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  • PART I

    EntrepreneurialStrategies for theEmerging Venture

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  • 2

    Entrepreneurshipand Strategy

    A Framework for New Venture Development

    A lot of people have ideas, but there are few who decide to dosomething about them now. Not tomorrow. Not next week. Buttoday. The true entrepreneur is a doer, not a dreamer.

    Nolan Bushnell, founder of Atari and Chuck E. Cheeses

    Objectives:

    1. Understand the key role of strategy in the discovery and exploitation ofopportunities as entrepreneurial firms form and grow

    2. Learn about contemporary trends and patterns in entrepreneurship, includ-ing its role in the global economy and the increase in social entrepreneurship

    3. Understand the significance of entrepreneurial firms to innovation in theeconomy

    4. Become aware of the key traits and behaviors associated with successfulentrepreneurship

    5. Learn how a well-established model of strategy (7S model) can be used todevelop strategy for emerging organizations

    6. Use the Creative Tool: Diagnostics for Entrepreneurial Systems to learn aboutneeds, problems, and changes for an industry in which you are interested

    CHAPTER 1

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  • A s you begin your entrepreneurship experience, you are embarking on ajourney that is undertaken daily by millions of people around the world.Each step of this journey is one that involves the discovery, evaluation,and exploitation of opportunities to bring new goods, services, and processes to themarketplace (Shane, 2003; Venkataraman, 1997). Entrepreneurship can be definedas the identification and exploitation of previously unexploited opportunities (Hitt,Ireland, Camp, & Sexton, 2001). As you can see, the recognition of opportunitiesthat lead to the creation of new business ventures is the heart of entrepreneurshiptoday. Throughout this book, the following questions will guide our examinationof the entrepreneurship process (Shane & Venkataraman, 2000, p. 18):

    1. Why, when, and how do opportunities for the creation of goods and servicescome into existence?

    2. Why, when, and how do some people and not others discover and exploitthese opportunities?

    3. Why, when, and how are different modes of strategic action used to exploitentrepreneurial opportunities?

    What is the relationship between entrepreneurship and strategy? Both entre-preneurship and strategic management focus on the ways in which businesses cre-ate change by exploiting opportunities they discover within the uncertainenvironments in which they operate (Ireland, Hitt, & Sirmon, 2003). Entrepreneursare able to create wealth by identifying opportunities and then developing compet-itive advantages to exploit them (Hitt & Ireland, 2002; Hitt et al., 2001; Ireland, Hitt,Camp, & Sexton, 2001). Thus, strategic entrepreneurship is the integration of entre-preneurship and strategic management knowledge (Ireland et al., 2003). Successfulentrepreneurs are able to notice the possibilities that many other people seem tomiss, and, more important, they are then able to find the means to turn thesepossibilities into action: to bring to the market something novel and useful.

    Entrepreneurship and Strategy3

    SOURCE: Russell S. Sobel, West Virginia University Entrepreneurship Center. Used

    with permission.

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  • 4ENTREPRENEURSHIP STRATEGY

    This textbook presents a framework for strategy in entrepreneurial organiza-tions that incorporates new venture emergence, early growth, and reinvention andinnovation in established ventures. The focus of the text is on entrepreneurialstrategies that can be crafted and implemented within small and medium-size orga-nizations as these firms proceed through the stages of development. The uniqueapproach of this book is its segmentation of entrepreneurship strategies across thelife cycle of business growth. Most strategy texts present content that is seg-mented by the type or level of strategy (e.g., marketing, human resources, produc-tion strategies) rather than the changing pattern of strategic needs faced by the newventure. Finally, the textbook includes opportunities to examine and assess multi-ple themes and crisis points (labeled Strategic Reflection Points) that can determinethe sustainability and growth of the emerging enterprise (see Figure 1.1).

