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Chapter Two

The Entrepreneurial Mind: Crafting a Personal Entrepreneurial StrategyResults Expected

Upon completion of this chapter you will be able to:

1. Determine whether being an entrepreneur would enhance your life and feed your creative energies.

2. Discuss the critical aspects of the entrepreneurial mind—the strategies, habits, attitudes, and behaviors that work for entrepreneurs who build higher-potential ventures.

3. Describe the characteristics of various entrepreneurial groups.

4. Develop concepts for evaluating a personal entrepreneurial strategy, an apprenticeship, and be able to discuss the entrepreneur’s creed.

5. Utilize a framework for self-assessment, and develop a personal entrepreneurial strategy.

6. Initiate a self-assessment and goal-setting process that can become a lifelong habit of en-trepreneurial thinking and action.

7. Assess the Lakota Hills case study.

8. Describe the entrepreneurial aspects depicted in the firm October Sky.

Teaching PedagogiesThere are four pedagogical options in the chapter to consider when conducting class ses-

sions. The IM is organized to enable you to create the unique format and blend of teaching for-mats you prefer. The four pedagogies are:

1. Lecture or mini-lecture

2. Traditional case study

3. Use of exercises or role plays

4. Combination of the above.

Sample syllabi available on the McGraw Hill Higher Education Website for this textbook at: www.mhhe.com/timmons8e, also illustrate how instructors have blended the pedagogies.

Instructor’s Manual Chapter 2 – Page: 1

http://www.mhhe.com/timmons8e

Lecture Outline

I. Entrepreneurs Are Leaders A. The old notion of separate entrepreneurs and managers has

given way to the view of an entrepreneurial leader with diverse skills and resources.

II. Three Principles for Entrepreneurial LeadershipA. Ewing Marion Kauffman founded and built Marion Labs.

1. He started his pharmaceutical company in 1950 with $5,000.

2. When the company was acquired by Merrell Dow in 1989, more than 300 people became millionaires.

3. Kauffman founded the Ewing Marion Kauffman Founda-tion, whose mission is:a. To make a lasting difference in helping youths at

risk.b. To encourage leadership in all areas of American

life.B. The cornerstone of the values, philosophy, and culture of Mar-

ion Labs and now the Kauffman Foundation are:1. Treat others as you would want to be treated.2. Share the wealth that is created with all those who have

contributed to it at all levels.3. Give back to the community.

C. Few organizations truly and consistently practice these princi-ples.

D. Great companies can be built upon simple but elegant princi-ples; and all the capital, technology, and information cannot substitute for these principles.

PP 2-2 “Achieving Entre-preneurial Greatness” re-peats the three core princi-ples of entrepreneurship.

III. Timeless Research A. A single psychological model of entrepreneurship has not been

supported by research.1. However, it is accepted that eventual success of a new

venture will depend on the talent and behavior of the lead entrepreneur.

2. Myths persist about entrepreneurs; one is the belief that leaders are born, not made.

3. Recent research suggests that leadership is complex, de-

PP 2-3 “Leadership and Human Behavior” reviews the current research on en-trepreneurship based on traits.

Text Exhibit 2.1“Comparing Management and Leadership” summa-rizes the differences between leaders and managers.


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pending on the interconnections among the leader, the task, the situation, and those being led.

B. Research by David C. McClelland and John W. Atkinson.1. Their theory of psychological motivation is a generally

accepted part of entrepreneurial behavior.2. The theory states that people are motivated by three prin-

cipal needs:a. The need for achievement is the need to excel and

for measurable personal accomplishment.b. The need for power is the need to influence others.c. The need for affiliation is the need to attain an “af-

filiation goal.”

C. Other research focused on the common attitudes and behaviors of entrepreneurs.1. A 1983 study found a relationship between attitudes and

behaviors of successful entrepreneurs and various stages of company development.

2. Another study found that entrepreneurs were unique indi-viduals.

3. Also, those who like to plan are much more likely to be in the survival group than those who do not.

D. The 1983 research by Howard H. Stevenson and Jeffry Tim-mons found:1. Entrepreneurs felt they had to concentrate on certain fun-

damentals.2. They had a willingness to learn about and invest in new

technologies, to be adaptable, to have a professional atti-tude, and to have patience.

3. They also talked about the importance of “enjoying and being interested in business.”

4. Many recognized the importance of human resource man-agement.

5. Other entrepreneurs focused on the importance of build-ing an organization and teamwork.

6. Many believed that the ability to do strategic planning would be of growing importance.

7. Also cited was the importance of sensitivity to and re-spect for employees. The example of Stonyfield Farms is cited as an example of an impassioned work environ-ment.

E. A study by McKinsey & Co. of medium-size growth companies found that the chief executive officers of winning companies had three common traits:

Also: PP 2-4

Text Exhibit 2.2“Characteristics of En-trepreneurs” shows the unique characteristics of en-trepreneurs. Also: PP 2-5


1. Perseverance.2. A builder’s mentality.3. A strong propensity for taking calculated risks.

IV. Converging on the Entrepreneurial Mind.A. Desirable and Acquirable Attitudes, Habits, and Behaviors.

1. Entrepreneurial success involves more than personality; it is what entrepreneurs do.a. There are certain inborn characteristics that en-

trepreneurs have, but these don’t guarantee success.b. Certain attitudes and behaviors can be acquired and

refined through experience and study.2. Entrepreneurs are able to significantly improve their odds

of success by concentrating on those attitudes and behav-iors that work.

3. Most successful entrepreneurs listed three attributes as the principal reasons for their success:a. The ability to respond positively to challenges and

learn from mistakes.b. Personal initiative.c. Great perseverance and determination.

4. The text profiles numerous members of the Academy of Distinguished Entrepreneurs.

5. There is no single set of attitudes and behaviors that every entrepreneur must have, but there are six common themes.

B. New Research. 1. The Praeger Perspectives series (2007) explores the entre-

preneur from three angles a. People b. Processes c. Places 2. Work by Kwiatkowski and Sharif provides insight into

the entrepreneurial mindset involved in creating new in-tellectual property and knowledge creation ventures.

C. Seven Dominant Themes.

1. Commitment and determination are seen as more im-portant that any other factor.a. Frank P. Perdue, president of Perdue Farms, said,

“Nothing, absolutely nothing, replaces the willing-ness to work.”

b. A new venture demands top priority for the entre-

Results Expected #2Discuss the critical aspects of the entrepreneurial mind—the strategies, habits, atti-tudes, and behaviors that work for entrepreneurs who build higher-potential ven-tures.

PP 2-6 “Converging on the Entrepreneurial Mind” profiles the six dominant themes of the entrepreneurial mind

Text Exhibit 2.3“Seven Themes of Desir-able and Acquirable Atti-tudes and Behaviors” sum-marizes key desirable atti-tudes based on seven themes. Also: PP 2-7



preneur’s time, emotions, and loyalty, and usually requires personal sacrifice.

c. Entrepreneurs are intensely competitive—they di-rect this energy toward the goal and their competi-tors, not their peers.

d. Entrepreneurs are disciplined, tenacious, and per-sistent in solving problems.

e. However, they are neither aimless nor foolhardy.f. They are also realistic in recognizing what they can

and cannot do.2. Courage.

a. Not simply bravery resulting from deficient infor-mation about a given situation nor pluck anchored in feelings of invulnerability

b. Three important aspects of courage: 1. moral strength and principles. 2. being a fearless experimenter. 3. a lack of fear of failing at the experiment – and

most undertakings – and a lack of fear of conflict that may arise.

