Describe and analyze a successful entrepreneur n

Background – circumstances (identity, place, time, …)

n

Success indicator/s (measurement)

n

Key-factors for success - analysis

n

Lessons learnt

n

Sources of information

Individual, written assignment (max. 1 page) Deadline: Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

2. Theories on entrepreneurship and enterprise n

Theories on entrepreneurship – short history

n

Firm theories

n

Social responsibility

n

Sustainable development

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

2. Theories on entrepreneurship Short history n n n

n

Term “entrepreneurship” coined – Richard Cantillon (1734) Jean-Baptiste Say (1767-1832) has contributed to develop the concept Alfred Marshall (Principles of Economics, 1890): - role of undertaker in the enterprise: the one who undertakes risks and combines material resources, capital and labour to make profits hopefully - over time, the English term undertaker was replaced by the French entrepreneur Economics theory on entrepreneurship: Joseph Schumpeter (1934) entrepreneurship is intimately linked to various types of innovation: - product (good/service) innovation - process (technology) innovation - organization (management) innovation - market innovation Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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2. Theories on entrepreneurship Short history of theories on entrepreneurship (cont) n

(Drucker, 1986) – developed Schumpeter’s ideas; innovation as a necessary part of entrepreneurship; entrepreneur - searches for change - responds to change - exploits the change as an opportunity

n

(Stevenson, 1990): opportunity-centred; there is a wide range of entrepreneurial behaviours – between the “perfect entrepreneur” and the “perfect administrator”

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

2. Theories on entrepreneurship Short history of theories on entrepreneurship (cont) n

G.G. Meredith (“The practice of entrepreneurship”, International Labor Office, 1982) has identified the entrepreneurial spirit as the first among the six individual characteristics that generate the success in business; the other five: - leadership - risk taking - decision making - business planning - efficient time management

n

Thomas Harrison (2005), former biologist and current corporate CEO: - entrepreneurial success is encoded in the human genome Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

2. Theories on enterprise Firm theories – short history n

Owner & profit-centred - maximize the shareholders’ profit - maximize the shareholders’ wealth

n

Employer & employee-centred - best compromise between: - shareholders’ wealth / profit and employees’ salaries

n

Triad theory - best compromise between: - owner’s profit - employee’s salary - client’s satisfaction for buying a quality product at reasonable price Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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2. Theories on enterprise Firm theories – short history (cont.) Triad plus theory:

n

- triad plus society - triad plus environment New concepts related to the modern theory of the firm: Triad plus society theory:

n

- Social responsibility - social enterprise Triad plus environment theory:

n

- Sustainable development Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

3. Enterprise and economy Role of small business in economy: Ideal actors for economic transition (private, and decentralized management) Quick and flexible answers to the customers’ dynamic needs – services in general; IT services in particular Necessary subcontractors for the large enterprises and public sector Important contributors to the state budget (tax payers) Job generators Middle-class base – social stability Source of innovation Selection base for larger firms development; competition to larger firms Significant contributors to create the business and entrepreneurial culture

n n n n n n n n n

See: Global Entrepreneurship Monitor Available at: http://www.gemconsortium.org/ Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

4. Enterprise typology n

Types of organisations

n

Business vs. Social enterprise

n

Business by size

n

Legal forms to register a company

n

Legal vs. illegal business

n

Ethical vs. unethical business

n

Assignment: Successful enterprise

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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4. Enterprise typology Types of organisations Extremely large typology – two criteria are of greater importance Purpose criterion

Criteria

Ownership criterion

Profit

Not-for-profit

Private

Private firms

Professional associations, private foundations, …

Public

Public firms

Publicly owned not-forprofit organizations

State

State-owned companies

Public administration, state universities, …

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

4. Enterprise typology Business vs. Social enterprise n Business = profit orientation n Social enterprise = profit and social mission & objectives - employment - benefits for less favoured social categories - community issues - environment issues n

As the objectives are in conflict, they should be prioritized

Classroom discussion: Which comes first – business or social issue ? Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

4. Enterprise typology Business by size Limits fluctuate from country to country; however there is an EU standard Category

SMEs

Criteria No. of employees

Turnover or Balance sheet

Microenterprise

0… 9

Up to €2m

Up to €2m

Small

10 … 49

Up to €10m

Up to €10m

50 … 249

Up to €50m

Up to €43m

Over 250

Over €50m

Over €43m

Medium

Large companies

Classroom discussion: Why bother with the business / small business size ? Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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4. Enterprise typology Legal forms to register a company Organizing types of firms – allowed by the legal framework, in force in that respective economic system

n

n

Different from country to country

n

Efforts to harmonize the EU legislation – for all member states

n

Legal form does not necessarily mean legal person

n

Some legal systems allow natural persons to run a business legally Some legal systems are more bureaucratic than others – in terms of company registration (documents required, paper work, duration, …)

n

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

4. Enterprise typology Legal forms to register a company n

Limited company

n

Sole trader

n

Partnership

Exercise (optional): what types of legal forms to register a company are in force in your country ?