    Our book is written from the point of view of the founder or the entrepreneurialteam. Increasingly, entrepreneurs are relying on the expertise and input of keystakeholders as they launch and develop their businesses. Whether these stakeholdersare outside the firm in the role of advisers or inside in the roles of investors andemployees, the entrepreneurs ability to create a powerful team capable of break-through thinking shapes the new ventures potential success and growth. This bookstrongly emphasizes the key strategic roles of creativity, opportunity identification,opportunity evaluation and implementation, and continual innovation in the emer-gence and growth of entrepreneurial firms. Table 1.1 displays these strategic roles,

    Strategic

    Reflection Points

    Feasibility Crisis

    Strategic

    Reflection Points

    Expansion Crisis

    Strategic

    Reflection Points

    Organization Crisis

    Speaking of Strategy Strategy in Action The Innovators Toolkit Research in Practice Failures and Foibles Cases

    Changing Patterns in NewVenture Creation, Growth, and Reinvention

    EntrepreneurialStrategies for the Emerging Venture

    Building theFoundation

    EntrepreneurialStrategies for theGrowing Venture

    Entrepreneurial Strategiesfor the Established Venture

    Figure 1.1 Framework for the Book

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  • Entrepreneurship and Strategy5

    Changing patternsof strategicneeds ofentrepreneurialfirms

    Entrepreneurshipstrategy andplanning

    Strategic roles

    along with the changing patterns and needs of the entrepreneurial firm and the over-all strategy and planning initiatives needed to take the firm to the next stage of growth.

    Contemporary Entrepreneurship: Trends and Patterns

    Emerging businesses are significant players in the worlds economy today. In theUnited States, they produce about half of the economys output, employ half of theprivate-sector workforce, fill niche markets, innovate, increase competition, andgive people in all circumstances a chance to succeed. Across industries, new ven-tures are confronted by a variety of business conditions, and they tackle them withunique solutions using diverse resources (Small Business Office of Advocacy, 2004).

    Entrepreneurial firms can be found in all sizes and in all stages of the life cycle.Over the last decade, small firms have provided 60 to 80 percent of the net newjobs in the economy, and according to the U.S. Bureau of the Census, most of thesenet new jobs come from start-ups within the first two years of operation (Acs &Armington, 2003). Most of the new employment in the economy continues to bean outgrowth of innovation, the engine that spurs job growth. Schumpeter (1942),one of the first economic scholars to focus on entrepreneurial activities, coined the

    Stage III: EntrepreneurialStrategies for theEstablished Venture

    Creativity andinnovation strategiesfor breakthroughthinking: reinventionand change to sustaingrowth

    Tapping new marketsand opportunities:franchising, mergers &acquisitions

    Building anentrepreneurial model:Learning fromfailure and serialentrepreneurship

    Continual innovationand reinvention

    Stage II: EntrepreneurialStrategies for theGrowing Venture

    Financial resourcecapabilities

    The evolvingmanagement team:capabilities fornurturing growth bybuilding networksand strategicalliances

    The strategic plan forthe growing venture

    Opportunityimplementation andfirm growth

    Stage I: EntrepreneurialStrategies for theEmerging Venture

    Strategic framework fornew venture formation

    Creativity andopportunityidentification (thediscovery process)

    Evaluating and exploitingopportunities (theassessment process)

    Market entry

    The strategic plan: visionand values, the internaland externalenvironment, andorganizationalstrategies for theentrepreneurial team

    Creativity, opportunityidentification, andevaluation

    Table 1.1 Entrepreneurial Stages: Changing Patterns, Strategies, and Entrepreneurial Roles

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  • term creative destruction to describe the phenomenon in which new firms innovateto enter the market and compete with already established businesses, and as aresult, some of these older counterparts close due to lower productivity, which hasput them at a competitive disadvantage.

    Consider the following trends and patterns in recent entrepreneurial activity inthe United States (Small Business Office of Advocacy, 2005):

    In 2004, there were about 5.8 million employer firms (nonfarm). From19952003, self-employment increased by 8.2 percent, to a total of 15 millionself-employed people. Women represented half of this increase; their share ofself-employment was up from 33.1 percent to 34.2 percent.

    Following population trends, self-employment among individuals ofHispanic and Asian/Native American heritage has significantly increasedbetween 1995 and 2003, 65.8 percent and 38.4 percent, respectively. AfricanAmerican self-employment also rose by 20.3 percent during this period.

    In 2004, small business fared well. The number of new employers exceededthose closing their businesses, and the number of self-employed increased.

    Entrepreneurial firms benefited from the continued recovery in theeconomy in 2004,