3. Leadership.

a. Successful entrepreneurs are experienced, possess-ing:• intimate knowledge of the technology and mar-

ketplace in which they compete.• sound general management skills.• a proven track record.

b. They are self-starters and have an internal locus of control.

c. They are patient leaders.d. Dr. Alan Grant’s research found three clear areas of

the entrepreneurial leadership paradigm:• the lead entrepreneur.• the venture team.• the external environment influences.

e. Grant’s work is supported by a later study by Nigel Nicholson in his 1998 European Management Jour-nal article, reporting on the personality and entre-preneurial leadership of the heads of the U.K.’s most successful independent companies.

f. Successful entrepreneurs are interpersonally sup-porting and nurturing—not interpersonally compet-

Text Exhibit 2.4“Core and Desirable En-trepreneurial Attributes” presents the six core desir-able attributes in graphic form.Also: PP 2-8

PP 2-9 “Three Important Aspects of Courage” high-lights the construct of courage.

Text Exhibit 2.5 “Online Search for Desirable At-tributes of Entrepreneur-ship” details the number of internet “hit” on key themes of entrepreneurshipAlso: PP 2-10

Text Exhibit 2.6“The Entrepreneurial Leadership Paradigm” summarizes the three areas of leadership developed by Dr. Alan Grant. Also: PP 2-11


itive.g. Successful entrepreneurs are not lone wolves, and

do not need to collect all the credit.h. They have the ability to make heroes out of the

people in the venture.4. Opportunity Obsession.

a. Successful entrepreneurs are oriented to the goal of pursuing and opportunity.

b. They are intimately familiar with their industries, customers, and competition. (The industry exam-ples of Staples and Jet Blue are given to support the opportunity obsession).

5. Tolerance of Risk, Ambiguity, and Uncertainty.a. Successful entrepreneurs manage paradoxes and

contradictions.b. They are willing to take a risk; however they calcu-

late the risk carefully and try to improve their odds.c. Entrepreneurs get others to share financial and

business risks with them.d. John B. Miner proposed a concept of motivation-

organizational fit, contrasting a hierarchic (manage-rial) role with a task (entrepreneurial) role. Roles include:

1. Individual achievement. 2. Risk avoidance. 3. Seeking results of behavior. 4. Personal innovation. 5. Planning and setting goals.

e. Entrepreneurs also tolerate ambiguity and uncer-tainty and are comfortable with conflict.

f. Constant changes introduce ambiguity and stress into every part of the enterprise.

6. Creativity, Self-Reliance, and Ability to Adapt.a. Very rapid rates of change require fluid and highly

adaptive forms of organization.b. Successful entrepreneurs believe in themselves.c. They believe their accomplishments lie within their

own control.d. They have the ability to see and “sweat the details”

and also to conceptualize.e. Effective entrepreneurs actively seek and take ini-

tiative. f. They are adaptive and resilient.

Results Expected #1Determine whether being an entrepreneur would enhance your life and feed your cre-ative energies.



g. They seek and use feedback and learn from their mistakes.

h. Successful entrepreneurs learn from failure experi-ences.

7. Motivation to Excel.a. Entrepreneurs appear driven internally by a strong

desire to compete and to pursue challenging goals.b. Entrepreneurs have a low need for status and power

and derive personal motivation from the challenge of creating enterprises.

c. If they are successful, ironically, power and status will result.

d. Possessing an objective way of keeping score, such as profits or stock price, is also important.

e. Successful entrepreneurs insist on the highest per-sonal standards of integrity and reliability.

f. One study found that entrepreneurs said personal integrity was the most important factor in their long-term success.

g. The best entrepreneurs are aware of their own strengths and weaknesses.

h. Successful entrepreneurs believe in themselves.i. Other important traits are perspective and a sense

of humor.

Text Exhibit 2.7“Opportunity Knocks-Or Does it Hide? An Exami-nation of the Role of Op-portunity Recognition in Entrepreneurship” shows the number and proportion of opportunities at various sources and types for en-trepreneurs and non en-trepreneurs. Also: PP 2-12

V. Entrepreneurial Reasoning: The Entrepreneurial Mind in Action.A. Successful entrepreneurs have useful benchmarks for gauging

what to do. 1. But, there is no evidence of an ideal entrepreneurial per-

sonality. 2. However, successful entrepreneurs share common atti-

tudes and traits. B. Successful entrepreneurs possess not only a creative and inno-

vative flair, but also solid management skills, business know-how, and sufficient contacts.

PP 2-13 “The Entrepre-neurial Mind in Action” summarizes the current thinking on personality types vs. acquired skills for en-trepreneurs.

Results Expected #3Describe the characteristics of various entrepreneurial groups.

Text Exhibit 2.8 “Who is the Entrepreneur?” presents a 2 x 2 matrix of the entrepreneur passed on cre-ativity and innovation and general management skills. Also: PP 2-14

VI. The Concept of Apprenticeship.A. Shaping and Managing an Apprenticeship.

1. Successful entrepreneurs share a pattern of experience:a. They have acquired 10 or more years of substantial

experience and established a track record in the in-dustry.

Results Expected #4Develop concepts for evalu-ating a personal entrepre-neurial strategy, an appren-ticeship, and be able to dis-cuss the entrepreneur’s creed.


b. They have acquired intimate knowledge of the cus-tomer, distribution channels, and market through direct experience.

c. They made money for their employer before doing it for themselves.

2. Examples include:a. Apple Computer founders Steve Jobs and Steve

Wozniak.b. Paul Tobin of Cellular One.

3. Successful entrepreneurs are likely to be older and to have at least 8 to 10 years of experience.

4. They have a track record impressive enough to give in-vestors confidence.

5. They usually have nurtured relevant business contacts and networks.

6. In the first 10 or so years after leaving school it is crucial to select a career to prepare for an entrepreneurial career.

7. Having relevant experience and skills can dramatically improve the odds for success.

8. The concept of an apprentice is useful—entrepreneurs learn by doing.

B. Windows of Apprenticeship.1. Age windows are especially important because it takes

time to create and build a successful activity.2. Seven years is a realistic time frame to expect to grow a

higher potential firm.3. There are several implications:

a. Time is precious.b. By age 50, there will have been time for starting, at

most, three successful new ventures.c. The first venture may be a failure.d. This leaves time to grow only one or two ventures.

4. A paradox: energy and drive peak early, while wisdom and judgment peak late.

5. Flexibility to shift among business opportunities is also required.

C. The Concept of Apprenticeship: Acquiring the 50,000 Chunks

1. Studies about entrepreneurs have confirmed what practi-tioners have known all along: that some attitudes, behav-iors, and know-how can be acquired and that some of these attributes are more desirable than others. It is also clear that apprenticeship is a vital aspect of entrepreneur-

PP 2-15 “The Concept of Apprenticeship” outlines key points in this section.

Text Exhibit 2.9“Windows of Entrepre-neurial Apprenticeship” summarizes the key elements of an apprenticeship and ex-perience curve.Also: PP 2-16



ial education.2. Successful entrepreneurs follow a pattern of apprentice-

ship, where they prepare for becoming entrepreneurs by gaining the relevant business experiences from parents who are self-employed or through job experiences.

D. Role Models 1. Numerous studies show a strong connection between the

presence of role models and the emergence of en-trepreneurs.

VII. Myths and Realities A. Folklore and stereotypes about entrepreneurs and entrepreneur-

ial success are remarkably durable, even in today’s informed times.

B. Studies indicate 90 percent or more of founders start their com-panies in the same marketplace, technology or industry they have worked in.