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

4. Enterprise typology Legal vs. illegal business n

n

n

n

Illegal businesses create so-called “black” and/or ”grey” markets (counterfeit products, smuggling, tax evasion, …) The demarcation line between legal and illegal is fuzzy – the reason for the “grey” market The “black” / “grey” markets do exist because there always is a demand for those products ! Legal business does not necessarily mean ethical business

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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4. Enterprise typology Ethical vs. unethical business n

Ethical – according to a moral code

n

Ethical codes by professions

n

Management code of ethics (profession of manager)

n

Business ethics

Exercise – discussion: Examples of -

Legal but unethical business

-

Ethical but illegal business

-

Both illegal and unethical business Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

4. Enterprise typology Assignment: Successful enterprise n

Background – circumstances (identity, bit of history, place, time, …)

n

Success indicator/s (measurement)

n

Key-factors for success - analysis

n

Lessons learnt

n

Sources of information

Individual, written assignment (max. 1 page) Deadline: Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

5. Starting a business n

Why to start a business

n

Push and pull influences

n

Business partnership

n

What kind of business to start – industry

n

How to enter in business

n

Basic questions before starting a business - the 6Qs

n

Classroom exercise: Answering the basic questions before starting a business

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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5. Starting a business Why to start a business? There are many reasons one would start a business n

According to internal/external reasons: - necessity-based - opportunity-based

n

According to the sense of the influencing factors: - PUSH influences - PULL influences

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

5. Starting a business Motivations to start a business - PUSH and PULL influences PUSH factors n

Unemployment

n

Redundancy

n

Job insecurity

n

Unsatisfactory working environment

n

Conflicts or disagreements with the previous manager / employer

n

…

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

5. Starting a business Motivations to start a business - PUSH and PULL influences PULL factors (attraction forces) n

Desire to be independent

n

Desire to exploit an opportunity

n

Turn a hobby into a business

n

Turn a previous experience into a business

n

Financial attraction (at its turn – for a number of other reasons)

n

…

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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5. Starting a business Why to start a business?

Example of financial attraction: Study conducted in USA - probability of becoming a millionaire by: n Benefiting an inheritance is 1 : 12 million n

Winning the lottery is 1 : 12 million

n

Stock investment is 1 : 2 million

n

Starting-up a business is 1 to 1,000

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

5. Starting a business Business partnership n

Start a business single (as a sole owner)

n

Start a business in partnership

Classroom discussion: Start the business:

Analysis Advantages

Disadvantages

Single Partnership Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

5. Starting a business Business partnership Preferred as partners: n

Family

n

Friends

n

Former colleagues

n

Recommended people

n

Experts in the business area Persons with more financial resources

n

…

n

Which ones ? Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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5. Starting a business What kind of business to start – Which industry / market to choose? Industry = All firms that are producing competing products (goods / services) n

Market = All customers to buy the competing products offered by the above firms n

n

There is no market without industry and vice versa

A small firm faces various barriers – when decides to enter a certain market n

Before making a decision: a small firm should consider the barriers to market entry Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

5. Starting a business How to enter in business n

Buy an existing firm

n

Buy shares in an existing firm

n

Buy assets from a larger company (to be privatized, etc)

n

Buying a franchise (franchised business)

n

Start a new business

Which are advantages and disadvantages for each option ? Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

5. Starting a business Basic questions before starting a business The six basic questions (6Qs) or the seven basic questions (7Qs) n

WHY should I start a business – Why me? WHY should I start this specific business?

n

WHAT product (good / service) to sell?

n

WHO is going to buy my product?

n

WHAT technology – HOW the production process looks like?

n

HOW MUCH is going to cost me (per unit; per year; investment) ?

n

HOW MUCH is going to be the profit?

There also is the 7th question: WHEN is the right moment to start? Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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5. Starting a business Classroom exercise: Answering the basic questions before starting a business n

WHY to start a business – Why me? Why this business?

n

WHAT product (good / service) to sell?

n

WHO is going to buy my product?

n

WHAT technology – HOW the production process looks like?

n

HOW MUCH is going to cost me (per unit; per year; investment) ?

n

HOW MUCH is going to be the profit?

