Entrepreneurship: The Art, Science, and Plain Vanilla Course ...

1

1

Entrepreneurship: The Art,Science, and Plain Vanilla

Malin BrännbackSpring 2008

2

Course Outline• W. 3; Jan 14,• Introduction,

EntrepreneurshipEntrepreneurial BusinessWhat is entrepreneurship– Opportunity recognition– The Idea, The Concept– Key learning note on

• Each articles 1,5, 11• Ch. 1 and 2

(Carsrud&Brännback,Entrepreneurship)

• Guest Lecture: AlanCarsrudEntrepreneurship, whatit is and what it isn’t

• W. 4; Jan. 21, Opportunityrecognition

• Key learning note on• Each articles 2, 6, 12,• Chapter 2 and 3 (Shane,

A General Theory ofEntrepreneurship)

• W.5; Jan 28• Entrepreneurial

Intentionality,Entrepreneurial cognition

• To be or not to be anentrepreneur– Key learning note on

• Each articles 13, 14,• Chapter 3, 4, 5

(Carsrud&Brännback,Entrepreneurship)

3

Course Outline• W.6; Feb 4, The Idea, The

Concept, The Market – it is alot more than just potential

– Key learning note on• Each article 4,15

– Ch. 6, 7 (Carsrud & Brännback,Entrepreneurship)

– Chapter 4 and 5 (Shane, AGeneral Theory ofEntrepreneurship)

– Hand-out of GR-1 assignmentto be prepared in pairs and tobe handed in on March 10

• Cases Wedgewood,Heinz, Estee Lauder

• W.7; Feb. 11. AcademicEntrepreneurship, UniversitySpin-offs, Innovation Systems

– KLN on articles 3,9,10– Guest lecture CEO Markku

Jalkanen, FaronPharmaceuticals

• W. 10; Mar 3. AcademicEntrepreneurship, UniversitySpin-offs, Innovation Systems– Key learning notes on

• Ch. 2,3, 7, 8 FromShane: AcademicEntrepreneurship

2

4

Course Outline• W. 14; Mar.31

Entrepreneurship and Growth– Key Learning Notes on– Articles 8,16– Chapter 2 and 3 (Shepherd&

Wiklund; EntrepreneurialSmall Business

– Hand-out of Business plans• Each group will read one full

plan and one executivesummary

– GR-2 assignment. Prepare inpairs an evaluation of oneBusiness plan, to be handedin and prepare to discuss.April 14 short evaluation ofthe other 3 exec.summary

• W. 15; Apr.7, FamilyBusiness– Key Learning Notes on

articles 7 and 17– Ch 10 (Carsrud &

Brännback)– guest lecture CEO Timo

Ketonen, Hansaprint Ltd.• W. 16; Apr. 14• Plain Vanilla; Business Plans

• Individual assignment to behanded in W.17 Friday at15.00

5

Large Individual Assignment

• You will write a course paper on atopic assigned by the courseinstructor.

• More information at the start of thecourse

6

Key Learning Note• A key learning note is not a summary of the content of the article.

It includes your reflections on the text; on the things that you foundparticularly interesting or puzzling.

• What did you learn from the text? You should reflect on yourpersonal perceptions and interpretations of the presentedargument.

• Do you agree or disagree with the author’s arguments, and why?Your text needs to be structured in a systematic manner, NOTPRESENTED AS CHECKPOINTS.

• At least, reflect upon the following questions (do not use them asheaddings)

– What are the researchers basically debating about?– Whose view do you agree with and why?– Maximum length per KLN 1000 words.– You are to write a KLN per article and/or chapter, i.e. if you are

assigned 5 articles + 2 chapters it means 7 KLNs

3

7

Assignments, and Grading• A: 2 Group assignments, max. 60p (15%)

– w. 10: Wedgewood, Heinz, Estee Laudeer, etc 20p– w. 16:Business Plans 40p

• 30 p for full analysis• 5p for analysis of two executive summaries

• B: 10 Individual assignments, max. 190p (47.5%)• w. 3. 5p/article/chapter + guest lecture 5p = 30p• w. 4. 25p• w. 5 25p• w. 6 30p• W.7 15p + guest lecture 5p = 20p• w. 10. 20p• w. 14 20p• w. 15. 15p + guest lecture 5p = 20p

• C: 1 Large Individual assignment, max. 110 points (27.5%)• D: Participation 40 points (10%)• Total 400 p. 200 points required for pass, min. 50% of each

assignment. NO EXAM

8

IN 1874….SAMUEL CLEMENS WROTE…

TRYING TO GET THE HANG OF THIS NEW FANGLED MACHINE....[IT] COSTS 125 DOLLARS. THE MACHINE HAS SEVERAL VIRTUES. I BELIEVE IT WILL PRINT. FASTERTHAN I CAN TYPE…IT PILES AN AWFUL STACKOF WORDS ON A PAGE

9

4

10

Entrepreneurship

• What happens when entrepreneursact?

