Chapter 1: Introduction to Entrepreneurship
1-3.
What does evidence show us about the rate of failure associated with
entrepreneurial ventures?
Answer: One criticism of entrepreneurship, which is often repeated in the press,
is that the majority of new businesses fail. It simply isn’t true. The often used
statistic that 9 out of 10 businesses fail in their first few years is an exaggeration.
According to the Bureau of Labor Statistics, over half the businesses started are
still in existence five years later.
1-4.
What is entrepreneurship?
Answer: The standard definition for entrepreneurship is that it’s “the process by
which individuals pursue opportunities without regard to resources they
currently control.” It can occur at the individual level, the team or group level, or
at the corporate level. There are other definitions of entrepreneurship. Fred
Wilson, a venture capitalist, defines entrepreneurship as “the art of turning an
idea into a business.” Both definitions focus on behaviors. In general,
entrepreneurship is associated with the task of identifying opportunities and
putting useful ideas into practice.
1-5.
In what ways is an entrepreneur who just launched a restaurant different from
someone who just took a job as the general manager of a restaurant owned by a
major restaurant chain?
Answer: Entrepreneurial firms, which are the focus of this book, bring new
products and services to market by seizing opportunities. The person who just
launched a restaurant is bringing a new product or service to market, and is
assuming the risk associated with doing that. The person who just took a job as
the general manager of a restaurant isn’t bringing something new to market.
Although the person is assuming employment risk, he/she isn’t assuming the risk
of owning a business.
1-6.
What are the three main attributes of firms that pursue high levels of corporate
entrepreneurship?
Answer: Entrepreneurial firms are typically proactive, innovative, and not averse
to taking risks.
1-7.
What are the three primary reasons people become entrepreneurs?
Answer: The three primary reasons that people become entrepreneurs and start
their own firms are to (1) be their own boss, (2) pursue their own ideas, and (3)
realize financial rewards.
1-8.
Of the three primary reasons people become entrepreneurs, which one is given
most commonly and why?
Answer: Be their own boss. The reason this is the most common motivation for
becoming an entrepreneur is either because some people have a long-standing
ambition to be their own boss or because they become frustrated working in
traditional jobs. For many people, a traditional job may be too confining and
they yearn for the freedom that entrepreneurship brings.
1-9.
Why is passion such an important characteristic of successful entrepreneurs?
Answer: The passion that an entrepreneur feels for his or her business typically
stems from a belief that the business will positively influence people’s lives. It is
important that this passion exist because the process of starting and building a
new firm is demanding.
1-10.
What is it about passion that makes it particularly compatible with the
entrepreneurial process?
Answer: Passion is particularly important because, although rewarding, the
process of starting a firm or building a business is demanding. Absent passion,
the demands would outweigh the potential rewards for people who are not
passionate about what they’re doing.
1-11.
Why is product/customer focus an important characteristic of successful
entrepreneurs?
Answer: Although all parts of the entrepreneurial process are important,
ultimately if a new business does not have a successful product that is directed
toward a receptive market the business will fail. A product/market focus also
involves the diligence to spot product opportunities and to see them through to
completion.
1-12.
What is it about “tenacity” that makes it such an important characteristic for
entrepreneurs?
Answer: Because entrepreneurs are typically trying something new, the
possibility of failure exists. The litmus test for entrepreneurs is the tenacity that
they have to persevere through setbacks and failures.
1-13.
What are the five common myths of entrepreneurship?
Answer: The five common myths of entrepreneurship are as follows:
Chapter 1: Introduction to Entrepreneurship
Myth 1: Entrepreneurs are born, not made.
Myth 2: Entrepreneurs are gamblers.
Myth 3: Entrepreneurs are motivated primarily by money.
Myth 4: Entrepreneurs should be young and energetic.
Myth 5: Entrepreneurs love the spotlight.
1-14.
What is the evidence that debunks the myth that entrepreneurs are born, not
made?