C. It has been found that entrepreneurs work both more and less than their counterparts in large organizations, that they have high degrees of satisfaction with their jobs, and that they are healthier.

Text Exhibit 2.10“Myths and Realities About Entrepreneurs” re-views 17 popular myths of-ten attributed to en-trepreneurs along with the reality to refute these erro-neous myths.Also: PP 2-17; 2-18; and 2-19

VIII. What Can Be Learned? A. Cases and the text, combined with online resources, will enable

you to grapple with all the conceptual, practical, financial, and personal issues entrepreneurs encounter.1. This book will help you move the odds of success in your

favor.2. It will focus your attention on developing answers for the

most important questions about entrepreneurship.

IX. A Word of Caution: What SATs, IQ Tests, GMATs, and Others Don’t Measure

A. Critical skills and capacities at the heart of entrepreneurial lead-ership and achievement are not measured by test scores.

B. Intelligence is a very valuable and important asset for en-trepreneurs, but alone is woefully inadequate.

PP 2-20 “A Word of Cau-tion” reviews the entrepre-neurial skills needed beyond the test scores.

X. A Personal Strategy.A. An apprenticeship can be an integral part of shaping an entre-

preneurial career.B. Through this, an entrepreneur can shape a strategy and action

PP 2-21 “Exercises” sum-marizes the two end of chapter exercises

Exhibit 2-22 “Crafting a Personal Entrepreneurial


plan.C. Most entrepreneurs report higher personal satisfaction with

their lives than their managerial counterparts.D. Satisfaction from independence is a source of great satisfaction.E. Successful entrepreneurs enjoy higher incomes and a higher net

worth than career managers.

Strategy”

Text Exhibit 2.11“Peeling the Onion” ex-plores areas known and not known to investors and stakeholders and the entre-preneur and the team Also: PP 2-23

Text Exhibit 2.12 “Fit of the Entrepreneur and the Venture Opportunity” is a 2 x 2 matrix examining the attractiveness of the opportu-nity compared to the entre-preneur’s requisite skillsAlso: PP 2-24

XI. Entrepreneur’s Creed.A. Entrepreneurs believe that they are responsible for success.B. Most entrepreneurs believe mental attitudes and philosophies

are more important than specific skills.C. These attitudes are gathered in the “entrepreneur’s creed.”

Results Expected #5Utilize a framework for self-assessment, and develop a personal entrepreneurial strategy.

Results Expected #6Initiate a self-assessment and goal-setting process that can become a lifelong habit of entrepreneurial thinking and action.

XII. Chapter Summary.

XIII. Study Questions.

XIV. Internet Sources for Chapter 2. XV. Mind Stretchers.

XVI. Exercises A. Crafting a Personal Entrepreneurial Strategy.

B. Personal Entrepreneurial Strategy.

PP 2-25 to 2-35 “Personal Entrepreneurial Strategy” summarizes the process of Crafting the personal entre-preneurial strategy and re-view reasons for planning, self-assessment, constructive feedback, and effective goal setting.

XVII. Case: Lakota Hills Learning Objective #7: Assess the Lakota Hills case study.



The SUPPLEMENT below provides an insight into changing a start-ups customer base and the implications to existing customers.

Kids are the Next Customer

Kids are the next new clientele of health clubs. Busy parents can work out and enroll their kids in healthy classes at the same time and also combat the growing issue of childhood obesity in the U.S. Adding a new customer segment is a way to grow a business but they could risk alienating their key adult clientele. Finding a balance is a key issue. Town Sports, for example, has a program called Sports Clubs for Kids, which involves dance, swimming, tennis, and gym-nastics and some centers are generating half their revenues from kids programs.

Dale, Arden (2008) “Health Clubs Look to Kids to Bulk Up Membership,” Wall Street Journal, April 1, p. B8.

The SUPPLEMENT below provides an insight into the “opportunity obsession” of en-trepreneurs.

Computer Games Move to Cell Phones

Tetris, the most popular cell phone game published by Jamdat Mobile has been downloaded more than two million times by Sprint PCS customers. Other cell phone videogames are growing among gamers as well as others who have never tried games on consoles or PCs. Simultaneously, the number of cell phones that can download games has grown from 83 million in November 2004 to 112 million in October 2005 and is expected to increase, making cell phone providers happy. Since growth in cell phone service is flat and voice-calling prices have been stagnating or falling, the video gaming industry, in contrast, has exploded. Some 108 million Americans age 13 and older spent a total of $7.4 billion on games in 2003 and this figure is forecast to grow to 126 million Americans spending $8.3 billion by 2008. Cell phone companies charge about $5 for downloads of single games and $2 to $3 monthly subscription fees for poplar games. Women make up half the cell phone gamer population and the average gamer age is older than console or PC game players.

Yuan, Li (2005) “Can’t Talk Now, I’m Winning,” Wall Street Journal, October 11, B1.

The SUPPLEMENT below provides an insight into the “motivation to excel” drive of en-trepreneurs.

Bogging For Fun And Profit: Startups Can Start Good Buzz On The Photosphere – If They’re Careful

Allison Gower was already running two companies – a promotional packaging outfit and an adver-


tising startup called qtags – when she added chief blogger to her list of duties. Buzz-hungry startups in technology and marketing agree Web logs are the most active and fastest-growing part of the Net. The blogosphere brims with contacts, potential customers, and fresh ideas. Gower opened an account at blogging service Typepad.com and joined entrepreneurs rushing into blogs.

Gower was aware of the risks and took a cautious approach. In the beginning she posted a few items but barely linked to other blogs. This made it tougher for other bloggers, using search engines or direct feeds, to see Gower, who was still learning the mores and lingo of the blogging world. Three months later she picked up the pace, linking to other blogs and a few links to her. The work is paying off. Ac-cording to Gower, the vague assurances she sometimes gets when calling an advertiser paid off when a potential client visited her blog. Participating in the blog world pushes her to read other blogs. It has opened up the world to her and that might be the biggest payback for all her extra work.

Baker, Stephen, (2005) “Blogging for Fun and Profit,” Business Week, September 19, 2005 (A BW SmallBiz-Cover Story) at www.businessweek.com).

Answers to Study Questions


http://www.businessweek.com/

1. Who was Ewing Marion Kauffman, what did he do, and what was his philosophy of entrepreneurial leadership?Ewing Marion Kauffman founded and built Marion Labs, a company with $3.06

billion in sales. He started his pharmaceutical company in 1950 with $5,000 in the base-ment of his Kansas City home. When the company was acquired by Merrell Dow in 1989, more than 300 people became millionaires.

Thirteen foundations have been created by former Marion associates. Kauffman founded the Ewing Marion Kauffman Foundation, whose mission is:

(1) To make a lasting difference in helping youths at risk.(2) To encourage leadership in all areas of American life.The cornerstone of the values, philosophy, and culture of Marion Labs and now

the Kauffman Foundation are:(1) Treat others as you would want to be treated.(2) Share the wealth that is created with all those who have contributed at all

levels.(3) Give back to the community.

2. What is the difference between a manager and leader?The differences between management and leadership are summarized in Text

Exhibit 2.1 Managers create an agenda by planning and budgeting; leaders by establish-ing direction. Managers develop a human network for achieving the agenda through orga-nizing and staffing; leaders do so by aligning people. Managers execute by controlling and problem solving; leaders by motivating and inspiring. Managers produce a degree of predictability and order; leaders produce change.

