THE ENTREPRENEURIAL PERSPECTIVE - McGraw-Hill...

1THE ENTREPRENEURIAL

PERSPECTIVE

C H A P T E R 1

The Nature and Importance of Entrepreneurs

C H A P T E R 2

The Entrepreneurial and Intrapreneurial Mind

C H A P T E R 3

The Individual Entrepreneur

C A S E S F O R P A R T 1

1To introduce the concept of entrepreneurship and its historical development.

2To explain the entrepreneurial decision process.

3To identify the basic types of start-up ventures.

4To explain the role of entrepreneurship in economic development.

5To discuss the ethics and responsibilities associated with entrepreneurship.

1THE NATURE AND IMPORTANCE OF

ENTREPRENEURS

L E A R N I N G O B J E C T I V E S

O P E N I N G P R O F I L E

DAVID REYNOLDS

• Are you sure the courses you are taking will help you fulfill your future goals?

• Do you ever question what you will be doing next year? What about five years down

the road?

If any of these questions sound familiar to you then you have something in common

with 21-year-old David Reynolds. Like many young people, David was unsure about

his future plans when he entered university. In fact, the only reason he enrolled at

Mount Saint Vincent University (MSVU) was its close proximity to his house. David

readily admits that he graduated from high school with no clear future goals and lots

of questions: “When I graduated from high school I felt like I was on top of the world

for about three weeks. Then I started to wonder, what would I do next? I knew I

wasn’t a great student and was more than a little afraid about what I was going to

do at university or even why I was going.”

As David was pondering his future career goals, MSVU was unveiling its Entrepre-

neurial Skills Program (ESP). The aim of this multidisciplinary program is to expose

students to entrepreneurship as a career option and to enhance the entrepreneurial

skills of future graduates. The program consists of extracurricular activities such as

starting and running a business, a mentorship program, access to entrepreneurship

counselling, and exposure to successful entrepreneurs through a speakers’ series.

By chance David enrolled in an introductory business class taught by the ESP coordi-

nators. When he heard about the program he decided to join. “I signed up for the

access to mentors and the ability to add something of value to my resume—to be hon-

est, I never even thought about becoming an entrepreneur or really knew what an

entrepreneur was. My main goal for enrolling in the program was to improve my

chances of landing a job.”

Two years later, David is the CEO of a corporation called QuickSnap, named after the

shoe-fastening device he invented, and he runs a successful landscaping company. He

now has clear goals, including becoming a millionaire before the age of 29 and retir-

ing when he is 40. How did David go so quickly from having no future plans to want-

ing to retire at the age of 40? Reynolds recalls, “I joined ESP and suddenly I’m in love

with the concept of entrepreneurship. I discovered I could be my own boss, work in any

3

business that I wanted to, and have unlimited earning potential. I went from no direc-

tion in my life to wanting to start 100 businesses at once. Then one day I noticed a

friend struggling to fasten his laces and the idea hits me: Why not eliminate tying laces?

I thought about what such a product would look like, drew a picture of the device, and

then actually made one with materials I found at home.”

Sounds like a classic rags-to-riches story, doesn’t it? There is, however, one glitch: the

money isn’t pouring in just yet. David has discovered that manufacturing and selling a

product doesn’t happen overnight and, in fact, doesn’t happen in a few short months

either. David admits he made some mistakes early that slowed his progress. “In our ESP

sessions we were encouraged to think big, to think that anything was possible, and to

plan, plan and plan. So what did I do? I started with no business plan. I just totally

ignored the advice of my ESP counsellors. I was sure this was a killer product, and every-

body I showed my homemade prototype to was certain I would sell millions. But six

months later, I was nowhere close to manufacturing one.”

Rather than give up, David drew upon the counselling and mentorship available

through the ESP program and wrote a detailed business plan, made arrangements to

manufacture the product in China, and made contacts with major retail chains includ-

ing Wal-Mart. David thought he was on his way, “I was sure I was set, I had a great prod-

uct with interested retailers all I needed was some initial capital to get going.” So he

started to look for some sources of financing and discovered the following obstacles:

• Banks did not want to lend to him without signed contracts and significant collateral.