Answer: The consensus of many hundreds of studies on the psychological and
sociological makeup of entrepreneurs is that entrepreneurs are not genetically
different from other people.
1-15.
What are the four distinctive parts of the entrepreneurial process and what is the
relationship among the parts?
Answer: The four distinct parts of the entrepreneurial process are as follows:
Part 1: Decision to become an entrepreneur.
Part 2: Developing successful business ideas.
Part 3: Moving from an idea to an entrepreneurial firm.
Part 4: Managing and growing an entrepreneurial firm.
Each part is intimately interrelated and interdependent with one another.
1-16.
How would you characterize the risk-taking propensity of most entrepreneurs?
MyLab Question.
1-17.
What factors favor older entrepreneurs as opposed to young entrepreneurs?
Answer: What makes an entrepreneur “strong” in the eyes of an investor is
experience in the area of the proposed business, skills and abilities that will help
the business, a solid reputation, a track record of success, and passion about the
business idea. The first four of these characteristics favor older rather than
younger entrepreneurs.
1-18.
What did Joseph Schumpeter mean by the term creative destruction?
MyLab Question.
1-19.
In general, what effects does entrepreneurship have on economies and societies
throughout the world?
Answer: Entrepreneurship has a positive effect on both economies and societies
throughout the world. For two reasons, entrepreneurial behavior has a strong
Chapter 1: Introduction to Entrepreneurship
impact on an economy’s strength and stability. The reasons are innovation and
job creation. According to the Small Business Administration Office of
Advocacy, small innovative firms are 16 times more productive than larger
innovative firms in terms of patents per employee. Small firms also create a
substantial number of new jobs in the United States. In regard to the impact of
entrepreneurial firms on societies, the new products and technologies created by
entrepreneurial firms have a dramatic impact. Think of all the new products and
services that make our lives easier, enhance our productivity at work, improve
our health, and entertain us. Many of these products and services were created by
entrepreneurial firms.
1-20.
What are the changes to the demographic makeup of entrepreneurs in the United
States that are described in this chapter?
Answer: Over the past 10 years, the demographic makeup of entrepreneurial
firms has changed in the United States and around the world. Of all the
businesses in the United States, a growing number are owned by women,
minorities, seniors, and young people. The changing demographic makeup of
entrepreneurs is changing for two reasons. First, the United States itself is
changing, and is becoming a much more diverse society. As a result, the
changing demographic makeup of entrepreneurs reflects society as a whole.
Second, pursuing an entrepreneurial career is an exciting career choice, which is
open to people across all demographic groups. As the ability to enter an
entrepreneurial career becomes available to a larger number of people, it is not
surprising that people across all demographic groups would be drawn to this
alternative.
APPLICATION QUESTIONS
1-21.
After rereading the opening case, identify all of the effective or smart moves
Kirsten Blowers made in the early days of building Riffraff.
Answer: The following is a list of smart or effective moves that Kirsten Blowers
made in the early days of building RiffRaff:
She started small and scaled up after essentially testing her idea.
She adapted quickly when Pinterest basically made her original idea
unviable. She went from furniture to clothing and found success.
The clothing business exploits Kirsten’s knack for picking the right
clothes.
1-22.
Assume that you are the dean of a business school and that you are interested in
more entrepreneurship courses being offered in your school. Surprisingly to you,
some professors are resisting the idea of offering these courses on the basis of
their view that entrepreneurship is a skill that can be learned only through
experience. Using materials in this chapter, make an argument that
entrepreneurship can be taught.
Answer: First, there are many examples of entrepreneurs that launched
successful firms without prior entrepreneurial or business experience. Zach
Schau and his founding team at Pure Fix Cycles is an example. So it’s not fair to
argue that entrepreneurship can be learned only through experience. Second, the
four-step entrepreneurial process, introduced in the chapter, depicts the
sequential nature of starting a new business. Anyone who “learns” this process
and studies each step in the process is better equipped to start a business than
someone who is not familiar with the process. As a result, entrepreneurship
clearly can be “taught.”
