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The Foundations of The Foundations of Entrepreneurship Entrepreneurship ABDM4233 ENTREPRENEURSHIP ABDM4233 ENTREPRENEURSHIP by Stephen Ong Principal Lecturer (Specialist) Visiting Professor, Shenzhen University

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Introduction to Entrepreneurship

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Page 1: Abdm4223 week 01 intro

The Foundations of The Foundations of EntrepreneurshipEntrepreneurship

The Foundations of The Foundations of EntrepreneurshipEntrepreneurship

ABDM4233 ENTREPRENEURSHIPABDM4233 ENTREPRENEURSHIP

byStephen Ong

Principal Lecturer (Specialist)Visiting Professor, Shenzhen University

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The World of the EntrepreneurThe World of the Entrepreneur

Every year U.S. entrepreneurs launch Every year U.S. entrepreneurs launch 550,000 new businesses.550,000 new businesses.

Entrepreneurial spirit - the most Entrepreneurial spirit - the most significant economic development in significant economic development in recent history.recent history.

GEM study: 18.7% of adult population GEM study: 18.7% of adult population in the U.S. is actively involved in trying in the U.S. is actively involved in trying to start a new business. to start a new business.

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TEA (2011) Malaysia = 4.9%

Japan = 5.2%Singapore = 6.6%

UK = 7.3%USA = 12.3%

Thailand = 19.5%China = 24%

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The World of the EntrepreneurThe World of the Entrepreneur

Global Entrepreneurship Monitor (GEM) Global Entrepreneurship Monitor (GEM) study reports:study reports: Men are twice as likely to start a business Men are twice as likely to start a business

as women.as women. Most entrepreneurs turn to family members Most entrepreneurs turn to family members

and friends for capital.and friends for capital. Entrepreneurs are most likely to launch Entrepreneurs are most likely to launch

businesses when they are businesses when they are between the ages of 25 and 44.between the ages of 25 and 44.

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Global Entrepreneurship Monitor Global Entrepreneurship Monitor (GEM) 2011 Report(GEM) 2011 Report

Estimated 388 million entrepreneurs actively engaged in starting and Estimated 388 million entrepreneurs actively engaged in starting and running new businesses in 2011. running new businesses in 2011.

Early-stage entrepreneurs comprised of :Early-stage entrepreneurs comprised of : 163 million women 163 million women 165 million between the ages of 18 and 35 years165 million between the ages of 18 and 35 years 141 million expecting to create at least five new jobs in the next five 141 million expecting to create at least five new jobs in the next five

yearsyears 65 million expecting to create 20 or more new jobs in the next five 65 million expecting to create 20 or more new jobs in the next five

yearsyears 69 million with innovative products and services that are new to 69 million with innovative products and services that are new to

customers and with few other competitorscustomers and with few other competitors 18 million selling at least 25% of their products and services 18 million selling at least 25% of their products and services

internationallyinternationally

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What is Entrepreneurship?What is Entrepreneurship?

Academic Definition (Stevenson & Jarillo)Academic Definition (Stevenson & Jarillo) Entrepreneurship is the process by which Entrepreneurship is the process by which

individuals pursue individuals pursue opportunities opportunities without regard to without regard to resources they currently control.resources they currently control.

Venture Capitalist (Fred Wilson)Venture Capitalist (Fred Wilson) Entrepreneurship is the art of turning an Entrepreneurship is the art of turning an idea into idea into

a business.a business. Explanation of What Entrepreneurs DoExplanation of What Entrepreneurs Do

Entrepreneurs assemble and then integrate all the Entrepreneurs assemble and then integrate all the resources needed – the money, the people, the resources needed – the money, the people, the business model, the strategy – to transform an business model, the strategy – to transform an invention or an invention or an idea into a viable businessidea into a viable business..

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What is an Entrepreneur?What is an Entrepreneur?

One who One who creates a new business creates a new business in the face in the face of risk and uncertainty for the purpose of of risk and uncertainty for the purpose of achieving profit and growth by identifying achieving profit and growth by identifying opportunities and assembling the necessary opportunities and assembling the necessary resources to capitalize on them.resources to capitalize on them.

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Why Become an Entrepreneur?Why Become an Entrepreneur?