• Retailers would not sign a contract without a finished product.

• He wasn’t eligible for the majority of Canadian government programs because he

was manufacturing overseas. Unfortunately, if he were to manufacture in Canada,

the business would not be viable.

• Any potential investors wanted a large equity position in the company

Many people would have given up, but David refused to quit. He has since discovered

government youth loan programs that he is eligible for and he hoped to start manu-

facturing QuickSnap in 2005. In addition, David is investigating some other ideas he has

developed, including a medical device and home exercise equipment.

Will he succeed? Only time will tell, but one thing is certain: David is happy choosing

entrepreneurship as a career choice.

“I love being an entrepreneur, it has opened up so many doors for me. If QuickSnap

doesn’t work out, than something else will. The biggest thing I learned through study-

ing entrepreneurship is that anything is possible if you work hard enough.”

The story of David Reynolds reflects the story of many entrepreneurs in a variety of

industries and various-sized companies. The historical aspect of entrepreneurship, as

well as the decision that David Reynolds and others have made to become entrepre-

neurs, is reflected in the following remarks of two successful entrepreneurs:

Being an entrepreneur and creating a new business venture is analogous to raising

children—it takes more time and effort than you ever imagine and it is extremely difficult

4 PART 1 THE ENTREPRENEURIAL PERSPECTIVE

and painful to get out of the situation. Thank goodness you cannot easily divorce yourself

from either situation.

When people ask me if I like being in business, I usually respond: On days when there

are more sales than problems, I love it; on days when there are more problems than sales,

I wonder why I do it. Basically, I am in business because it gives me a good feeling about

myself. You learn a lot about your capabilities by putting yourself on the line. Running a

successful business is not only a financial risk, it is an emotional risk as well. I get a lot of

satisfaction from having dared it—done it—and been successful.

Does the profile of David Reynolds and these quotes fit your perception of the ca-

reer of an entrepreneur? Entrepreneurship is an exciting field of study. Research indi-

cates that individuals who study entrepreneurship are three to four times more likely

to start a business, and will earn 20 to 30 percent more, than students studying in other

fields. To understand the field better, it is important to learn about the nature and de-

velopment of entrepreneurship, the decision process involved in becoming an entre-

preneur, and the role of entrepreneurship in the economic development of a country.

Do you think that you possess the characteristics of an entrepreneur as displayed in

the “Opening Profile” and in the quotes above? You may want to take our Entrepre-

neur Assessment Quiz in Table 1.1 before reading further. Note that this quiz has not

been validated statistically and should only be used a discussion tool.

To help evaluate whether you have some of the abilities necessary to be a success-

ful entrepreneur, take the Entrepreneur Assessment Quiz below. Note that this quiz has

not been validated statistically. If you score well, however, you may have the ability to

be a successful entrepreneur. If you don’t score well, don’t be discouraged as research

indicates that the majority of people can increase their entrepreneurial characteristics

and chances of success by studying entrepreneurship. Furthermore, many entrepre-

neurs believe that both passion for an idea and the desire to succeed are the most im-

portant ingredients for entrepreneurial success.

After you have completed the quiz, count the number of Yes answers. Give yourself

one point for each Yes. If you score above 17 points, you have the drive to be an entre-

preneur—the desire, energy, and adaptability to make a viable business venture a suc-

cess. If you score between 13 and 17 points, your entrepreneurial drive is not as

apparent. While you definitely have the ability to become an entrepreneur, make sure

you are willing to commit to the process prior to starting a new venture. If you scored

less than 13 points, your entrepreneurial drive is even less apparent and you should con-

sider enhancing your drive through the study of entrepreneurship and small business

management. Again, keep in mind that that the quiz is not a scientifically validated in-

dicator of entrepreneurial drive. Such an instrument has not yet been developed.