3. Define the seven major themes that characterize the mind-sets, attitudes, and ac-tions of a successful entrepreneur. Which are most important, and why? How can they be encouraged and developed?Seven themes have emerged from what successful entrepreneurs do and how they

perform: commitment and determination; courage; leadership; opportunity obsession; tol-erance for risk, ambiguity, and uncertainty; creativity, self-reliance, and adaptability; and motivation to excel. Several entrepreneurial experts believe that commitment and deter-mination are more important than any other factor. With commitment and determination, an entrepreneur can overcome incredible obstacles and also compensate enormously for other weaknesses.

4. Entrepreneurs are made, not born. Why is this so? Do you agree, and why or why not?Some characteristics are innate rather than acquired, including energy, health,

and emotional stability; creativity and innovativeness; and intelligence. Recent research suggests that leadership is a complex subject, depending on the interactions among the leader, the task, the situation, and those being led; entrepreneurship may be closely re-lated. There are also certain attitudes and behaviors that can be acquired, developed, prac-ticed, and refined through a combination of experience and study, such as the ability to learn from mistakes and great perseverance and determination. These attributes do not guarantee success, however. Entrepreneurs are able to improve these skills through nur-turing and practicing them.

5. Explain what is meant by the apprenticeship concept. Why is it so important to young entrepreneurs?Successful entrepreneurs share a pattern of experience:

(1) They have acquired 10 or more years of substantial experience and estab-lished a track record in the industry.

(2) They have acquired intimate knowledge of the customer, distribution channels, and market through direct experience.

(3) They made money for their employer before doing it for themselves.Successful entrepreneurs are likely to be older and to have at least 8 to 10 years

of experience. They have a track record impressive enough to give investors confidence. They usually have nurtured relevant business contacts and networks. The first 10 or so years after leaving school it is crucial to select work or a career to prepare for an entre-preneurial career. Having relevant experience and skills can dramatically improve the odds for success. The concept of an apprentice is useful—entrepreneurs learn by doing. An apprenticeship can be an integral part of shaping an entrepreneurial career. Through this, an entrepreneur can shape a strategy and action plan.

6. What is your personal entrepreneurial strategy? How should it change?Most successful entrepreneurs have had a personal strategy to help them achieve

their dreams and goals, both implicitly and explicitly. The text stresses the importance of obtaining experience and contacts prior to starting an enterprise. The student’s personal entrepreneurial strategy will be a unique combination of their attitudes and goals. The ex-ercise at the end of the chapter guides the student through the process of developing a personal entrepreneurial strategy.

7. “What is one person’s ham is another person’s poison.” What does this mean?

Entrepreneurs and would-be entrepreneurs have different strengths and weak-nesses and different likes and dislikes. It is important to thoroughly explore your own personal strategy before you set entrepreneurial goals. While you may like running a lifestyle business and supporting your family comfortably, your friend may prefer bigger risks and prefer taking a high tech venture public, for example. Because we all have dif-ferent interests and likes, it is important the entrepreneurial venture be a fit to a person’s desires and interests for long-term success.

8. Can you evaluate thoroughly your attraction to entrepreneurship?

Through a thoughtful, introspective review of your own skills, abilities, and sources of energy, it is possible to evaluate one’s attraction to entrepreneurship. The two exercises at the end of the chapter are designed to facilitate the review of a person’s at-traction as is talking with other entrepreneurs and talking with classmates and professors about potential entrepreneurial ideas and career options.

9. Who should be an entrepreneur and who should not?

This chapter has reviewed the various characteristics of successful entrepreneurs. As a review, most successful entrepreneurs listed three attributes as the principal reasons for their success: The ability to respond positively to challenges and learn from mistakes,

Personal initiative, and Great perseverance and determination. Individuals with these at-tributes should consider entrepreneurship. After completing the two end-of-chapter exer-cises, one will gain further ideas about their proclivity for entrepreneurship. In addition, as discussed in the chapter, an apprenticeship in an industry or business of interest can help solidify entrepreneurial goals. It should also be noted that a person’s interest in en-trepreneurship may change over time with experience and work history as well as an im-proved ability to spot trends, patterns, and opportunities.

Notes on Exercises“Crafting a Personal Entrepreneurial Strategy”

This exercise provides the opportunity to do a quick survey of an individual’s en-trepreneurial attributes. The exercise guides the student through the process of developing a personal entrepreneurial strategy. First it focuses on past experiences that produced sat-isfaction and enjoyment. Next, it looks at the present—ranking the core and desirable at-tributes from strongest to weakest. It then suggests seeking feedback on how others rank your attributes. Finally, the student is guided through developing goals that they wish to accomplish.

“Personal Entrepreneurial Strategy”

To prepare for the self-assessment exercises, students should read the chapter first. Additional preparation might include a visit to the campus career counseling ser-vice to complete a battery of aptitude and preference tests. Also helpful is the book What Color is Your Parachute 2008?: A Practical Manual for Job-Hunters and Career-Chang-ers, by Richard Bolles (Berkeley, Calif.: Ten Speed Press, 2007, an excellent and widely used practical guide for directing you toward the “right” type of job.

Suggested Way to Utilize These Assessments (60-90 minutes)

It has proven useful for other entrepreneurs to exchange their exercises with a person or two of their own choosing. Doing this will provide you with a sounding board to assist you in seeking and analyzing a realistic self-appraisal. If you have not already done so, review the earlier sections on giving and receiving feedback.

Step 1: Form into pairs or trios of your own selection.Step 2: Tear out and exchange your “Step 1: Entrepreneurial Mind, Role Requirements”

and “Step 2: Examine Your Management Competencies” exercise. It should take 10-15 minutes for each person to read the exercises of the others carefully.

Step 3: Each group member should respond with questions and ideas aimed at helping to sharpen the realism and accuracy of each member’s self-assessment. The follow-ing kinds of questions may prove useful in facilitating these pair and trio discus-sions:

a. Has the person been complete in doing the exercise?b. Has the person been honest and realistic in recording his or her thoughts

and evaluations and in coming to various inferences and conclusions?

c. If you know the person, are you aware of omitted events or items that you feel might contribute to the analysis?

d. Are there alternative inferences or conclusions that might be drawn from these data?

e. What personal implications seem to exist for the various strengths and weaknesses as they relate to entrepreneurship?

f. Are there any common threads or patterns of consistency that have not been noted?

g. Are there other data that the person should gather or consider in connection with these exercises?

Step 4: At the conclusion of the group discussion each person should have identified at least three items for a personal list of things to accomplish. These should be things one plans to (a) find out, (b) think about, and/or (c) do. These might in-clude such items as: (a) talk to three more entrepreneurs about the demands and rewards of entrepreneurship and (b) think about and discuss the lifestyle implica-tions of entrepreneurship for the person you are about to marry.

Step 5: General discussion should summarize the items identified in step 4 and any other issues related to the exercises.

Positioning and Objectives for this ExerciseThe objectives and instructions for each of the pieces are contained in the chapter

on the web site. It is a self-instructional unit that can be assigned and done outside class. The various pieces can be torn from the book, photocopies, and used to obtain feedback and input from others as well. A written assignment can be made (see sample below) just beyond the mid-point of the course. Students have found this to be a very valuable exer-cise. It also gives you a chance to get to know them much better and to be more effective in counseling them.