The three primary reasons that people become entrepreneurs and start their own firms

Desire to be their

own boss

Financial

rewards

Desire to pursue their

own ideas

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Characteristics of Successful EntrepreneursCharacteristics of Successful Entrepreneurs1 of 31 of 3

Four Primary Characteristics

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Characteristics of Successful EntrepreneursCharacteristics of Successful Entrepreneurs2 of 32 of 3

Passion for the BusinessPassion for the Business The number one characteristic shared by successful The number one characteristic shared by successful

entrepreneurs is a entrepreneurs is a passionpassion for the business. for the business. This passion typically stems from the This passion typically stems from the

entrepreneur’s belief that the business will entrepreneur’s belief that the business will positively influence people’s livespositively influence people’s lives..

Product/Customer FocusProduct/Customer Focus A second defining characteristic of successful A second defining characteristic of successful

entrepreneurs is a product/customer focus.entrepreneurs is a product/customer focus. An entrepreneur’s keen An entrepreneur’s keen focus on products and focus on products and

customerscustomers typically stems from the fact that most typically stems from the fact that most entrepreneurs are, at heart, craftspeople.entrepreneurs are, at heart, craftspeople.

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Characteristics of Successful EntrepreneursCharacteristics of Successful Entrepreneurs3 of 33 of 3

Tenacity Despite FailureTenacity Despite Failure Because entrepreneurs are typically trying Because entrepreneurs are typically trying

something new, the failure rate is naturally high.something new, the failure rate is naturally high. A defining characteristic for successful A defining characteristic for successful

entrepreneurs is their ability to entrepreneurs is their ability to persevere through persevere through setbacks and failures. setbacks and failures.

Execution IntelligenceExecution Intelligence The ability to fashion a solid business idea into a The ability to fashion a solid business idea into a

viable business viable business is a key characteristic of is a key characteristic of successful entrepreneurs.successful entrepreneurs.

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Common Myths About EntrepreneursCommon Myths About Entrepreneurs1 of 51 of 5

Myth 1: Entrepreneurs Are Born, Not MadeMyth 1: Entrepreneurs Are Born, Not Made This myth is based on the mistaken belief that This myth is based on the mistaken belief that

some people are genetically predisposed to be some people are genetically predisposed to be entrepreneurs.entrepreneurs.

The consensus of many studies is that no one is The consensus of many studies is that no one is “born” to be an entrepreneur; everyone has the “born” to be an entrepreneur; everyone has the potential to become one. potential to become one.

Whether someone does or doesn’t become an Whether someone does or doesn’t become an entrepreneur is a function of their entrepreneur is a function of their environment, environment, life experiences, and personal choiceslife experiences, and personal choices. .

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Common Myths About EntrepreneursCommon Myths About Entrepreneurs2 of 52 of 5

Although no one is “born” to be an entrepreneur, there are common traits and characteristics of successful entrepreneurs

• A moderate risk taker

• A networker

• Achievement motivated

• Alert to opportunities

• Creative

• Decisive

• Energetic

• Has a strong work ethic

• Lengthy attention span

• Optimistic disposition

• Persuasive

• Promoter

• Resource assembler/ leverager

• Self-confident

• Self-starter

• Tenacious

• Tolerant of ambiguity

• Visionary1-13

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Common Myths About EntrepreneursCommon Myths About Entrepreneurs3 of 53 of 5

Myth 2: Entrepreneurs Are GamblersMyth 2: Entrepreneurs Are Gamblers Most entrepreneurs are Most entrepreneurs are moderatemoderate risk takers. risk takers. The idea that entrepreneurs are gamblers The idea that entrepreneurs are gamblers

originates from two sources:originates from two sources: Entrepreneurs typically have jobs that are less Entrepreneurs typically have jobs that are less

structured, and so they face a more uncertain structured, and so they face a more uncertain set of possibilities than people in traditional set of possibilities than people in traditional jobs.jobs.

Many entrepreneurs have a strong need to Many entrepreneurs have a strong need to achieve and set challenging goals, a behavior achieve and set challenging goals, a behavior that is often equated with risk takingthat is often equated with risk taking..