1-23.
Jose Reyes is a computer science student in his last semester. He just completed
a class on how to build smartphone apps. The last day of class, Jose’s professor
pulled him aside and told him that he has excellent aptitude for building
smartphone apps and that he should pursue doing so instead of taking a job with
an existing company following graduation. Jose really respects his professor and
is now thinking about doing what he recommended. He is confident that he can
build successful smartphone apps and has thought previously about being an
entrepreneur. The downside is that he isn’t especially passionate about building
smartphone apps. If Jose asked you for your advice, what would you tell him to
do?
Answer: If Jose is not passionate about building smartphone apps, he should
think long and hard about pursuing that path, regardless of his aptitude for
building apps. Building a business is an entirely separate challenge from
producing the product or service the business will sell. It’s a difficult and
challenging process. Unless Jose has a specific passion for building a business
that sells smartphone apps, he will find it to be a difficult and exhausting
process.
1-24.
One question that is often asked by people thinking about launching an
entrepreneurial venture is “what should first-time entrepreneurs know before
they launch?” Based on information featured in Chapter 1, what should
entrepreneurs know before they commit to launching their firm?
Answer: Students will vary in terms of their answer to this question. A lot of
things have to go right for a business start to be successful. Each step in the
entrepreneurial process must be accomplished with a degree of proficiency. As a
result, first-time entrepreneurs should acquaint themselves with each step in the
Chapter 1: Introduction to Entrepreneurship
process is particularly important. Special care should be devoted to completing
the steps involved with “Developing Successful Business Ideas” in a deliberate
and thoughtful manner.
1-25.
Assume you have a friend who is thinking about starting a business to sell
jewelry that he has been making only for friends for several years. He is coming
to talk to you because he knows that you are pursuing a degree in
entrepreneurship. Your friend says, “I am worried that I may lack the skills to
effectively operate a business if I decide to establish one.” Given your
knowledge of “execution intelligence” as discussed in this chapter, what advice
would you give to your friend about how to successfully operate a firm on an
ongoing basis?
Answer: Your friend is correct in recognizing that execution intelligence is key.
It is one of the four characteristics of entrepreneurial firms discussed in the
chapter. Prior to launching his business, your friend should find mentors and
advisors who are willing to work with him on the execution-related issues that
will be involved with his business. He may also want to work for a business that
is similar to the one he is thinking about starting before starting his own firm.
That way he will have execution-related experiences in his area before he
launches his own firm.
1-26.
A friend of yours with whom you went to high school and now university as well
is talking to you about his interest in becoming an entrepreneur. In a way, this
does not surprise you in that Jackson, your friend, has always wanted to be his
own boss. However, in discussing his interest to start his own real-estate firm,
Jackson tells you that a substantial income is the primary reason he is thinking
about becoming an entrepreneur. He asks you if wanting to earn a significant
amount of money is the main reason most, if not all, entrepreneurs start their
firms. In light of information included in this chapter, how would you respond to
Jackson?
Answer: Although there is nothing inherently wrong with trying to make money,
it is usually a secondary reason people start businesses. The primary reasons are
to be their own boss and pursue their own ideas. In addition, people often have
unrealistic expectations about how much money they’ll make as a business
owner, opposed to pursuing a traditional career. The average entrepreneur does
not make more money than someone with a similar amount of responsibility in a
traditional job.
YOU BE THE VC EXERCISE
Note: The “You Be the VC Exercise” is short for “You Be the Venture Capitalist.” Each
“You Be the VC” feature provides an example of a real-life entrepreneurial firm. Each
Chapter 1: Introduction to Entrepreneurship
18
an effective way to use these exercises is to ask students to read them (and study the
firm’s Web site if you’d like to extend the exercise), and say, “You Be the VC. If you
were a venture capitalist, would you offer this firm funding? Why or why not?”