Teaching Suggestions for the ExerciseOne suggestion for in-class work is a paired discussion (20 minutes). Instructions

for this discussion are given below. Pair Discussion:

Now is a good juncture to pair up with a person of your choice (or with two per-sons if there is an odd number). Exchange your “Part V: Thinking Ahead” “My Real Goals (Step 4)” lists (tear out), and review them. You should help each other to review, refine, and clarify these goal statements, and you should begin to identify their relative importance to you personally. You may find it useful in focusing your discussion:

1. How do your goals relate to some of the issues raised previously in the book, particularly work style and lifestyle?

2. How do your goals relate to the creation or acquisition of your own busi-ness?

3. Do some of the goals conflict with others?

4. How do your goals relate to your other self-assessments? 5. Can you rank-order the priority of the goals?

Another suggestion for in-class work is to divide into small groups of four or five persons to discuss the exercise with particular attention devoted to the following ques-tions:

1. What was involved? What did we do?

2. What were the differences between what we put on the first two lists and the items on step 7 and later, in terms of concreteness, etc.?

3. Do any of the action items identified in steps 9 and 11 relate to strengths or weaknesses identified previously?

4. What criteria would we now use for judging whether or not we are really setting goals?

Class Session—OptionalA class session can be used for an organized session in which students exchange,

discuss, and reality check the self-assessments. If there is not time for this, assign it for outside class. Ask them to pair up with someone of their choice. You can also assign from each person a 1-2 page summary of “Observations and Action Recommendations” for their partner.

Wrap-up

Key Points:1. Fundamentals of the “Value Creation: The Driving Forces” framework in

Chapter 3 (Text Exhibit 3.5) can be used here for reinforcement and pre-view of key issues to follow.

2. Notion of “apprenticeship” from can be reviewed and reinforced in terms of personal implications for each student.

3. The earlier exhibits in the chapter can also be used for a wrap-up.

Notes on October Sky - Film

Learning Objective #8: Describe the entrepreneurial aspects depicted in the firm October Sky.

From October Sky

Homer, you don't have to prove anything to anybody. You remember that. Now, go launch yourself a rocket!

Miss Reiley to HomerBackground

Released in 1999, October Sky is the true story of young Homer Hickam, an intelligent, sensitive boy growing up in rural poverty in a West Virginia coal town, and of his quest against all odds to become a rocket scientist. Too small to earn a football scholarship, Homer sees no way out of his predetermined life—until, in 1957, the soviet satellite Sputnik flies across the October sky. Homer, a fair to middling student at the local high school, sets a seemingly impossible goal of at-tracting college scholarship offers by winning a national science fair competition. His story pro-vides an excellent springboard for a general discussion of the entrepreneurial process and the en-trepreneurial mindset and ways of thinking. The film demonstrates a myriad of examples of E-thinking, E- strategies, practices and behaviors exhibited by a very determined individual with a passion to build his own rocket. It also illustrates the role of key mentors, especially their teacher Miss Riley, and the building of a brain trust of external resource people.

Teaching Strategies

The instructor should obtain a DVD copy of the film and watch it first. The film can be used in two ways: 1) Have students view the film in it’s entirety outside class; then come to class pre-pared to discuss the film. 2) Show the film in class and stop the film at various key segments to share views of and to discuss the film’s many examples of the E-process and E-mindset and E-thinking in action. By watching the film in its entirety the instructor will see the examples and can identify useful points to stop the film in class for discussion. The film is around two hours and the segments referred to below total about 42 minutes. Depending on the length of the class you can adjust accordingly.

Learning Objectives

The film is an excellent introduction to a course or program in entrepreneurship. For several years now it has been used by Professor Timmons as part of an all day session with all incoming full-time MBA students at Babson College, with great success. It is also been used as a wrap-up session for the Price-Babson SEE Program at Babson each June. The discussion of the film en-ables students to:

1. Identify and articulate many concepts, principles, behaviors, and actions that typify the entrepreneurial process and the E-mindset.

2. Examine components of the Timmons-Model and E-process in action.3. Explore ways of thinking and the underlying attitudes, beliefs, practices and strategies

that lead to success in new ventures.4. Gain a richer and deeper grasp and appreciation of what is meant by entrepreneurial

thinking, the entrepreneurial mind, and the new venture process.

5. Explore the concept of the team and the Brain Trust of mentors, a support group, and re-source pool, beyond the founding team.

6.Preparation Questions

In both of these approaches ask the students to watch for and identify as many as they can of the following:

1. Examples of the E-process: opportunity seeking and recognition, transforming ideas into opportunities; resource marshalling, minimizing and controlling, resource bootstrapping and parsimony, building a brain trust; the team.

2. Examples of the E-mindset and E-thinking: strategies, attitudes and beliefs, behaviors and practices.

3. Examples of the critical importance of mentors and building a Brain Trust.4. Paradoxes and contradictions inherent in the E-process, particularly ethical dilemmas and

conflicts.

Class Discussion

Begin by explaining that although he was not pursing a business opportunity, Homer Hickam’s story offers an excellent parallel to the challenge of new venture creation. As you watch the film, look for as many illustrations as you can of these similarities. You can begin the discussion after viewing the first segment you choose by simply asking: What did you see here that has anything to do with entrepreneurship?

Entrepreneurial Mindset

What is in the film that one could characterize as ‘the entrepreneurial process’-what similarities and commonalities exist?

Students will see many of these: Homer has an unplannable, unpredictable inspiration triggered by an external event-Sputnik. He envisions an opportunity to build a rocket. He has enormous passion and some will say an obsession to pursue his dream, very much like most entrepreneurs. Perceptive students will see many links and parallels between what Homer does all the things an entrepreneur does in conceiving of a business, molding and shaping the opportunity, gaining control of and minimizing resources, and building a team-including outside experts, advisors, and a brain trust.

What entrepreneurial behaviors, practices and ways of thinking does Homer exhibit as he pur-sues his dream and his goal to build a rocket? What evidence is there of Homer’s Entrepreneur-ial spirit and how do these manifest themselves in the sequence?

Note that Homer exhibits virtually all of the mindsets and attributes in the list beginning on page 21 in the text. One can capture these on the board during the discussion though it is not really necessary. These might include the following:

Effective leader/communicatorMotivated & inspires othersOpportunity obsessedResourceful and resilientAdaptable, quick learner

Self-starterWilling to SacrificeHard workingPassionateDedicated

Dreamer: thinks big enoughTolerant of risk and failure

IndependentDeterminedCreative problem-solverWillingness and ability to learn

KnowledgeableAbility to seek and utilize feedbackAbility to marshal scarce resourcesAbility to persevere, never give upStrong-willedDrivenVery capable

The discussion of these and examples of the E-process goes especially well by stopping the film after par-ticularly good segments which illustrate the behaviors, mindsets, actions, practices, and strategies. For example, some favorite scenes to stop the film include:

1. Beginning of the film, going to football practice, Homer getting knocked on his rear several times and the coach saying: Homer, you sure do have guts. The issues of competitive spirit, determi-nation and courage, when to fold-em’ etc. are illuminated here.

2. The next scene where Homer and residents see Sputnik for the first time; the awe and look in Homer’s eye, the moment of inspiration.

3. The classroom scene where Miss Reilly tunes in the radio so the class can actually hear the beep for the first time and then on to the breakfast at home. Homer interrupts the discussion of the up-coming football game (his older brother is team captain) and says: I’m going to build a rocket! The issues of the dream, the passion, the seed is planted are all evident here.

4. The second rocket launch which heads for the mine just missing some men. Homer’s dad calls his a liar and a thief and says never do this on company property again! The discussion centers here on dealing with major setbacks, failure, disappointment-all an integral part of the E-process.