Individual exercise, written report Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

6. Innovative business ideas n

Creativity and innovation

n

Innovation vs. invention

n

Sources of innovation

n

New business ideas

n

Assessing new business ideas

n

New technologies: incremental vs. disruptive

n

Classroom exercise: Analyzing innovative ideas

n

Small project: New business idea assessment

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

6. Innovative business ideas Innovation Innovation implies value creation n

The core element of Innovation is the application of novelty

n

Application is intended to accomplish an end or a specific use

n

Innovation thus implies a use and users

n

Users exist if they perceive an advantage

n

Advantage to users is expressed as value (not necessarily financial)

Innovation thus implies creation / aggregation of value

Examples: … Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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6. Innovative business ideas Innovation Innovation as far as (Schumpeter): n New products and services n New technology (method of production) n New market n New sources of supply of raw materials n New methods of organize (Innovation in management)

Innovation is also to combine or connect in a new way existing ideas and knowledge

Examples: … Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

6. Innovative business ideas Creativity and innovation Entrepreneurship is associated with creativity & innovation (Schumpeter) n

Creativity = generation of new ideas

n

Innovation = successful exploitation of new ideas

Does creativity include innovation ? Does innovation include creativity ? Should a successful entrepreneur be -

creative or

-

innovative ? Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

6. Innovative business ideas Innovation vs. invention n

Innovation - Innovation as achievement - Innovation as the consequences of achievement – sometimes unintended consequences (“positive externalities”) - Innovation as dynamic capabilities; attitude, mindset - Innovation as a process – gradual process over a period of time

n

Invention - just a creative idea – not necessarily put to work (as innovation)

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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6. Innovative business ideas Sources of innovation (Drucker): n n

The unexpected (success or failure) The incongruous event or result (discrepancy between what everyone expects and what is)

n

Process need – “mother of invention”

n

Changes in industry and market structure

n

Changes in demographics – births, deaths, diseases, employment, …

n

Changes in perception (as fashion industry)

n

New knowledge

“Whatever You Think, Think the Opposite !” (P. Arden, 2006) Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

6. Innovative business ideas Classroom exercise: Analyzing innovative ideas Analyze creativity, innovations, innovators, sources of innovation (case) n n

Background – circumstances (innovator’s identity, place, time, …) Short description – identify the elements of value creation: novelty, specific use and users, advantage perceived as value

n

Type of innovation (Schumpeter)

n

Type of source of innovation (Drucker)

n

Is it innovation or invention? Why?

n

Was the innovator creative – in what sense?

If necessary, collection of supplementary information is recommended Team exercise; written and oral presentation of the results (5%) Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

6. Innovative business ideas New business ideas n

Some businesses based on new ideas succeed but others fail – why?

n

Analyze the success drivers as well as the grounds of failures

n

Evaluate the chances to succeed upfront

n

n

Evaluation of new business ideas is not business planning; it’s just a necessary step There are different methodologies to identify and assess / evaluate new venture ideas

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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6. Innovative business ideas New business ideas How to (broadly) identify the new venture idea (Stokes & Wilson) I. Define your new venture idea in a short sentence II. Assess the new venture idea through identifying supporting trends III. Identify some initial product (goods / services) offerings for your new venture idea

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

6. Innovative business ideas How to (broadly) identify the new venture idea (Stokes & Wilson, 2010) I. Define your new venture idea in a short sentence n

n

Single focus to concentrate creative thinking into one area; general enough to allow for plenty of different specific product ideas Key criteria - Personal requirements - Personal qualities - Innovation - Viable innovation (longer-term) - description - short sentence which links products, technology, resources, to market needs / problem areas Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

6. Innovative business ideas How to (broadly) identify the new venture idea (Stokes & Wilson) II. Assess the new venture idea through identifying supporting trends – What are the underlying trends in the environment which would

make your new venture idea a viable business proposal?

– What are the supporting trends in social, technological,

economic, political or legal developments?

– Why may these provide a market opportunity? nCarry out an assessment of your new venture idea n(Better use the adapted WSU

methodology!)

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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6. Innovative business ideas How to (broadly) identify the new venture idea (Stokes & Wilson) III. Identify some initial product (goods / services) offerings for your new venture idea Give some first examples and ideas of new products which could provide you with an entry point to exploit the potential offered by your new venture idea. – Do you envisage using e-commerce to assist you in delivering

any of these products?