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Common Myths About EntrepreneursCommon Myths About Entrepreneurs4 of 54 of 5

Myth 3: Entrepreneurs Are Motivated Myth 3: Entrepreneurs Are Motivated Primarily by MoneyPrimarily by Money While it is naïve to think that While it is naïve to think that

entrepreneurs don’t seek financial entrepreneurs don’t seek financial rewards, money is rarely the reason rewards, money is rarely the reason entrepreneurs start new firms.entrepreneurs start new firms.

In fact, some entrepreneurs warn that In fact, some entrepreneurs warn that the pursuit of money can be the pursuit of money can be distracting.distracting.

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Common Myths About EntrepreneursCommon Myths About Entrepreneurs5 of 55 of 5

Myth 4: Entrepreneurs Should Be Young and Myth 4: Entrepreneurs Should Be Young and EnergeticEnergetic Entrepreneurial activity is fairly easily spread out Entrepreneurial activity is fairly easily spread out

over age ranges. over age ranges. While it is important to be energetic, investors often While it is important to be energetic, investors often

cite the strength of the entrepreneur as their most cite the strength of the entrepreneur as their most important criteria in making investment decisions.important criteria in making investment decisions.

What makes an entrepreneur “strong” in the eyes of an What makes an entrepreneur “strong” in the eyes of an investor is investor is experience, maturity, a solid reputation, and a experience, maturity, a solid reputation, and a track record of success.track record of success.

These criteria favor older rather than younger These criteria favor older rather than younger entrepreneursentrepreneurs. .

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Characteristics of Characteristics of EntrepreneursEntrepreneurs

Desire for responsibilityDesire for responsibility Preference for moderate levels of risk – Preference for moderate levels of risk –

risk eliminatorsrisk eliminators Confidence in their ability to succeedConfidence in their ability to succeed Desire for immediate feedbackDesire for immediate feedback High level of energyHigh level of energy Future orientation – Future orientation – serial entrepreneursserial entrepreneurs Skilled at organizingSkilled at organizing Value achievement over moneyValue achievement over money

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EntrepreneurshipEntrepreneurship

One characteristic of entrepreneurs One characteristic of entrepreneurs stands out:stands out:

Diversity!Diversity!

AnyoneAnyone – regardless of age, race, – regardless of age, race, gender, color, national origin, or any gender, color, national origin, or any other characteristic – can become an other characteristic – can become an entrepreneur entrepreneur (although not everyone (although not everyone should). should).

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Benefits of EntrepreneurshipBenefits of Entrepreneurship

The opportunity to:The opportunity to: Create your own destinyCreate your own destiny Make a differenceMake a difference Reach your full potentialReach your full potential Reap impressive profitsReap impressive profits Contribute to society and to Contribute to society and to

be recognized for your effortsbe recognized for your efforts Do what you enjoy and to have fun at it Do what you enjoy and to have fun at it

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Drawbacks of Drawbacks of EntrepreneurshipEntrepreneurship

Uncertainty of incomeUncertainty of income Risk of losing your entire investmentRisk of losing your entire investment Long hours and hard workLong hours and hard work Lower quality of life until the business Lower quality of life until the business

gets establishedgets established High levels of stressHigh levels of stress Complete responsibilityComplete responsibility DiscouragementDiscouragement

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Feeding the Feeding the Entrepreneurial FireEntrepreneurial Fire

Entrepreneurs as heroesEntrepreneurs as heroes Entrepreneurial educationEntrepreneurial education Demographic and economic factorsDemographic and economic factors Shift to a service economyShift to a service economy Technology advancementsTechnology advancements Independent lifestyleIndependent lifestyle E-commerce and the InternetE-commerce and the Internet

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FIGURE 1.3 U.S. Retail E-Commerce Revenues Source: Based on Forrester Research, 2008.

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The Cultural Diversity of The Cultural Diversity of EntrepreneurshipEntrepreneurship

Young entrepreneurs Young entrepreneurs

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Jerry Yang, 29David Filo, 31

Xiaofeng Peng, 33

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Young EntrepreneursYoung Entrepreneurs

Interest among young people in entrepreneurial

careers is high.

According to a Harris Interactive survey, 40% of

people 8 to 21 years old said they’d like to start

their own business someday.

A total of 59% of the 8- to 21- year olds said they

know someone who has started their own

business.