•• Why do they Why do they act?act?• How do they act?

Asking WHY tended to be Answered with WHO•Attempts to identify certainpersonality traits that differentiate entrepreneursfrom non-entrepreneurs

•Turned out to be fruitless

•There is no such species

11

Just how large are the small• There were approximately

22.9 million smallbusinesses in the US in2002

• Approximately 75 percentof all net new jobs areadded by small firms

• Small firms represent 99.7percent of all employers

• Small firms employ 50.1percent of the privateworkforce

• Small firms account for 52percent of the privatesector output in 1999

• Small firms represent 97percent of all US exporters

• Today’s Fortune 500companies employ fewertotal employees than theydid ten years ago – a trendthat has been going on forthe past 20 years.

• Small firms are moreefficient in many ways thanare large counterparts. Onaverage small firmsproduce 13 to 14 morepatents per employee thando large firms.

• Small firms are able torespond more quickly andto operate more efficientlyand this is one reason forthe growth of smallbusinesses

12

Firms Evolving - the dominance of the minority

• Most firms aresmall– Corporations

constitute aminority of allbusinesses

– Publicly tradedfirms are a minorityof all corporations

• Large firms makeout 4% or less ofall firms

• But: they dominateeconomically ifmeasured byassets

• Small firms aresignificantemployers

5

13

Firms Evolving - the dominance of the minority

• 1 in 100 business plans getfunding

• Most firms start out small;change little if at all!

• Most firms never add moreemployees.

• Of those that grow only 3%add more than 100employees

• Starting a firm is notnecessarily expensive:– Over 60% required less

tahn $5,000– 3% required more than

$100,000– Less than 0.5% required

$1M or more• The probability of self

employment dependsheavily on– Inheritance or gift

• Most start with almostnothing in the way ofassets

14

Finland - today

• Approx. 224265 Co’s• 97.5% are SME’s

– Turnover not exceed €40 miljoner– Personell below 250– Balanse not more than €27 miljoner

• Family businesses 72% (161106)• Majority 86% (192644) micro firms

with less than 4 persons

15

IN FINLANDIn 2000 there were222817 companieswhich employed1,301419 persons, with aturnover of €262 million

6

16

The corporate structure of Finalnd in2000 (Pki-Ytkkk/Tukkk)

0 % 20 % 40 % 60 % 80 % 100 %

Yritykset

Henkilöstö

Liikevaihto

0-9 10-49 50-249 yli 250

17

Isn’t it a bit strange that mostof our textbooks and what weteach is about an outlayer??

18

Some definitions• Joseph Schumpter (1934)

...the entrepreneur is theman who gets new thingsdone.

• Most refer to Schumpeter• Schumpeter’s

entrepreneur is aninnovator;

• Peter F. Drucker (1985)...activity of systematic

innovation.

• In my opinion the bestdefinition

“The pursuit ofopportunitybeyond theresources youcurrently control”

Professor Howard StevensonHarvard Business School

• Can be used on large andpublic organizations

7

19

Opportunity recognitionThree schools• (i) the Equilibrium school

– assumes that everyone canrecognize all entrepreneurialopportunities and that whetherthis actually takes place isdependent on fundamentalattributes of people.

• (ii) the Psychological school– that fundamental attributes of

people, rather than informationabout opportunities determinewho becomes an entrepreneurand this again depends on aperson’s willingness and ability totake action

– Entrepreneurial intentionalitystudies and it has been arguedand shown that attitude towardsbehavior, social norm, andperceived behavioral controlinfluence a person’s intentions toact

• (iii) the Austrian School,– builds on the idea of information

asymmetry as the driving force. Peoplecannot recognize all entrepreneurialopportunities, and that informationabout opportunities will driveentrepreneurial opportunity recognitionrather than a willingness to take action

– Schumpeter (1934 and Kirzner(1973,1979).

20

Opportunity Recognition• Schumpeter – not really the Austrian school; the

entrepreneur is an innovator who shifts the curves of costsand revenues through innovation

• Kirzner - entrepreneur as an actor in the process-consciousmarket theory who exhibits deliberate behaviors who seesthat the curves have shifted; spots market ignorance

• Read Ch. 3 in Delmár et al 2005

Limited discoveryInvolves creation

CommonRare

Less innovativeVery innovative

Does not require new knowledgeRequires new knowledge

EquilibratingDisequilibrating

Kirznerian opportunitiesSchumpeterian opportunities

21

OPPORTUNITIES• Good scientific outcomes are not always good

opportunities nor viable business concepts.• Concepts are built using science &

entrepreneurial creativity - in real time and taketime.

• Opportunities are attractive, durable, timely, andanchored in a product or service which creates oradds real value for its buyers and end users.

• Viable business concepts provide NeedSatisfaction, Pain and/or Suffering Relief.

• Opportunities yield measurable net benefits to theentrepreneurial team and to society.