– Do you have the necessary skills and knowledge to develop this

aspect of the new venture yourself?

– Where might you get these skills and knowledge from? Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

6. Innovative business ideas Assessing new business ideas Washington State University methodology (WSU) Evaluation criteria, grouped in five sets – related to:

n

- general environment - business risk - product acceptability on the market - demand - competition

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

6. Innovative business ideas New technologies (Christensen, 2003): n

Incremental (new) technologies performance of the product is improved gradually, step-by-step

n

Disruptive (new) technologies product performance is dramatically improved; breakthrough

n n

New technologies are not always successful According to RPV model (Christensen): Success depends primarily on values (V) and processes (P); and then come resources (R)

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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7. Entrepreneurial environment n

Entrepreneurial churn

n

Macro- and micro-environment

n

Hostile and benign environments

n

Sector and structural analysis

n

The five forces

n

New venture ideas

n

Analyzing new venture ideas

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

7. Entrepreneurial environment Entrepreneurial churn: - A number of business are created - Other businesses are closing down, over the same period of time (one year – for statistics reasons)

Business churn is normal (about 10% in the EU) The net result of the “churn” is the either positive or negative

n n

- positive means economic development (emerging economies) - negative means economic recession - mature economies show a dynamic stability

Example: About 3.5m firms – pretty stable during a decade (1992-2002) in the UK Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

7. Entrepreneurial environment Entrepreneurial macro- and micro-environment n

n

Business success or failure depends on internal factors (entrepreneurs and their business ideas) as well as external factors (macro- and micro-environment factors) Macro-environment factors: - political and regulatory factors - economic general conditions (inflation rate, unemployment level) - social and demographic factors (population dynamics, education, religion, culture, gender issues) - technological change

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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7. Entrepreneurial environment Entrepreneurial macro- and micro-environment n

Micro-environment factors: - local socio-economic conditions (location) - development of the particular market - growth rate and potential of that particular market - customer needs and the structure of demand for individual products (goods / services) - competitive environment across specific industries

These factors are dynamic; the influence of each factor varies in time; they may have different impact at business start up or after Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

7. Entrepreneurial environment Birth of business n

When to start up

n

Where (geographic location)

n

Which sector – industry and market to enter

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

7. Entrepreneurial environment Birth of business When to start up – factors to possibly influence the decision: n

Government policies

n

Structural change in economy

n

Level of unemployment

n

Interest rates

n

Profitability

n

Personal savings and assets

n

Consumer expenditure

These factors may act in positive or negative ways Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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7. Entrepreneurial environment Birth of business Where (geographic location) - factors to influence the decision: n

Central government and local government policy

n

Area with population growth

n

Unemployment

n

Wealth

n

Workforce qualifications

n

Housing and housing pricing Business size (large number of small business indicate low entry barriers)

n

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

5. Starting a business What kind of business to start – Which industry/market? n

Barriers to market entry for a small firm: - Economies of scale – productive technologies are expensive - Product differentiation – large firms have the potential to differentiate their own products (branding, packaging, …) - Capital requirements – for many industries – expensive equipment - Switching costs – not affordable for a small firm - Access to distribution channels and networks - Other cost dis/advantages – location (good locations are expensive), learning curve - Government policy and regulations

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

7. Entrepreneurial environment Hostile / benign environments - Sector and structural analysis n

Sector analysis - some sectors – service sector mostly - are small business by tradition (cafés, real estate services) - there are small business sectors by process specific character (as professional services - accounting, financial services, consulting) - IT sector is increasingly small business - small firms might flourish around large companies (as subcontractors, suppliers) -… Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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7. Entrepreneurial environment Hostile / benign environments - Sector and structural analysis n

Structural analysis - The five forces (Porter) or pressures: - pressure of buyers - pressure of suppliers - pressure of existing rivalry in the industry - pressure of potential competitors (new entrants) - pressure of substitution products (goods / services) - as function competition - as budget competition Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

7. Entrepreneurial environment New venture ideas n

Founded on a general business idea

n

This idea has the potential to: - fulfil entrepreneur's personal requirements - use entrepreneur’s personal strengths - has a certain element of novelty

n

Focal point for developing the future enterprise

n

Concentrates the creative thinking in one area

n

However: general enough to allow for plenty of different specific products (goods / services) Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

7. Entrepreneurial environment New venture ideas Key criteria for a new venture idea: n Personal requirements (objectives, aspirations) n Personal qualities (built on personal strengths) n Innovative

(elements of novelty)

n Viable innovation (longer term development)