5. There are several scenes in which they first walk 8 miles to find a new launch site, Cape Coal-wood, he keeps the team together and infects them with his own dream and passion, and then build and launch several rockets, none of which are successful. This is a great place to examine the issues of dealing with failure and disappointment again, holding the team together, reshaping the dream and the opportunity, finding outside resources and people to add the value you and the team cannot, learning by doing, learning from others, the iterative nature of the E-process, chance and serendipity as a part of the realities of a new venture, etc.

6. The successful launch of their rocket, the interview by the reporter from the Bluefield, W. Va. Pa-per, and then the scene the next morning reading the story in the newspaper; then the police come out of a building. Stop the film here, explain that a fire at a nearby airport was started and the po-lice believe it was the rocket and the boys have to shut down Cape Coalwood. This scene of shed being burned is quite moving. This is an excellent place to stop the film and ask: if Homer is an entrepreneur, what will he do next? What will be the strategy of an entrepreneurial thinker? This can be a rich discussion of how entrepreneurs begin again, attack the problem in very small bites, solve that piece, move to the next, don’t get overwhelmed by the total failure, seek new informa-tion and facts that can drive new creative approaches and solutions. There are also numerous op-portunities for discussion of Homer’s mentors, especially Miss Reiley’s role, the evolving brain trust and support group of the entire town.

7. The scene where Homer has to go back in the mine, drop out of school after his father is hurt in a mine explosion. Now what does he do? What will the E do? Another opportunity to ask students to predict actions and behaviors.

8. The scene where Homer learns calculus and trigonometry, believes their rocket did not start the fire, and then goes about calculating where their rocket must have landed. They do find it right near where he calculated it should be and thus has proof they did not start the fire. He then con-fronts the school principal, convinces him they are innocent, gets readmitted to school so they can enter the science fair. This is a good place to have students discuss how E-s attack and solve problems, never give up etc.

The film can then be completed to the end and a wrap-up can highlight what the film captures around the mindset and E-process.

Other Discussion Possibilities

Many of the questions and discussion points below will emerge from the class, especially if you use the stop-discuss- go approach to the film. This is the preferred method.

Entrepreneurial Motivations

Entrepreneurs define success by their own self-imposed standards, goals and metrics rather than in exter-nal terms; money, status, fame. They do not define their success based on what other people think about them. They dance to their own drummer. Like Homer, they have the ability to tune out external expecta-tions and negativity. There were folks in town who were instrumental to the success of the ‘rocket boys’, but there were many who openly scoffed at and discouraged their dogged pursuit of the opportunity.

How did Homer’s motivations change in course of the movie?

At first, Homer was motivated by a simple fascination with building a rocket. This mirrors the moment of curiosity and wonder that often defines the opportunity recognition phase of entrepreneurship. When his teacher Miss Riley links his efforts to the national science fair, his motivations immediately take on a ‘life mission’ quality. Rockery becomes Homer’s means to a scholarship that could deliver him from the life of a coal miner. This is analogous to that moment when the entrepreneur understands that there is a viable market for the product or service he/she has come up with.

Marshalling, Minimizing and Gaining Control of Resources

Entrepreneurs, especially those like Homer who are faced with severely limited resources, become ex-perts at leveraging other people’s resources and capabilities. They constantly find ways to locate barter or trade for whatever they may need to continue to make progress. As paralleled in the movie, people are willing to assist an aspiring entrepreneur if they see the perceived benefits they will gain from their partic-ipation—even if that is as simple as a good feeling from helping out. Homer is seen on a number of occa-sions communicating his vision in order to get buy-in from individuals whose support he needs (e.g. team members, machine shop workers, school principal).

What are some examples from the film of marshalling and controlling resources?

Talent and advocacyTeam members, including a brainy but unpopular studentMiss Riley; Advocacy, Scholarship link, “Principles of Guided Missile Control”Welding expertiseMachine tooling expertise

SuppliesLumber, nails, cement and other supplies for their launch site buildingRocket building materialsMoonshine alcoholSteel from closed rail line; sold to fund materials purchaseLaunch pad built from Erector SetEquipment needed to produce and work with the fuel mixture

Work spacesHickam family basementSchool labMine company machine shopTest site; a slag field eight miles from town

Bootstrapping: The only expense that the team is seen incurring is for the purchase of the spe-cial bar-stock steel required for the rocket nozzle. This money was raised by selling steel from a closed rail line (see Ethics, below).

Trial and Learning: It is important for students to understand that new venture creation is often a building process of trial, error, reflection, outreach & research, and retrial. This process is clearly ex-pressed in the movie by the series of exploding rockets (including the televised explosion of Space Agency effort). These setbacks are analogous to the trial and error in entrepreneurship that fosters the ac-cumulation of the knowledge, insight and experience needed to succeed.

What did Homer do to improve his chances of success as he and his team moved forward?

Learned how to weld and fabricate metals Learned advanced math such as calculus and differential equations Learned the science of rocket construction, launch, flight and trajectory Developed an effective fuel mixture Designed a (relatively) safe means of launching rockets

Ethics: Ethics can be a tricky issue. Consider that while Homer and his team were doing what they needed to do to keep moving forward, they:

Procured building materials under the cover of darkness Procured and sold rail steel Procured ‘pure’ albeit illegal alcohol from a local still operator Violated Mine Company rules by utilizing machine shop equipment and operators Violated school rules by mixing hazardous materials in the lab

Given the uplifting message of October Sky, it appears that the film makers have concluded that in Homer’s case, the end justifies the means. Do you agree?

Justification for their actions might include the following:

The steel they procured and sold was manufactured using coal, and therefore, few individuals would be more entitled to the use of that raw material than the sons of coal miners.

The building materials they procured under cover of darkness were most certainly taken from the Mine Company, a business that Homer’s father had devoted his life to in return for meager bene-fits and ill health.

One could argue that these were very minor infractions, and that offenses such as buying illegal alcohol, utilizing machine operators and workspaces at the Mine Company and using the school lab are essentially victimless crimes.

The many students will agree with the film makers; committing these minor offenses was the only way these boys could break free from a life that offered virtually no alternatives to the dangerous and, for many, unrewarding life of a coal miner.

Resource

Homer Hickam has a Web site that includes bios of the key figures from his life and the film; www.homerhickam.com/coalwood

http://www.homerhickam.com/coalwood

Notes on Case

“Lakota Hills”

Introduction/Overview of the CaseThe Lakota Hills case follows Laura Ryan, a Native American who has taken her family's special recipe for fry bread from her kitchen to supermarkets all over the Midwest United States. But is her current strategy of selling to grocery stores the best way to build her family's specialty foods venture? This case provides an excellent overview of the entrepreneurial process, including cre-ating value, channel marketing, and fun-raising. The case includes metrics that will work for MBA-level discussions and analysis.

The case provides a detailed background of Laura and her education and early start in the entre-preneurial process. She weaves her education between the entrepreneurial pursuits and also man-ages her growing family. With many skills and abilities (teaching, quilting, fry bread,) the intro-ductory history at the beginning of the case profiles Laura so students can assess her background.

The case emphasizes the content of Chapter Two in that it presents the strategies, habits, atti-tudes, and behaviors of the lead entrepreneur Laura Ryan and her family as they work to build a high-potential venture. Laura is internally motivated, has high-energy, and we see her unique tol-erance for ambiguity as she moves from various jobs, educational programs, and entrepreneurial ventures. See exhibits a keen eye toward mitigating risk and has the passion for discovery and in-novation stressed in Chapter Two.

The key focus for students to consider after studying the case is whether Laura Ryan fits the seven dominant themes of an entrepreneur -- commitment and determination; courage; leader-ship; opportunity obsession; tolerance of risk, ambiguity, and uncertainty; creativity, self-re-liance, and adaptability; and motivation to excel). Students should quickly recognize that she does and has acquired the 50,000 chunks of experience discussed in the chapter.