8

22

But, an entrepreneur is rarelyan innovator• Most firms replicate• Most entrepreneurs

replicate and copy

• Kirzner may be amore suitabloeintellectual father– Kirzner’s entrepreneur

is entrepreneuriallyalert

– Sees opportunities thatnobody else sees andacts upon theseopportunities

Entrepreneurship may but does not have to mean

innovation

23

“There are more things in heaven and earththan are dreamt of in your philosophy.”

“It was the best of times, it was the worst oftimes, it was the age of wisdom, it was the ageof foolishness, it was the epoch of belief, it wasthe epoch of incredulity, it was the season oflight, it was the season of darkness, it was thespring of hope, it was the winter of despair, wehad everything before us, we had nothingbefore us, we were all going direct to heaven ,we were all going direct in the other way.”

24

Let’s look at the history oftechnological change..• The past informs

the present and thepresent illuminatesthe past

• Cases: Wedgewood,Heinz, Estee Lauder

• You will need to lookinto a firm’s or anindustry’s historicaldevelopment in orderto spot discontinuitiesor other major breaks

• Find out about theirpast leaders

• Look into develop-ments in society atlarge

• Get the big picture!

9

25

Times of Change• The emergence of the Internet is said to be the

greatest change ever.• Scientific advances in biotechnology is said to

have the most profound change on man nowand in the future.

• It depends on your reference point!

• Major technological breakthroughs tend tochange industries, business, society, etc – butchange is incremental (mostly)

26

Eras of Change

Reference: R Boulton & al. Cracking the Value Code an Arthur Andersen publication

Time

Valu

e C

reat

ion

StoneAge

IronAge

AgriculturalAge

IndustrialAge

TechnologyAge

KnowledgeAge

BiotechAge

Course outlineAssignmentsIntroductionTech change

27

Technological change

• However, the market is almostnever where the inventor thinks itwill be.

• Although the feelings about hypeappears to create the same kinds offeelings regardless of time

10

28

150 years ago!• The Industrial revolution – nothing much

happened before the railroads camealthough the steame engine was theinvention enabling the REAL change:

• The communications and transportationrevolution– telegraph and railroads– City of Chicago population soared; 1850

29,963; 1870 298,977; 1890 1,099,850; 19102,185,283• 104 trains came and left Chicago per day in

1856

29

Technological change• The Internet would not have been without the

invention of the computer or even the coming ofthe PC back in the 1970’s– Paul Freiberger and Michael Swaine: Fire in the Valley

• and ultimately the World Wide Web 1989, whichneeded an interface – the Mosaic in 1992

• So, the major invention was the computer,needing the combination of a whole array of priorinnovations assembled together for creating acommodity – and now all hell’s loose.

30

Views of technologybusiness• A Technologists view

If a man makes a bettermousetrap than hisneighbor, though he

builds his house in thewoods, the world willmake a beaten path to

his door.

Ralph WaldoEmerson

• A Market-Oriented view

The manufacturer whowaits for the world to

beat a path to his door isa great optimist. But the

manufacturer whoshows this “mousetrap”

(and its value) to theworld, keeps the smokecoming out his chimney.

O.B. Winters

11

31

Entrepreneurship

• What happens when entrepreneursact?

•• WhyWhy dodo theythey act? act?• How do they act?

Intention-based modelsGive a theory-driven Framwork to studyWhy people act

•Well tested•Best at predicting futureaction

32

Intention-based models

• Action is a social cognitive process• Ajzen’s (1987) Theory of Planned

Behavior och Shapero’s (1982)Entrepreneurial Event model

• Studies the perceptions ofopportunities by individuals

33

The Intentions models• The entrepreneur is in the

center.– People innovate, people

have ideas.Organisations areinnovative only if peoplehave ideas

• Entrepreneurial potentialexist only if there arepotential entrepreneurs

• We perceive anopportunity only if it ispositive and controlable

• An intention becomesaction only if perceiveddesirable and feasible

• Locus of control is dependenton self-efficacy

12

34

The nature of intentions

• Absent intention, action unlikely• Intentions represent the belief that I

will act.• Action requires effort: if we are to try,

we must first intend to try

35

The Model

Entrepreneurial intent

Perceived personalfeasibility

Perceived personal desirability

Attitudes

Social norms

self-efficacy

36

This all becomes interesting, when

• Finland for the 4th consecutive year themost competitive; the 4th most innovativecountry in the world

Today, there are 20 universities with a total of 163,000 students and 19,000 new students enrolled each year.

Additionally, there are 30 polytechnic colleges with some 120,000 students. In 1982 the first science park was established and

today there are 22 science and technology parks with 550 employees and an annual turnover of €100 million providing 1,000,000 m2 of facilities, where 1,600 firms

and organizations, and 32,000 are active. All of this, in a country with a population of 5.2 million.

13

37

BUT• Total entreprneurial activity is LOW (GEM

2005)– 5% of the population considers starting a new

venture• 40% in Equador and Peru• 55% of the Chinese

– Sweden (3.7%)– WHY??