Dr. M.

Tayyeb Javed Head ORIC

Ext.: 3243; Email: [email protected]

Describe the environment of small

business and how it is changing
Identify the most common causes for
small business failure
Explain the important success factors for
small business enterprises
Describe corporate entrepreneurship
Discuss the major approaches to
corporate entrepreneurship
Describe emerging ways corporations are
encouraging entrepreneurship

Fundamental concepts:
Creativity, and Innovation

Small business and Corporate entrepreneurship are

two highly contrasting approaches to new venture
creation and both contribute to high quality life

Services, local professional practices, and

merchandisersthat all of us rely on

Clothiers, shoe store, convenience stores,

restaurants, laundries, gas stationswe all need
to function
Without accounting firms, dentists, pharmacies,
and attorneys, we would lack important services
Without music stores, florists, photography,
shops, candy stores, beauty salons and book
stores, life would be bland/tasteless

Independently owned and

managed business that
does not dominate its
market

Job Creation
Innovation

Importance to
Big Businesses

Manufacturing
Services
5%
Finance &
Retailing
Insurance
Other
10%
Construction
1.7%
Wholesale
Financial
8%
Insurance
Wholesaling
Transportation
Manufacturing
Construction
10%
Transportation
5%

Retailing
22.7%

Services
37.6%

Type of Business
73%

7%

20%

Sales Revenue
89%
5%

6%

Sole Proprietorship

Partnership

Corporations

Business
Form

Liability

Continuity

Management

Investment
Sources

Proprietorship

Personal,
limited

Ends with death

or decision of
owner

Personal,
unrestricted

Personal

General
Partnership

Personal,
unlimited

Ends with death

or decision of
any partner

Unrestricted or
depends on
partnership
agreement

Personal by
partner(s)

Corporation

Capital
invested

As stated in
charter,
perpetual or for
specified period
of years

Under control of Purchase of

board of
stock
directors, which
is selected by
stockholders

Copyright 2003 Prentice Hall, Inc.

4-9

Advantages:

Disadvantages:

Freedom

Simple to form

Low start up costs

Tax benefits

Unlimited Liability
Limited resources
Limited fundraising
capability
Lack of continuity

Unlimited Liability
Legal principle holding owners responsible
for paying off all debts of a business

Advantages:

More talent and

money

More fundraising
capability
Relatively easy to
form
Tax benefits

Disadvantages:

Unlimited Liability

Disagreements among
partners
Lack of continuity

Unlimited Liability
Legal principle holding owners responsible
for paying off all debts of a business

Remember

But
An exit plan is still crucial!

An artificial being, invisible, intangible, and

existing only in contemplation of the law.

Advantages:
Limited Liability
Continuity
Stronger
fundraising
capability

Disadvantages:
Double Taxation
Fluid control
Complicated and
expensive to form

Closely Held (Private) Corporation

Publicly Held (Public) Corporation
Limited Liability Corporation (LLC)
Professional Corporation
Multinational or Transnational Corporation

Stock: Share of ownership in a corporation

Common Stock
Preferred Stock

Stockholders

Board of Directors

Officers

Joint Ventures &

Strategic Alliances
Employee Stock
Ownership Programs
(ESOPS)
Institutional
Ownership

Mergers &
Acquisitions
(M&As)

Divestitures
& Spin-offs

Entrepreneur: Accepts the

risks and opportunities of
creating, operating and
growing a new business

Small Business Owner:

Does not have plans for growth

Emergence of
E-commerce
Crossovers From
Big Business
Opportunities for
Minorities & Women
Global
Opportunities
Increased
Survival Rates

Percentage

$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0

$17,387

$12,090
$7,924
$4,828
$2,444

1997

1998

1999

Year

2000

2001

Reasons for Failure

Poor management
Neglect
Weak control
systems
Insufficient capital

Reasons for Success

Hard work, drive,
dedication
Market demand
Strong
management
Luck!!!

Management - Chapter 6
24

Buying an
Existing
Business

Starting
From
Scratch

Questions that keep a new venture focused on its

customers

Who is your customer?

