BE3151 : Entepreneurship

WEEK 1

Understanding Entepreneurship
Kamariah binti Ismail
CHAPTER OBJECTIVES

• Define entrepreneurship.
• Explain the role of entrepreneurship in economic growth.
• Distinguish entrepreneurial ventures from small businesses in terms of
their purpose and goals.
• Describe the evolutionary history of entrepreneurship.
• Identify today’s broad trends in entrepreneurship and technology.
 WHAT IS ENTREPRENEURSHIP?

“The process by which individuals—either on their own or inside organizations—

pursue opportunities without regard to the resources they currently control.”
– Howard Stevenson

• Entrepreneurship is more than simply starting a business; it also encompasses a

mindset or way of thinking and a set of behaviors.
• That way of thinking is usually opportunity-focused, risk taking, innovative, and growth-
oriented.
 THE ROLE OF ENTREPRENEURSHIP
1.1
IN THE ECONOMY (slide 1 of 3)
• The entrepreneurial process is not a linear process but rather something
more like a dynamic system with complex moving parts.
• Phase 1
• Entrepreneurs initially work to find a significant problem or need in a market or an
industry.
• Then they do preliminary research to understand the industry, the potential market, and
any issues they might face in the areas of intellectual property, regulation, or in product
development in the case of a technology solution.
• They then develop hypotheses from what they’ve learned.
 THE ROLE OF ENTREPRENEURSHIP
1.1
IN THE ECONOMY (slide 2 of 3)
• Phase 2
• Entrepreneurs focus on validating the hypotheses they have made about the customer, the
solution, and the proposed business model.
• The results will ultimately provide important information about potential sources of
revenue and major drivers of cost.
• Phase 3
• When the activities in Phases 1 and 2 give entrepreneurs sufficient confidence that their
business is feasible, it’s time to consider the design of the business and to create a plan for
its execution.
• This means having the right team and partners in place as well as choosing the best time to
launch the business.
FIGURE 1.1 The Entrepreneurial Process
 THE ROLE OF ENTREPRENEURSHIP
1.1
IN THE ECONOMY (slide 3 of 3)
• The successful execution of the entrepreneurial process results in a new venture.
• However, the process of testing and validation continues as the new business responds to a
dynamic environment that includes all the variables external to the business that can impact its
growth, including:
• The economic environment.
• Competition.
• New laws and regulations.
• Labor supply.
• Sources of capital.
 1.1a Entrepreneurs Spur Economic Growth

• Early economists recognized that technology is the primary force behind rising
standards of living and that technological innovation would determine the success
of nations in the future.
• Technological change happens when an entrepreneur identifies:
• New customer segments that appear to be emerging.
• New customer needs.
• Existing customer needs that have not been satisfied.
• New ways of manufacturing and distributing products and services.
 Entrepreneurship and
FIGURE 1.2
Technological Change
 1.1b Entrepreneurs Create New Industries

• An industry is simply the people and companies that engage in a

category of business activity.
• New industries are born when technological change produces a novel
opportunity that enterprising entrepreneurs seize.
• Industries don’t last forever.
• Much like humans, they have life cycles—they’re born, they grow, they
decline, and they die.
FIGURE 1.3 The Industry Life Cycle
 1.1c Entrepreneurs Create Jobs (slide 1 of 3)

• The U.S. Small Business Administration (S B A) defines a small business as one

with fewer than 500 employees.
• In all, 62 percent of net new jobs come from small businesses; small businesses
comprise 99.9 percent of all businesses.
• The vast majority of net new jobs created by the small business sector are created by a few
rapidly young firms called gazelles or high-impact businesses.
• These young businesses generally have sales that double over a four-year period with employment
growth of two or more times over the same period.
 1.1c Entrepreneurs Create Jobs (slide 2 of 3)

• The annual Global Entrepreneurship Monitor divides countries into three groups
based on terms of growth and early-stage entrepreneurial activity:
1. Factor-driven economies.
• These economies rely on unskilled labor and the extraction of natural resources for growth.
• Businesses are normally created out of necessity and so these countries tend to have very high
entrepreneurial activity rates relative to other types of economies.
2. Efficiency-driven economies.
• These economies are growing and in need of improving their production processes and quality of
goods produced.
3. Innovation-driven economies.
• These economies are the most advanced and where businesses compete based on innovation and
entrepreneurship.
 1.1c Entrepreneurs Create Jobs (slide 3 of 3)

• One consistent finding is that across all types of economies, there are
more people in the
25- to 34-year-old age group with intentions to start a business and
entrepreneurship is a highly regarded activity and career path.
 THE NATURE OF ENTREPRENEURIAL
1.2
STARTUPS (slide 1 of 2)
• Entrepreneurial ventures and small businesses are related, but they are not the same
in most respects.
• Both are important economically, but each provides different benefits and outcomes.
• Entrepreneurs have been described as equilibrium disrupters who introduce new products and
processes that change the way we do things, while small-business owners typically operate a
business to a make a living.
• Small businesses, such as small shops, restaurants, and professional service businesses, form what
has been called the economic core.
 THE NATURE OF ENTREPRENEURIAL
1.2
STARTUPS (slide 2 of 2)
• In general, high-impact entrepreneurial ventures have three primary
characteristics:
1. Innovative.
• The venture brings something new to the marketplace.
2. Value-creating.
• The venture creates new jobs that don’t draw from existing businesses and serve customer
needs that are currently unserved.
3. Growth-oriented.
• The entrepreneur sees the business growing to a regional, national, or global level.
 1.2a Risk and the Entrepreneurial Venture (slide 1 of 2)

• Risk is an inherent part of the entire entrepreneurial process.