New venture idea should be described in a short sentence – which link products, technology, resources, to market needs or problem areas Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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7. Entrepreneurial environment Assessing new venture ideas n

Identify and define the new venture idea

n

Assess new venture idea - identify supporting trends

n

Identify some initial product (good / service) offerings for the new venture idea - first examples and ideas of new products (goods / services) that could provide an entry point to exploit the potential offered by this new venture idea

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

8. Business information n

Market / marketing research for small firms

n

Process of market / marketing research

n

Principles of market / marketing research

n

Primary and secondary research

n

Sources of information

n

Business support services

n

Role of government – supporting the entrepreneurship

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

8. Business information Market/marketing research for small firms n Market information

- existing and potential customers - market trends - competitors n Marketing information

- factors which can change the current position of customers and competitors - factors that might influence customers in their decision making process

The objective of the marketing research is to find out the missing information – in order to make the marketing decision, which will solve the problem previously identified Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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8. Business information Market/marketing research for small firms Examples of marketing research – specific objectives: n To determine the number of VW cars that would

price levels, in Bucharest, Romania

be demanded at various

n To calculate the average

duration of a phone call that would be made in the fixed telephone communication system, in Budapest, Hungary n To calculate the average

number of calls that would be made on the cellular system during a typical month of operation, in Korea; to ascertain the time of the day the calls would be made and the location of the cellular phone user during the calls n To find out the correlation between the advertising spent amount and the

detergent sales increase, in Croatia

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

8. Business information Marketing research: The function which links the consumer, customer, and public to the marketer through information – information used to identify and define marketing opportunities and problems; generate, refine and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process (AMA) The process of designing, gathering, analyzing and reporting of information – which might be used to solve a (marketing) problem ( = to make a decision!) Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

8. Business information Marketing research – Typology: Primary marketing research – deals with primary data. Primary data refers to information that is originated or gathered by the researcher specifically for the research project at hand Secondary marketing research - deals with secondary data, which are data that have previously been gathered by someone other than the researcher and/or for some other purpose than the research project at hand

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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8. Business information Sources of information n

Secondary data - Internal sources - External sources (trade associations, chambers of commerce, competition, directories, government statistics, banks, business support services, higher education institutions, …)

n

Primary data - accessed by tools of primary marketing research

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

8. Business information Tools for primary marketing research n

Observation

n

Interview

n

Focus group

n

Survey

n

Experiment

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

8. Business information Business support services n

Basic support services - business information and advice - training - consulting

n

More complex services: - market surveys and studies - financial assistance - incubation services

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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9. Business opportunity n

Business opportunities

n

Opportunity identification

n

Opportunity evaluation

n

Small project: Opportunity assessment

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

9. Business opportunity Business opportunities n n

Opportunities always come from external analysis Opportunities are opposed to threats; however, sometimes, by creative thinking, entrepreneurs can turn the threats into opportunities

n

Examples …

n

Main issues: - opportunity identification - opportunity assessment (evaluation) Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

9. Business opportunity How to identify an opportunity (Stokes & Wilson, cap.4) n n

Build on your new venture idea with more creative thinking Make a short-list by elimination and evaluation against key personal and business environment criteria

n

Assess the competitive edge

n

Rate the benefits sought by customers, and offered by you

n

Identify (decide on) the opportunity

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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9. Business opportunity How to evaluate an opportunity After selecting the opportunity and identifying the target customer group, the opportunity has to be refined by research: - Set the research objectives

- sales / year 1 … 3 – in three scenarios (pessimistic, optimistic, most likely) - major opportunities and threats in the marketplace, for my product - Find out more about the environment - Find out more about the target customer segment

- Find out more about the competition Research results and conclusions are presented in a formal report Evaluation of the opportunity (EoO) report Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

9. Business opportunity Small project: Opportunity assessment n

Built on your venture idea

n

Set the research objectives and use the market research methods

n

Opportunity identification (per Stokes & Wilson, pp.133-136)

n

Opportunity evaluation (per Stokes & Wilson, pp.165-167)

n

EoO report

Individual, written project; e-mailed Deadline:

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

Course Overview §

Subjects covered

§

Assignments & Exercises completed

§

Objectives met ?

§

Entrepreneurial traits developed ?

§

Things you did like

§

Things that might be improved

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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This course … …

To be continued: Business planning process

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

Thank You Good luck & See You!

Prof. Dr. Cezar Scarlat: “Entrepreneurship” – Mikkeli University of Applied Sciences, Spring semester 2012

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