How will you reach key customer market segments?
What determines customer choices to buy or not buy your
product/service?
Why is your product/service a compelling choice for the
customer?
How will you price your product/service for the customer?
How much does it cost to make and deliver your
product/service?
How much does it cost to attract a customer?
How much does it cost to support and retain a customer?

Management - Chapter 6
26

Life cycle of entrepreneurial firms

Birth stage
Breakthrough stage
Maturity stage

Each stage poses different managerial

challenges and requires different
managerial competencies.

Management - Chapter 6
27

Personal resources
Loans
Venture capital companies
Small-business investment companies
Small Business Association (SBA)
Financial aid and management advice

An Ownership Opportunity
Advantages

Proven business
opportunity
Access to
management
expertise

Disadvantages

Start-up costs
On-going
payments
Management
rules and
restrictions

Define small business and explain its

importance to the U.S. economy.
Describe sole proprietorships, partnerships,
and corporations, and explain the
advantages and disadvantages of each.
Identify the different types of corporations.
Describe the start-up decisions made by
small businesses and the potential sources
of financial aid and management advice.
Identify the advantages and disadvantages
of franchising.

Part I
The Entrepreneurial Mindset
in the 21st Century

C HAPT E R

PowerPoint Presentation by Charlie Cook

The University of West Alabama

1. To understand the entrepreneurial mindset in organizations

2. To illustrate the need for entrepreneurial thinking in organizations
3. To define the term corporate entrepreneurship
4. To describe the corporate obstacles preventing innovation
within corporations
5. To highlight the considerations involved in reengineering
corporate thinking
6. To describe the specific elements of a corporate entrepreneurial
strategy
7. To examine the methods of developing managers for corporate
entrepreneurship
8. To illustrate the interactive process of corporate entrepreneurship

332

Factors in the emergence of the entrepreneurial

economy:
The rapid evolution of knowledge and technology
promoted high-tech entrepreneurial start-ups.
Demographic trends adding fuel to the proliferation
of newly developing ventures.
The venture capital market became an effective
funding mechanism.
American industry began to learn how to manage
entrepreneurship.
333

Steps that will help innovative people to

develop an entrepreneurial mindset:
1. Set explicit goals.
2. Create a system of feedback and positive
reinforcement.
3. Emphasize individual responsibility.
4. Give rewards based on results.
5. Do not punish failures.

334

Does the firm encourage entrepreneurial thinking?

Does the firm provide ways for innovators to stay
with their ideas?
Are people permitted to do the job in their own
way, or are they constantly stopping to explain
their actions and ask for permission?
Has the firm evolved quick and informal ways to
access the resources to try new ideas?
Has the firm developed ways to manage many
small and experimental innovations?

335

Is the system set up to encourage risk taking and

to tolerate mistakes?
Are people in your company more concerned with
new ideas or with defending their turf?
How easy is it to form functionally complete,
autonomous teams in the firms corporate
environment?

336

1.

Encourage action.

2.

Use informal meetings whenever possible.

3.

Tolerate failure and use it as a learning experience.

4.

Persist in getting an idea to market.

5.

Reward innovation for innovations sake.

6.

Plan the physical layout of the enterprise to encourage informal

communication.

7.

Expect clever bootlegging of ideassecretly working on new ideas on

company time as well as personal time.

8.

Put people on small teams for future-oriented projects.

9.

Encourage personnel to circumvent rigid procedures and bureaucratic red

tape.

10. Reward and promote innovative personnel.

337

Steps to help restructure corporate thinking and

encourage an intrapreneurial environment:
1. Early identification of potential intrapreneurs
2. Top management sponsorship of intrapreneurial
projects
3. Creation of both diversity and order in strategic
activities
4. Promotion of intrapreneurship through
experimentation
5. Development of collaboration between intrapreneurial
participants and the organization at large

338

Leads to the development of new products

and services and helps the organization
expand and grow.
Creates a work force that can help the
enterprise maintain its competitive
posture.
Promotes a climate conducive to high
achievers and helps the enterprise
motivate and keep its best people.

339

Strategic
Renewal

Innovation

Corporate
Entrepreneurship

340

Corporate
Venturing

Defining The Concept

Corporate Entrepreneurship
Activities that receive organizational sanction and resource
commitments for the purpose of innovative results.
A process whereby an individual or a group of individuals, in
association with an existing organization, creates a new
organization or instigates renewal or innovation within the
organization.
A process that can facilitate firms efforts to innovate constantly
and cope effectively with the competitive realities that companies
encounter when competing in international markets.