• Much of new venture risk occurs early in the creation process.
• The period of time prior to launch and startup is called the fuzzy front end,
which simply means that the activities undertaken at this point are often
unclear and subject to change as more information is obtained.
 1.2a Risk and the Entrepreneurial Venture (slide 2 of 2)

• Nascent entrepreneurs use the time spent in the fuzzy front end to
calculate:
• The probability of success as an entrepreneur.
• What that success will mean in terms of return on his or her investment of
time, money, and effort.
• What the risk or cost of failure might be.
• Because these risk estimates are highly subjective, it’s important for
entrepreneurs to gather sufficient information and test the business
model to reduce that risk as much as possible.
 1.2b New Business Failure (slide 1 of 4)

• The S B A reports that about half of all new businesses will survive
five years or more, and approximately one-third will survive 10 years
or more.
• Statistic Brain, a research institute, found that 50 percent of all U.S.
companies fail after five years and 70 percent after 10 years.
 1.2b New Business Failure (slide 2 of 4)

• There are several reasons for new business failure:

• Entrepreneurs often start businesses with a solution looking for a problem.
• In other words, they haven’t identified a real need in the market with customers willing to pay for a
solution.
• The solution is not necessarily unique or compelling.
• In other words, it is often a “me-too” solution that does not offer anything different from what is
already in the market.
• Entrepreneurs often do not communicate the value proposition effectively to the customer.
• Entrepreneurs often haven’t identified and tested a business model that actually works.
 1.2b New Business Failure (slide 3 of 4)

• Young firms have a higher chance of failure because they have to divert
their scarce resources away from the critical operations of the company
in order to train employees, develop systems and controls, and establish
strategic partnerships.
 1.2b New Business Failure (slide 4 of 4)

• Failure is a fact of life that must be dealt with.

• What matters is that the entrepreneur minimizes the cost of failure and has a
plan to recover quickly.
 WHY ENTREPRENEURSHIP IS WHAT IT IS: A BRIEF
1.3
HISTORY THAT YOU NEED TO UNDERSTAND

• The United States was founded on the principle of free enterprise,

which encouraged entrepreneurs to assume the risk of developing
businesses that would make the economy strong.
• However, it was not until the 19 80s that the word entrepreneur came into
popular use in the United States.
FIGURE 1.4 The Decades of Entrepreneurship
 CURRENT ENTREPRENEURIAL
1.4
TRENDS
• In the previous edition of this book (2016), major trends were:
• Digital anonymity.
• Domestic manufacturing.
• Big data.
• The lean startup movement.
• Those trends continue; but for 2018 and beyond, research firms like Gartner,
Forrester, and Deloitte see some key technology trends that will be the foundation
for the next generation of entrepreneurial businesses, which are summarized on the
following slides.
 1.4a Intelligent Technology

• Artificial intelligence (A I) is arguably the most important platform

technology today.
• A I is about machine-learning solutions targeted toward completing a specific
task such as driving a self-driving car in a controlled environment.
• In general, A I augments human decision making and enables us to take
advantage of skills like facial recognition, diagnostics, and many other tasks
that can be automated and executed faster and more reliably than a human
could do.
 1.4b Digital

• The digital world will see increased capabilities in areas such as:
• Immersive experiences.
• Mixed realities that include augmented reality and virtual reality allow users to interact with
objects in both the digital and real world.
• Immersive experiences are already found in such things as video games, medical training, and
military simulations.
• Digital twins.
• A digital twin is a digital replica of a human or real-world entity.
• Using connected sensors and endpoints, advanced simulations, operations, and analysis can now be
conducted via a digital twin.
 1.4c Disruption

• Advances in synthetic biology and genomics are being made.

• Technologies like C R I S P R enables editing of and making changes to the genome of living
cells.
• This may allow to correct for genes that give someone a higher chance for a certain disease, such as
Alzheimer’s disease.
• Another area of disruption that will lead to new opportunities is quantum
computers.
• These are enormously powerful machines that process information differently from everyday
computers.
• They can untangle complex structures and potentially enable us to discover new medicines and
materials.
 Entrepreneurial Ethics

• Avoid malicious behavior

• Avoid squandering (elakkan membazir)
• Avoid stinginess (elakkan kedekut)
• Pay zakat and alms (sedekah)
• Be trustworthy
• Pray consistently
• Tawakkal
• Patience
• Qanaah
 Exemplary Conducts of
Muslim Entrepreneurs
Business is secondary to the call of jihad (crusade)
Never use power or influence for self-interest
Afraid of accumulated wealth
Leadership qualities in all aspects
Practice moderate way of life