The case ends with Laura pondering strategies to grow the fry bread business in grocery stores and other outlets. The marketing process, dealing with food brokers and the need to constantly be in the stores providing samples to customers is stressing the small team at the same time their ex-penses are rising. She and her son Michael must consider the trade-offs, the logistics, and the costs of various options for expanding the business. Case flow projections are provided to aid the decision-making.

Positioning and Objectives of the Case

The case is positioned to follow Chapter Two – The Entrepreneurial Mind: Crafting a Personal Entrepreneurial Strategy. The case can be covered early in the course to profile a classic entrepreneur as they move through the new venture process. It also presents an interesting opportunity to learn about Native American people, their culture, and their food. This may be unfamiliar to most students and represents an interesting opportunity for students to consider how they'd feel about this new fry bread product if they encountered it in their supermarket or

specialty food retailer. Students may find Laura's process leading up to starting the fry bread business interesting. Students should discuss her training, education, and past entrepreneurial experiences and hypothesize how these helped to shape Laura as an entrepreneur. The case also presents dialogue from her son Michael who doesn't like having the assembly operations in their home kitchen and we follow his entry into the business as a full-time general manager. With the two profiles, students have a chance to assess the small entrepreneurial team together. This case has rich material for an in-class discussion during one full class period covering the entrepreneur Laura and her personal entrepreneurial strategy. Coverage of the financial information and projections could be the subject of a second class period if desired (this may be more appropriate for senior-level students or MBA students after they have completed a finance or accounting class).

Preparation Questions

These questions should be assigned as homework for students as they prepare the case for the subsequent class discussion. Answers to these preparation questions are as follows:

1. Discuss the challenges and advantages of developing a specialty food business.

Challenges:

difficult to secure supermarket placement difficult to learn the retail grocery industry hard to read brokers and buyers as to their interest specialty foods may be a one-time purchase for consumers requires more consumer education, sampling/tasking, and marketing to explain the

product people are not as familiar with Indian fry bread as with some other specialty foods Limited shelf space in supermarkets make it difficult to place a product Specialty products need a selection of choices, and not just one product, to be at-

tractive to supermarkets Expensive start-up for packaging, marketing (floor displays, sell sheets, and other

marketing collateral), distribution costs, advertising Competition from other ethnic and specialty foods as well as competition from

other fry bread mix manufacturers Expense to attend trade shows – the Efficient Collaborative retail Marketing con-

vention; also much terminology to learn Additional 10 to 15% cost for food broker's commission Often requires travel and expense for direct selling and store visits. May be confusing for customers and for stores as to where to place the item

Advantages:

Minority-certified businesses selling specialty foods (or any foods) are not required to pay a shelf/store slotting fee for placement

May entice customers to buy and try a new product Represents an innovative product to many marketplaces Is a growing segment of food purchases Compete in a specialty food segment with fewer products/competitors than many

other grocery products Initial long list of interested buyers Demand for direct line extensions Other minority-certified business advantages May benefit from free advertising and initial publicity to build demand

2. Is their current strategy the best way to build Lakota Hills?

Given the staff of two, Laura and her son Michael, and the intensive travel, set-up, sampling, and direct selling required it is not the best strategy. Also the supermar-ket shopper may buy the product only once a month or less. Adding the product to an existing food chain (like a fry bread pizza at Pizza Hut or a fry bread taco at Taco Bell) would move Laura away from the specialty packaging. She could sell to restaurants in bulk packaging. The food chain would also be responsible for marketing the product, relieving Laura and Michael for the travel and difficulty ex-periences in the grocery retail channel. Students may also mention selling to food establishments (though this product may be too much of a specialty product for in-stitutions) or via QVC or warehouse stores.

3. How might they integrate other channels into their overall selling model?

It is possible to explore these various channels mentioned in number 2 above, plus tourist specialty stores and on-line selling as a test market to see which avenues are best. However, Laura requires additional employees with experience working with these various marketing channels. The learning curve is steep and somewhat long in moving into these channels. This time line can be shortened with additional help.

4. How will Lakota Hills make money?

Lakota Hills will make money with volume. They most promote this specialty product while working to add new items. Revenue projections are positive and growing through 2007 and 2008 but this depends on market acceptance, growth in retail outlets carrying the fry bread, and consumer acceptance. With competition for other specialty foods and limited shelf space, the retail grocery store placement may not yield this projected success. Laura and Michael and their newly hired team must consider the profitability and tradeoffs of the various channels and care-

fully project their cash flow as they arrive at one or two best options for selling the fry bread.

5. As an angel investor, would you participate in the round this venture is seeking?

No, given the difficulty of breaking into the retail grocery stores, the difficulty of navigating the complex process of food brokers and buyers, and the limited commercial success the fry bread will have in markets outside the Midwest. Changing food preferences, dieting and concern for reducing carbohydrates, and the limited number of families with time to prepare this fry bread product also are challenging. While Laura has a great idea and product, she needs help bringing it to the best location and channel for profitability. The team should be expended and more research conducted into additional channels before investing.

Yes, Laura is a seasoned entrepreneur who knows her product and has done her homework. It takes time and money to break into the market with a specialty product like her fry bread and the additional infusion of capital can cover the marketing, promotion, and additional staff to call on the various retail supermarkets in the U.S. Additional funds are needed for sales representatives and territory managers. This should free Laura to develop the other ideas and to extend the specialty product line. With a growing emphasis on new specialty foods, the time is right for another culture's food to take center stage. Today Italian, Mexican, and Chinese foods are so pervasive, they seem American in origin. Now could be the time for Indian fry bread from a unique native-American entrepreneur.

Class Discussion Guidelines

Opener and Votes - To stimulate the class discussion, poll the class (by a show of hands) as to how many students would invest in the business as an angel investor. (This is prepa-ration question 5). You could ask students to e-mail their responses or log-on to a discus-sion board to have this information before class.

Typically less than half the class will vote to invest. Follow this question by polling stu-dents about the appeal of the fry bread. Is it a product they would like to try? Would they try it more than once? If not, how could this be a problem as Laura branches out into additional grocery stores?

A good opening question is: Who is Laura Ryan?This discussion enables students to explore how it is that she finds an opportunity, and may challenge many of the stereotypes they hold about whom the entrepreneurs are and what it takes. Probing for descriptions, underlying assumptions, and insights about her goals, values, motivations and the various pressures and forces that contributed to her de-cision to create a business can be powerful here. Follow-up probes can include: What is she like? What does she like and not like? Why? Speculate for a moment: What would it be like to work for her; with her? What will to be her strengths and shortcomings? What was so entrepreneurial about her, and why was this?

An excellent discussion on this opener can come from asking students to reflect on the entrepreneurs they have known and know of, and consider the following: Who can, or cannot, be an entrepreneur? Be prepared for a lively discussion, which can be ended by saying this is a common thread that runs throughout the course, and is one of the most important issues for them to think about personally. It will be revisited in many of the cases and with outside entrepreneurs who speak to the class. Urge each student to shape their own views, definitions and boundaries for these core questions.

Next cover the preparation questions. Question one about the challenges and advantages of developing a specialty food business is also a good question to stimulate initial class discussion. You might even go around the room and ask students to first give a challenge followed by a second round of questions asking each student to give an advantage of developing a specialty food business. Ask students to brainstorm as many issues as possible and divide the board into two sections and record the answers.