341

342

Rapid growth in the number of new and

sophisticated competitors
Sense of distrust in the traditional methods of
corporate management
An exodus of some of the best and brightest people
from corporations to become small business
entrepreneurs

International competition

Downsizing of major corporations

An overall desire to improve efficiency and

productivity

343

Traditional Management
Practices

Adverse
Effects

Recommended
Actions

Enforce standard procedures

to avoid mistakes

Innovative solutions blocked,

funds misspent

Make ground rules specific

to each situation

Manage resources for efficiency

and ROI

Competitive lead lost,

low market penetration

Focus effort on critical issues

(e.g., market share)

Control against plan

Facts ignored that should replace

assumptions

Change plan to reflect new

learning

Plan for the long term

Nonviable goals locked in,

high failure costs

Envision a goal, then set interim

milestones, reassess after each

Manage functionally

Entrepreneur failure and/or

venture failure

Support entrepreneur with

managerial and multidiscipline
skills

Avoid moves that risk

the base business

Missed opportunities

Take small steps, build out from

strengths

Protect the base business

at all costs

Venturing dumped when base

business is threatened

Make venturing mainstream,

take affordable risks

Judge new steps from

prior experience

Wrong decisions about

competition
and markets

Use learning strategies,

test assumptions

Compensate uniformly

Low motivation and inefficient

operations

Balance risk and reward,

employ special compensation

Promote compatible individuals

Loss of innovators

Accommodate boat rockers

and doers

344

Factors in large corporations that are

successful innovators:
Atmosphere and vision
Orientation to the market
Small, flat organizations
Multiple approaches
Interactive learning
Skunkworks

345

Corporate Entrepreneurship Strategy

A vision-directed, organization-wide reliance on
entrepreneurial behavior that purposefully and
continuously rejuvenates the organization and
shapes the scope of its operations through the
recognition and exploitation of entrepreneurial
opportunity.
It requires the creation of congruence between the
entrepreneurial vision of the organizations leaders
and the entrepreneurial actions of those throughout
the organization.

346

Corporate entrepreneurship strategy is

manifested through the presence of three
elements:
An entrepreneurial strategic vision
A proentrepreneurship organizational architecture
Entrepreneurial processes and behavior as
exhibited across the organizational hierarchy.

347

Linkages in the model:

1. Individual entrepreneurial cognitions of the organizations

members
2. External environmental conditions that invite
entrepreneurial activity

3. Top managements entrepreneurial strategic vision for the

firm
4. Organizational architectures that encourage
entrepreneurial processes and behavior

5. The entrepreneurial processes that are reflected in

entrepreneurial behavior

6. Organizational outcomes resulting from entrepreneurial

actions.
348

349

Critical steps of a corporate entrepreneurial

strategy:
Developing the vision
Encouraging innovation
Structuring for an intrapreneurial climate
Developing individual managers for corporate
entrepreneurship
Developing venture teams.

350

351

Radical Innovation
The launching of inaugural breakthroughs.
These innovations take experimentation and determined
vision, which are not necessarily managed but must be
recognized and nurtured.

Incremental Innovation
The systematic evolution of a product or service into newer
or larger markets.
Many times the incremental innovation will take over after a
radical innovation introduces a breakthrough.

352

Objectives

Programs

Make sure that current systems,

structures, and practices do not present
insurmountable roadblocks to the flexibility
and fast action needed for innovation.

Reduce unnecessary bureaucracy, and

encourage communication across
departments and functions.

Provide the incentives and tools for

intrapreneurial projects.

Use internal venture capital and special

project budgets. (This money has been
termed intracapital to signify a special fund
for intrapreneurial projects.) Allow
discretionary time for projects (sometimes
referred to as bootlegging time).

Seek synergies across business areas so

new opportunities are discovered in new
combinations.

Encourage joint projects and ventures

among divisions, departments, and
companies. Allow and encourage
employees to discuss and brainstorm new
ideas.
353

Radical

Incremental

Stimulate through challenges and puzzles.

Set systematic goals and deadlines.

