The Portable MBA in Entrepreneurship

William D. Bygrave, Andrew Zacharakis

• Publisher: Wiley
• Year: 2015
• Print ISBN: 9780470481318
• eBook ISBN: 9781118463802
• Edition: 4
• Topic: Business
• Subtopic: Management
• Index: Business

A totally updated and revised new edition of the most comprehensive, reliable guide to modern entrepreneurship

For years, the Portable MBA series has tracked the core curriculum of leading business schools to teach you everything you need to know about business-without the cost of earning a traditional MBA degree. The Portable MBA in Entrepreneurship covers all the ins and outs of entrepreneurship, using real-life examples and handy tools to deliver clear, honest, practical advice on starting a successful business.

If you're planning to start your own business, you'd best start with the facts. This reliable, information-packed resource shows you how to identify good business opportunities, create a business plan, do financial projections, find financing, and manage taxes. Other topics include marketing, selling, legal issues, intellectual property, franchising, starting a social enterprise, and selling your business.

• Completely updated with new examples, new topics, and full coverage of topical issues in entrepreneurship
• Includes customizable, downloadable forms for launching your own business
• Comes with Portable MBA Online, a new web site that gives readers access to forms, study guides, videos, presentations, and other resources
• Teaches you virtually everything you'd learn on entrepreneurship in today's best business schools

Whether you're thinking of starting your own business or you already have and just need to brush up on entrepreneurial basics, this is the only guide you need.

1
The Entrepreneurial Process

William D. Bygrave

How This Chapter Fits into a Typical MBA Curriculum

The entrepreneurial process is an introductory lecture at the start of a new venture course in MBA programs. It gives an overview of the importance of entrepreneurship in the economy. Then it sets the table for the semester by giving an outline of the content of the course, which comprises the entrepreneurial process from conception to birth of a new venture and its early growth. This chapter includes understanding entrepreneurial attributes and skills, finding and evaluating opportunities, and gathering resources to convert opportunities into businesses. Students learn how to weigh up entrepreneurs and their plans for new businesses.

In this book, as in most MBA new ventures courses, the focus is on entrepreneurs and how they start new companies. Major areas of concentration include the following: searching the environment for new venture opportunities; matching an individual’s skill with a new venture; evaluating the viability of a new venture; and financing, starting up, and operating a new venture.

Who Uses This Material in the Real World—and Why It Is Important

Would-be entrepreneurs hoping to start a new venture and novice entrepreneurs with fledgling businesses get a summary of the essential ingredients of successful entrepreneurship from reading this chapter. The book gives them deep insights into how to start and grow a viable business. The material is important because this book is a manual on best entrepreneurial practices spelled out by leading experts who teach and mentor entrepreneurs.

Introduction

This is the age of entrepreneurship. It is estimated that as many 500 million persons worldwide were either actively involved in trying to start a new venture or were owner-managers of a new business in 2008.¹ More than a thousand new businesses are born every hour of every working day in the United States. Entrepreneurs are driving a revolution that is transforming and renewing economies worldwide. Entrepreneurship is the essence of free enterprise because the birth of new businesses gives a market economy its vitality. New and emerging businesses create a very large proportion of innovative products and services that transform the way we work and live, such as personal computers, software, the Internet, biotechnology drugs, and overnight package deliveries. They also generate most of the new jobs. Since the mid-1990s, small businesses have created 60 to 80 percent of net new jobs. In 2005—the most recent year with data—companies with fewer than 500 employees created 979,102 net new jobs or 78.9 percent, while large companies with 500 or more employees added 262,326 net new jobs or 21.1 percent.

If the small business sector of the U.S. economy were a nation, its GDP would rank third in the world behind the U.S. medium-and big-business sector and the entire economy of Japan, and far ahead of the economies of Germany, the United Kingdom, France, Italy, and China.²

There has never been a better time to practice the art and science of entrepreneurship. But what is entrepreneurship? Early in the 20th century, Joseph Schumpeter, the Moravian-born economist writing in Vienna, gave us the modern definition of an entrepreneur as the person who destroys the existing economic order by introducing new products and services, by creating new forms of organization, or by exploiting new raw materials. According to Schumpeter, that person is most likely to accomplish this destruction by founding a new business but may also do it within an existing one.

But very few new businesses have the potential to initiate a Schumpeterian gale of creation-destruction as Apple computer did in the computer industry. The vast majority of new businesses enter existing markets. In The Portable MBA in Entrepreneurship, we take a broader definition of entrepreneurship than Schumpeter’s. Ours encompasses everyone who starts a new business. Our entrepreneur is the person who perceives an opportunity and creates an organization to pursue it. And the entrepreneurial process involves all the functions, activities, and actions associated with perceiving opportunities and creating organizations to pursue them. Our entrepreneur’s new business may, in a few rare instances, be the revolutionary sort that rearranges the global economic order as WalMart, Fedex, and Microsoft have done, and amazon.com, eBay, and Google are now doing. But it is much more likely to be of the incremental kind that enters an existing market.