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The Cultural Diversity of The Cultural Diversity of EntrepreneurshipEntrepreneurship

Women entrepreneursWomen entrepreneurs

(continued)

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Tian Wen Hua ,66

Wu Ying, 26

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Women EntrepreneursWomen Entrepreneurs

There were 6.2 million women-owned

businesses in 2002 (the most recent

statistics available)

This number was up 20% from 1997.

There are a growing number of

organizations that support and advocate

for women-owned businesses.

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FIGURE 1.4 Why Women Start Businesses

Source: U.S. Small Business Administration, 2007.

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Senior EntrepreneursSenior Entrepreneurs The percentage of U.S. The percentage of U.S.

entrepreneurs who are entrepreneurs who are

seniors jumped from 15% seniors jumped from 15%

to 23% from 1996 to 2010.to 23% from 1996 to 2010.

The increase is attributed to The increase is attributed to

corporate downsizing, a desire corporate downsizing, a desire

among older workers for more among older workers for more

fulfillment in their lives, a fulfillment in their lives, a need need

for additional incomefor additional income, and , and

similar factors. similar factors. 1-29

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The Cultural Diversity of The Cultural Diversity of EntrepreneurshipEntrepreneurship

Young entrepreneursYoung entrepreneurs Women entrepreneursWomen entrepreneurs Minority-owned enterprisesMinority-owned enterprises Immigrant entrepreneursImmigrant entrepreneurs Part-time entrepreneursPart-time entrepreneurs

(continued)

1 - 30+ = US$2.9 B

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The Cultural Diversity of The Cultural Diversity of EntrepreneurshipEntrepreneurship

Home-based businessesHome-based businesses Family businessesFamily businesses CopreneursCopreneurs Corporate castoffsCorporate castoffs Corporate dropoutsCorporate dropouts Social entrepreneursSocial entrepreneurs Retiring Baby BoomersRetiring Baby Boomers

(continued)

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Economic Impact of Entrepreneurial Economic Impact of Entrepreneurial FirmsFirms

InnovationInnovation Is the process of Is the process of creating something new, creating something new, which is which is

central to the entrepreneurial process.central to the entrepreneurial process. Several studies have found that small businesses Several studies have found that small businesses

outperform their larger counterparts in terms of outperform their larger counterparts in terms of obtaining patents.obtaining patents.

Job CreationJob Creation Small businesses are the creators of most Small businesses are the creators of most new jobsnew jobs in in

the U.S., and employ half of all private sector employees.the U.S., and employ half of all private sector employees. According to a Kauffman Foundation survey, 92% of According to a Kauffman Foundation survey, 92% of

Americans say entrepreneurs are critically important to Americans say entrepreneurs are critically important to job creation. job creation.

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Small Businesses ...Small Businesses ... Make up 99.7% of the 30.14 million Make up 99.7% of the 30.14 million

businesses in the U.S.businesses in the U.S. Employ 51% of the nation’s private Employ 51% of the nation’s private

sector workforce.sector workforce. Create more jobs than big businesses.Create more jobs than big businesses.

60% to 80% of net new jobs over the last 60% to 80% of net new jobs over the last decadedecade

Are leaders in offering Are leaders in offering training and advancement training and advancement opportunities to workers.opportunities to workers.

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Entrepreneurial Firms’ Impact on Entrepreneurial Firms’ Impact on Society and Larger FirmsSociety and Larger Firms

Impact on SocietyImpact on Society The innovations of entrepreneurial firms have a The innovations of entrepreneurial firms have a

dramatic impact on society.dramatic impact on society. Think of all the new products and services that make Think of all the new products and services that make

our lives easier, enhance our productivity at work, our lives easier, enhance our productivity at work, improveimprove our health, and entertain us in new ways. our health, and entertain us in new ways.

Impact on Larger FirmsImpact on Larger Firms Many entrepreneurial firms have built their entire Many entrepreneurial firms have built their entire

business models around producing products and business models around producing products and services that help larger firms become more services that help larger firms become more efficient efficient and effective.and effective.