We have used these exercises and have found that they stimulate fascinating classroom
YOU BE THE VC 1.1
Company: Shyp (www.shyp.com)
Business Idea: Create a shipping service that picks up, packages, and ships items for
individuals and businesses via the most affordable option available.
You Be the VC Scorecard
Shyp
(www.welloshyp.com)
Item
Score/Comments
Strength of New-Venture
Team
1 2 3 4 5
Kevin Gibbon, the founder, was a seller on eBay who
found that he was spending more and more of his time
on shipping. Sensing an opportunity, he shut down his
eBay shop and launched Shyp.
The website doesn’t give us details of Shyp’s
management team.
Strength of the Opportunity
1 2 3 4 5
The strength of the opportunity is unclear. Although
shipping is a hassle, it is not clear if people would be
willing to pay $5 plus shipping just to avoid going
through the process. Also, retailers like Amazon have
made it easy to return goods.
Chapter 1: Introduction to Entrepreneurship
Strength of the Industry
1 2 3 4 5
Online sales is growing and so shipping needs are
exploding. This suggests that the growth prospects in the
shipping industry are very attractive. We don’t know of
Shyp’s competition, though.
Strength of Business Model
Shyp makes money in two ways: the $5 fee it charges
each customer and the savings it gets from the difference
between retail shipping rate and their discounted rate.
What is not clear is how the company will overcome the
$5 fee that many would consider excessive.
Average Score: 3.0/5.0
Decision: We would not fund Shyp for two reasons. First, we’re not confident that people
will be willing to pay $5 plus shipping just to avoid the hassle. Also, we are not sure how
Shyp can create a “moat” for itself when competition enters. Its model is replicable.
YOU BE THE VC 1.2
Company: Vital Vio (www.vitalvio.com)
Business Idea: Design, manufacture, and sell LED lights that kill bacteria and other
organisms in high-risk environments, such as health-care settings, airplanes, gyms,
restaurants, office buildings, and public restrooms.
You Be the VC Scorecard
Vital Vio
(www.vitalvio.com)
Item
Score/Comments
Strength of New-Venture
Team
1 2 3 4 5
Co-founder and President Colleen A. Costello has
worked as a researcher at two hospitals, as a surgical
device designer, and as a tissue engineering researcher.
Balance of management team consists of people with
medical and business experience.
Has both a Board of Directors and an Advisory Board.
Chapter 1: Introduction to Entrepreneurship
Board of Directors has two members (in addition to Ms.
Costello) who have corporate and venture capital
experience. The same is true of the Advisory Board.
Strength of the Opportunity
1 2 3 4 5
MRSA infection accounts for 99,000 deaths in a year
and so its prevention is important. LED lights have an
advantage over UV lights that hospitals use to prevent
MRSA infections in that the latter can be harmful.
Strength of the Industry
1 2 3 4 5
This is an unknown. While establishments other than
hospitals are aware of MRSA infections, they don’t
seem to be willing to put money in remedies.
Strength of Business Model
1 2 3 4 5
The business model is appealing. Vital Vio lights can be
retrofitted to existing lighting systems and so extensive
rewiring is not needed. Licensing will help it expand
quickly and cement its first mover advantage.
Average Score
3.75.0/5.0
Decision: We would fund this firm. Vital Vio’s management team and its Board of
Directors and Advisory Board are strong. It includes a nice mix of people with
backgrounds in business, medicine, finance, and sales. We also like the fact that one
Board member is from the investment community. The opportunity is also strong.
Preventing deaths due to infection is an important market need. We also like the
company’s business model. It can grow fast via licensing.
CASES
Chapter 1: Introduction to Entrepreneurship
DISCUSSION QUESTIONS
1-31.
Which of the characteristics of a successful entrepreneur, discussed in the chapter,
do you see in Julie Rice and Elizabeth Cutler? To what degree do you think these
characteristics have contributed to SoulCycle’s success?