Ask students to define their current strategy (of marketing the specialty food product through food brokers and buyers to grocery stores). Poll students if this is the best way to build Lakota Hills or would another method be better. Students will likely point to the difficulties of selling the fry bread without product sampling and may also point to the fact this is often a one-time purchase. The lack of ease of preparation and clean-up may emerge as an issue with the product itself. As for the marketing through buyers and brokers, it is a difficult task to break into the retail food industry and Laura and Michael admit they have much to learn. Students may point to her past product success with QVC and may even recommend selling the product at wholesale clubs like Sam's Club, Costco, and BJ's where there are more opportunities for customers to sample the product and buy more at one time. Ask students how the freshness dating and shelf life are hindering the grocery sales strategy.

Continue by asking students how to integrate other channels into their overall selling model. Call on one student for their ideas. Clear the board and record these ideas and leave space under the idea to discuss the strengths and weaknesses of the various distribution channels suggested which could include (sales through brokers, through grocery buyers, on QVC, in wholesale stores, in gift and specialty shops, etc.).

Next discuss preparation question 4 as to how Lakota Hills will make money? Give the students a few minutes to consider Exhibit 3 as to the various channel costs and pricing snapshots. Students may be surprised at the markup at various locations including supermarkets, specialty food stores, tourist destination shops, and wholesale bulk. Students will note that as volume increases (wholesale bulk) their price decreases. The lower volume tourist destination shops garner the higher prices but these businesses are subject to seasonal variations and are extremely sensitive to default in a depressed economy. Next direct students to Exhibit 4A's income statement and projections.

Additional Discussion Questions

1. Are their projections realistic?

Probably not given the difficulty of breaking into the retail grocery store market and the re-cent practice of having to offer two-for-one specials to move out older product with a rapidly approaching expiration date. The limited product line with only one current product and the

remaining questions of which distribution channels are best and why still must be answered. It seems to be a large task for Laura and Michael.

2. What has Michael learned from his encountered traveling to each store to promote the prod-uct and set up displays? How will operating expenses increase if he continues this practice?

Michael has realized he has much to learn about the grocery and food industry. Even with his business degree and working toward his MBA he had not learned about the retail practices. Even when well designed products, packaging, and promotional materials are delivered to the grocery stores, it seldom all makes it to the selling isles and often it is shelved in the wrong place by careless stockers. Direct visits, sampling, and meeting with store managers seem to be necessary for each outlet. As they continue to grow, Michael will be unable to visit all stores outside the Midwest region. As they continue to add staff and travel, expenses will continue to increase. They will increase too as new specialty products are added.

3. What new staff and employees need to be hired by Lakota Hills?

First is additional sales staff to cover the expansion regions and meet with store managers as discussed in Question 2 above. Additional employees with skills and past experience with specialty food products and navigating additional channels and with logistics experience would help the team excel.

4. Discuss the fry bread competition and their likely reaction to Lakota Hills' expansion, if any.

Lakota Hills seems to have competitive advantages over Wooden Knife Fry Bread Mix, Crow Fry Bread Mix, and the Oklahoma Fry Bread Company. The competitors seem to have stale package designs and non-aggressive marketing. Wooden Knife Fry Bread seems to be the dominant competitor particularly in the Midwest region and in supermarkets and tourist out-lets. Lakota Hills believes they have superior tastes to Wooden Knife Fry Bread Mix which is more bitter and has not been adapted to non Native-American tastes. Their pries are simi-lar and Wooden Knife Fry Bread Mix competes in food services with frozen and bulk prod-ucts.

5. Online sales are projected to increase. Should Laura consider this as a more viable channel to explore? How can she drive customers to the website?

Yes, particularly given her initial success on QVC. Pairing this exposure with an on-line site can help the business grow inexpensively. Also noting the website on all product packaging can help her in her drive to promote new products she plans to add.

6. Would recent health trends away from breads and carbohydrates hurt product sales?

Diet fads come and go and for specialty products, she is less susceptible to fads. However she could adapt her grandmother's recipe for low-fat menu options. These could easily be added to the website or included on the packaging or inside the packaging.

7. How important are the muslin bags for packaging? Could costs and labor reduced in an-other format? Should the size be reduced to save costs?

This is an added expense and may be more important for tourist gift shops than for supermar-ket shelves. Cost-conscious consumers don't want to pay for extra packaging. If the bag is not reusable, she should consider a bright, decorative box to save costs. Reducing the price however, may change the perception of the product as a good value. Research may be needed to compare consumer perceptions of several price point combinations and package sizes. The strategy is to get consumers to try the product so she should maintain the size. Single serve or smaller packaging may be an attractive add-on in the future as could larger sizes. Focus groups and customer surveys can help her determine the best size and mix of packaging.

8. Should they only consider specialty food outlets? Tourist destination shops?

No, but these are important first-steps to test the market for additional product. They also don't charge slotting fees, attract a higher price, and help to grow the brand and the product category.

9. What could be the advantages of a wholesale national program with restaurant chains or food service who order in large truckloads?

With a large volume purchaser, Lakota Hills could concentrate on the product which is

their expertise and rely less on the challenges of marketing and distribution through various retail channels. Restaurant chains could promote the product too and stimulate demand for their retail packages of fry bread. Even though the volume purchasers buy at cheaper costs (and lower profit for Laura) this contributes to the gross margin of their venture and could provide the needed capital to expand as they want.

10. Compare the advantages of a force-out marketing strategy in grocery stores versus having to personally introduce the buyer-approved fry bread to each store manager in a chain?

The force-out strategy offers a captive audience from the beginning without having to sell the product to a store manager, however with the challenges with stocking the product, placing it in the correct location, and managing the displays and marketing, the implemen-tation of the strategies are not much different for Michael who is handling this part of the business.

11. How can the shelf life and the buy one, get one free campaign hurt?

The freshness dating is important for consumers. They may be reluctant to buy a new, un-tried product if the shelf life is limited. Pushing more on-sale inventory onto the retailers adds a glut of product that may not be sold in time to be at its optimum freshness. Old, stale products may lead to unhappy consumers who won't rebuy the product and may en-

gage in negative word of mouth to their friends and family which will harm growth and acceptance of the fry bread mix.

12. Is it harder or easier for minorities including Native Americans to break into business? Why?

Initial advantages of no slotting fees and other grant and loan programs targeted to minori-ties and protected groups may provide an initial advantage but as Chapter Two clearly states, entrepreneurs must acquire the knowledge and apprenticeship they need through various ventures and education plus a personality to manage risks.

Applicable Teaching Tips

Remind students of the entrepreneurial drive of Laura and how she creatively used flour and other products supplied to her reservation by the U.S. government to develop the fry bread. Discuss her ingenuity. Have students create a time line for her various entrepreneurial ventures as well as her education. Discuss how both her prior ventures and her education helped her along the way. Why was her Uncle (profiled as unsuccessful but entrepreneurial) such an important role model for Laura? Was he indeed a good role model? Why? Students can also consider the impact of the business on her family and her life.

For an advanced coverage of the income statement and projections, have students compare the sales made from the various product combinations in 2007 through 2010. Students will notice the number of 5-lb. cases muslin drop from 2007. Sales of 25-lb. bags continue to grow. Online sales only grow slightly. Have students discuss the implications of the changing product mix.

If time permits, students may want to research the specialty foods markets, tour a local grocery store and interview a manger to see which products are selling and discuss how products find shelf space. Students can also research the 4H organization and study more about the Lakota people to enhance their understanding of Laura and her unique background. The fry bread is similar to the chalupa shell currently sold at Taco Bell so students may want to try the product if they are unfamiliar with it.

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