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Produce 51% of USA’s private GDP.Produce 51% of USA’s private GDP. Account for 47% of business sales.Account for 47% of business sales. Create 13 times more patents per Create 13 times more patents per

employees than large companies.employees than large companies. Zipper, light bulb, FM radio, laser, Zipper, light bulb, FM radio, laser,

air conditioning, escalator, air conditioning, escalator, personal computer, personal computer, automatic transmission, automatic transmission, and many more!and many more!

Small Businesses ...Small Businesses ...(continued)

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FIGURE 1.5 Small Business by Industry

Source: U.S. Small Business Administration, 2007.

Malaysia SME

Services 37% of

GDP (2010)

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Ten Deadly Mistakes of Ten Deadly Mistakes of EntrepreneurshipEntrepreneurship

1.1. Management mistakesManagement mistakes

2.2. Lack of experienceLack of experience

3.3. Poor financial controlPoor financial control

4.4. Weak marketing effortsWeak marketing efforts

5.5. Failure to develop a strategic planFailure to develop a strategic plan

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Ten Deadly Mistakes of Ten Deadly Mistakes of EntrepreneurshipEntrepreneurship

6.6. Uncontrolled growthUncontrolled growth

7.7. Poor locationPoor location

8.8. Improper inventory controlImproper inventory control

9.9. Incorrect pricingIncorrect pricing

10.10. Inability to make the Inability to make the “entrepreneurial transition”“entrepreneurial transition”

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Putting Failure Into Putting Failure Into PerspectivePerspective

Entrepreneurs are Entrepreneurs are notnot paralyzed by paralyzed by the prospect of failure.the prospect of failure.

Failure – a natural part of the Failure – a natural part of the creative process. creative process.

Successful entrepreneurs learn to Successful entrepreneurs learn to fail fail intelligentlyintelligently..

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Avoiding the Pitfalls of Avoiding the Pitfalls of Small Business FailureSmall Business Failure

Know your business in depthKnow your business in depth Develop a solid business planDevelop a solid business plan Manage financial resourcesManage financial resources Understand financial statementsUnderstand financial statements Learn to manage people effectivelyLearn to manage people effectively Set your business apart from the Set your business apart from the

competitioncompetition Maintain a positive attitudeMaintain a positive attitude

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The Entrepreneurial ProcessThe Entrepreneurial Process

The Entrepreneurial Process Consists of 4 Steps

Step 1: Deciding to become an entrepreneur.

Step 2: Developing successful business ideas.

Step 3: Moving from an idea to an enterprise.

Step 4: Managing and growing the enterprise.

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ConclusionConclusion

Entrepreneurs:Entrepreneurs: Are an important part of the free Are an important part of the free

enterprise systementerprise system Are a diverse and talented group of Are a diverse and talented group of

peoplepeople Represent a cross-section of society as Represent a cross-section of society as

a wholea whole Are able to enhance the profitability of Are able to enhance the profitability of

their businesses through acquiring their businesses through acquiring additional knowledge and experienceadditional knowledge and experience

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Tutorial Case Study 1Tutorial Case Study 1

Rovio & Angry BirdsRovio & Angry Birds Prepare answers to all questions before class.Prepare answers to all questions before class. Selected member of group to answer one Selected member of group to answer one

question in class.question in class. Submit hardcopy answers filed in a personal Submit hardcopy answers filed in a personal

plastic folder with plastic folder with Full NameFull Name Student ID #Student ID # Tutorial Class ID #Tutorial Class ID # Course Code & TitleCourse Code & Title Contact EmailContact Email

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Further ReadingFurther Reading

Barringer, Bruce R. & Ireland, R. Duane, 2011 Barringer, Bruce R. & Ireland, R. Duane, 2011 Entrepreneurship – Successfully launching Entrepreneurship – Successfully launching new ventures new ventures 44thth edition, Pearson. edition, Pearson.

Scarborough, Norman, M. 2011. Scarborough, Norman, M. 2011. Essentials of Essentials of Entrepreneurship and Small Business Entrepreneurship and Small Business Management.Management. 6 6thth edition. Pearson. edition. Pearson.

Schaper, M., Volery, T., Weber, P. & Lewis, K. Schaper, M., Volery, T., Weber, P. & Lewis, K. 2011. 2011. Entrepreneurship and Small Business.Entrepreneurship and Small Business. 33rdrd Asia Pacific edition. John Wiley. Asia Pacific edition. John Wiley.