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The Changing Economy

General Motors (GM) was founded in 1908 as a holding company for Buick. On December 31, 1955, General Motors became the first American corporation to make over $1 billion in a year. At one point it was the largest corporation in the United States in terms of its revenues as a percent of GDP. In 1979, its employment in the United States peaked at 600,000. In 2008 GM reported a loss of $30.9 billion and burned through $19.2 billion of cash. In a desperate attempt to save the company in February 2009, GM announced plans to reduce its total U.S. workforce from 96,537 people in 2008 to between 65,000 and 75,000 in 2012. By March 2009, GM, which had already received $13.4 billion of bailout money from the U.S. government, was asking an additional $16.6 billion. The Obama Administration forced GM’s CEO, Rick Wagoner, to resign; his replacement, Fritz Henderson, said that bankruptcy was a real possibility. On June 1, GM filed for bankruptcy.

Wal-Mart was founded by Sam Walton in 1962. For the year ended January 31, 2008, Wal-Mart had record sales of $374.5 billion, record earnings of $22 billion, and record free cash flow of $5.4 billion. During 2008, Wal-Mart added 191 supercenters in the United States and opened its 3,000th international unit. Wal-Mart is the world’s largest corporation, with 1.4 million associates in the United States.

We’re all working together; that’s the secret. And we’ll lower the cost of living for everyone, not just in America, but we’ll give the world an opportunity to see what it’s like to save and have a better lifestyle, a better life for all. We’re proud of what we’ve accomplished; we’ve just begun.

—Sam Walton (1918–1992)

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An entrepreneur is someone who perceives an opportunity and creates an organization to pursue it.

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The entrepreneurial process involves all the functions, activities, and actions associated with perceiving opportunities.

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Is the birth of a new enterprise just happenstance and its subsequent success or demise a haphazard process? Or can the art and science of entrepreneurship be taught? Clearly, professors and their students believe that it can be taught and learned because entrepreneurship is the fastest growing new field of study in American higher education. It was estimated that more than 2,000 U.S. colleges and universities—approximately two-thirds of the total—were teaching entrepreneurship in 2009.

That transformation in higher education—itself a wonderful example of entrepreneurial change—has come about because a whole body of knowledge about entrepreneurship has developed during the past three decades or so. The process of creating a new business is well understood. Yes, entrepreneurship can be taught. However, we cannot guarantee to produce a Bill Gates or a Donna Karan, any more than a physics professor can guarantee to produce an Albert Einstein, or a tennis coach a Venus Williams. But give us students with the aptitude to start a business, and we will make them better entrepreneurs.

Critical Factors for Starting a New Enterprise

We will begin by examining the entrepreneurial process (see Exhibit 1.1). What we are talking about here are the factors—personal, sociological, and environmental—that give birth to a new enterprise. A person gets an idea for a new business through either a deliberate search or a chance encounter. Whether he decides to pursue that idea depends on factors such as his alternative career prospects, family, friends, role models, the state of the economy, and the availability of resources.

Exhibit 1.1 A Model of the Entrepreneurial Process

Source: Carol Moore, “Understanding Entrepreneurial Behavior,” in J. A. Pearce II and R. B. Robinson, Jr., eds., Academy of Management Best Paper Proceedings, Forty-sixth Annual Meeting of the Academy of Management, Chicago (1986).

There is almost always a triggering event that gives birth to a new organization. Perhaps the entrepreneur has no better career prospects. For example, Melanie Stevens was a high school dropout who, after a number of minor jobs, had run out of career options. She decided that making canvas bags in her own tiny business was better than earning low wages working for someone else. Within a few years she had built a chain of retail stores throughout Canada. Sometimes the person has been passed over for a promotion, or even laid off or fired. Howard Rose had been laid off four times as a result of mergers and consolidations in the pharmaceutical industry, and he had had enough of it. So he started his own drug packaging business, Waverly Pharmaceutical.

Tim Waterstone founded Waterstone’s book stores after he was fired by W. H. Smith. Ann Gloag quit her nursing job and used her bus driver father’s $40,000 severance p...

Table of contents

• Cover
• Table of Contents
• Title
• Copyright
• Complete List of Downloadable Materials for The Portable MBA in Entrepreneurship
• Preface to the Fourth Edition
• About the Contributors
• 1: The Entrepreneurial Process
• 2: Idea Generation
• 3: Opportunity Recognition, Shaping, and Reshaping
• 4: Entrepreneurial Marketing
• 5: Business Planning
• 6: Building Your Pro Forma Financial Statements
• 7: Equity Financing: Informal Investment, Venture Capital, and Harvesting
• 8: Debt and Other Forms of Financing
• 9: External Assistance for Start-ups and Small Businesses
• 10: Legal and Tax Issues
• 11: Intellectual Property
• 12: Selling in an Entrepreneurial Context
• 13: Beyond Start-up: Developing and Sustaining the Growing Organization
• 14: Franchising
• 15: Social Entrepreneurship
• Glossary
• Index
• End User License Agreement