Answer: Two of the four characteristics of successful entrepreneurs,
product/customer focus and execution intelligence—are seen in Julie Rice and
Elizabeth Cutler, and these characteristics have no doubt contributed to
SoulCycle’s success. The founders approached their business from a problem
perspective and attempted to “solve” the problem via their venture. Exercise can
be a boring activity for the marginally motivated. Combining it with social
interaction was a great business opportunity. But what really accounts for
SoulCycle’s success was that the founders executed on their idea really well.
1-32.
How does SoulCycle’s basic offering, its 45 minute spinning classes, “add value”
to the lives of its customers?
Answer: For 45 minutes, the customer can not only get an intense workout but do
it in a congenial setting – the music, the lighting, the instructor. To people whose
professional and or personal lives is full of stress, SoulCycle offers a cure.
1-33.
On a scale of 1 to 10 (10 is high), rate SoulCycle on execution intelligence. Make
a list of at least five things that you think SoulCycle did particularly well in this
area. Justify your numerical ranking.
Answer: SoulCycle has excelled on execution and we would give it a score of 10
out of 10. The five things they have executed really well are: the instructor, the
music, the atmosphere, the training, and the overall focus. The first three have to
do with the “product” – what SoulCycle offers its customers. Well-trained and
motivated instructors are key, while the selection of music and the overall
ambience add to the value. The last two have to do with growth. Having well–
trained people is key to expanding and the company has paid a lot of attention to
it. Finally, the co-founders have focused singularly on the business idea.
1-34.
Talk about the challenge that Peleton poses to SoulCycle. If you were asked to
advise SoulCycle on how to respond to Peleton’s threat, what would you tell the
company to do?
Answer: Peleton offers a group workout, but unlike SoulCycle, it is from the
comfort of one’s own home. It is a challenge for SoulCycle because it offers the
exercise that SoulCycle does and simulates the camaraderie that comes from
doing it collectively, except that Peleton does it via virtual reality. It has the
added convenience of being on-demand. To respond, SoulCycle has to work on
what made it successful in the first place – the instructors and the ambience.
Case 1.2
PatientsLikeMe: Allowing People with Serious Diseases to Connect with One Another
and Exchange Support and Advice
DISCUSSION QUESTIONS
1-35.
Of the reasons articulated in Chapter 1 that motivate people to start businesses,
which of the three reasons was the primary motivation behind Jamie and Ben
Heywood’s decision to launch PatientsLikeMe?
Answer: A desire to pursue their own ideas. Also, a desire to make a positive
difference in people’s lives.
1-36.
How do those who are leading PatientsLikeMe practice “product/customer
focus”? How do they practice “execution intelligence”?
Answer: While PatientsLikeMe seems to be almost singularly focused on
execution intelligence, it does have a product/customer focus in that its key value
proposition is to enable patients to interact with other patients in a way that is
useful to them. As far as execution intelligence, in looking at the site and how
people with serious diseases are able to interact with one another, one gets the
impression that a tremendous amount of thought and empathy for people with
serious diseases was put into the way the Web site and user experience has been
set up. Another sign of execution intelligence is the way PatientsLikeMe makes
money. Rather than charging users for its service, it generates revenue by selling
aggregated data that it collects from its online patients’ communities to medical
companies. This lowers a barrier to participation (not having to pay a fee to use
the service), which in the end makes its communities larger and richer. It also
makes money by helping pharmaceutical companies enlist participants in drug
trials and studies. This initiative is a win-win-win proposition. It’s a win for
pharmaceutical companies via an efficient method for signing up participants for
trials. It’s a win for patients with serious diseases, who are often eager to sign up
for any initiative that might improve their condition or reverse their disease. And
it’s a win for PatientsLikeMe in that it generates revenue.
1-37.
What type of start-up firm is PatientsLikeMe?