Remove budgetary and deadline constraints

when possible.

Stimulate through competitive pressures.

Encourage technical education and exposure

to customers.

Encourage technical education and exposure

to customers.

Allow technical sharing and brainstorming

sessions.

Hold weekly meetings that include

key management and marketing staff.

Give personal attentiondevelop

relationships of trust.

Delegate more responsibility.

Encourage praise from outside parties.

Set clear financial rewards for meeting goals

and deadlines.

Have flexible funds for opportunities that

arise.
Reward with freedom and capital for new
projects and interests.
354

Dont kill a project

Tolerate failure

Keep divisions small

Motivate the champions

Stay close to the customer

Share the wealth

355

Reestablishing the drive to innovate:

Invest heavily in entrepreneurial activities that allow new

ideas to flourish in an innovative environment.
Provide nurturing and information-sharing activities.
Employee perception of an innovative environment is
critical.

Corporate Venturing

Institutionalizing the process of embracing the goal of

growth through development of innovative products,
processes, and technologies with an emphasis on longterm prosperity.

356

357

Learning from Failure

Recognizing the importance of managing the grief
process that occurs from project failure.
Understanding how organizational routines and
rituals are likely to influence the grief recovery.
Ensuring that the organizations social support
system can encourage greater learning, foster
motivational outcomes, and increase coping selfefficacy in affected individuals.

358

Corporate Entrepreneurship Training Program

(Corporate Breakthrough Training)
1. The Breakthrough Experience
2. Breakthrough Thinking
3. Idea Acceleration Process
4. Barriers and Facilitators to Innovative
Thinking
5. Sustaining Breakthrough Teams
6. The Breakthrough Plan
359

Key Internal Climate Factors in an

Organizations Readiness for Entrepreneurial
Activity
Management support
Autonomy/work discretion
Rewards/reinforcement
Time availability
Internal organizational boundaries

360

Organizations foster entrepreneurial behavior by:

Encouragingnot mandatinginnovative activity
Human resource policies for selected rotation
Committing to projects long enough for
momentum to occur.
Bet on people, not on analysis.
Rewarding Entrepreneuring:
Allow inventor to take charge of the new venture
Grant discretionary time to work on future
projects
Make intracapital available for future research
ideas
361

1.

Come to work each day willing to give up your job for the innovation.

2.

Circumvent any bureaucratic orders aimed at stopping your innovation.

3.

Ignore your job description, do any job needed to make your innovation work.

4.

Build a spirited innovation team that has the fire to make it happen.

5.

Keep your innovation underground until it is prepared for demonstration to the

corporate management.

6.

Find a key upper level manager who believes in you and your ideas and will serve as
a sponsor to your innovation.

7.

Permission is rarely granted in organizations, thus always seek forgiveness for the
ignorance of the rules that you will display.

8.

Always be realistic about the ways to achieve the innovation goals.

9.

Share the glory of the accomplishments with everyone on the team.

10. Convey the innovations vision through a strong venture plan.

362

Sustained Corporate Entrepreneurship Model

Based on theoretical foundations from previous
strategy and entrepreneurship research.
Considers the comparisons made at the individual and
organizational level on organizational outcomes, both
perceived and real, that influence the continuation of
the entrepreneurial activity.
Transformational trigger
Something external or internal to the company that
initiates the need for strategic adaptation or change.

363

Innovative (I) Team

A semi-autonomous self-directing, selfmanaging, high-performing group of two or
more people who formally create and share
the ownership of a new organization.
The leader is called a product champion or
an corporate entrepreneur.
Collective Entrepreneurship
Individual skills are integrated into a group;
this collective capacity to innovate becomes
something greater than the sum of its parts.

364

365

Emerging Business Opportunity (EBO)

Programs Key Rules:

Think big . . . really big.

Bring in the A-team.
Start small.
Establish unique measurement techniques.

366

bootlegging
champion
collective
entrepreneurship
corporate
entrepreneurship
Corporate
Entrepreneurship
Assessment Instrument
(CEAI)
corporate venturing

367

entrepreneurial
economy
incremental innovation
innovation (I) team
interactive learning
intracapital
intrapreneurship
radical innovation
intrapreneurship
skunkworks
top management
support