NATURE AND DEVELOPMENT OF ENTREPRENEURSHIPWho is an entrepreneur? What is entrepreneurship? What is an entrepreneurial career path?These frequently asked questions reflect the increased national and international interest inentrepreneurs by individuals, university professors and students, and government officials.In spite of all this interest, a concise, universally accepted definition has not yet emerged.

CHAPTER 1 THE NATURE AND IMPORTANCE OF ENTREPRENEURS 5


TABLE 1.1

1. Can you start a project and see it through to completion in spite of a myriad of obstacles?

_____ Yes _____ No

2. Can you make a decision on a matter and then stick to the decision even when challenged?

_____ Yes _____ No

3. Do you like to be in charge and be responsible?

_____ Yes _____ No

4. Do other people you deal with respect and trust you?

_____ Yes _____ No

5. Are you in good physical health?

_____ Yes _____ No

6. Are you willing to work long hours with little immediate compensation?

_____ Yes _____ No

7. Do you like meeting and dealing with people?

_____ Yes _____ No

8. Can you communicate effectively and persuade people to go along with your dream?

_____ Yes _____ No

9. Do others easily understand your concepts and ideas?

_____ Yes _____ No

10. Have you had extensive experience in the type of business you wish to start?

_____ Yes _____ No

11. Do you know the mechanics and forms of running a business (tax records, payroll records,income statements, balance sheets)?

_____ Yes _____ No

12. Is there a need in your geographic area for the product or service you are intending tomarket?

_____ Yes _____ No

13. Do you have skills in marketing and/or finance?

_____ Yes _____ No

14. Are other firms in your industrial classification doing well in your geographic area?

_____ Yes _____ No

15. Do you have a location in mind for your business?

_____ Yes _____ No

16. Do you have enough financial backing for the first year of operation?

_____ Yes _____ No

17. Do you have enough money to fund the start-up of your business or have access to itthrough family or friends?

_____ Yes _____ No

18. Do you know the suppliers necessary for your business to succeed?

_____ Yes _____ No

19. Do you know individuals who have the talents and expertise you lack?

_____ Yes _____ No

20. Do you really want to start this business more than anything else?

_____ Yes _____ No

Entrepreneur Assessment Quiz

The development of the theory of entrepreneurship parallels to a great extent the develop-ment of the term itself. The word entrepreneur is French and, literally translated, means“between-taker” or “go-between.”

Earliest PeriodAn early example of the earliest definition of an entrepreneur as a go-between is Marco Polo,who attempted to establish trade routes to the Far East. As a go-between, Marco Polo wouldsign a contract with a money person (forerunner of today’s venture capitalist) to sell hisgoods. A common contract during this time provided a loan to the merchant–adventurer at a22.5 percent rate, including insurance. While the capitalist was a passive risk bearer, themerchant–adventurer took the active role in trading, bearing all the physical and emotionalrisks. When the merchant–adventurer successfully sold the goods and completed the trip, theprofits were divided with the capitalist taking most of them (up to 75 percent), while themerchant–adventurer settled for the remaining 25 percent.

Middle AgesIn the Middle Ages, the term entrepreneur was used to describe both an actor and a personwho managed large production projects. In such large production projects, this individualdid not take any risks, but merely managed the project using the resources provided, usu-ally by the government of a country. A typical entrepreneur in the Middle Ages was acleric—the person in charge of great architectural works, such as castles and fortifications,public buildings, abbeys, and cathedrals.

17th CenturyThe reemergent connection of risk with entrepreneurship developed in the 17th century,with an entrepreneur being a person who entered into a contractual arrangement with thegovernment to perform a service or to supply stipulated products. Since the contract pricewas fixed, any resulting profits or losses were the entrepreneur’s. One entrepreneur in thisperiod was John Law, a Frenchman, who was allowed to establish a royal bank. The bankeventually evolved into an exclusive franchise to form a trading company in the NewWorld—the Mississippi Company. Unfortunately, this monopoly on French trade led toLaw’s downfall when he attempted to push the company’s stock price higher than the valueof its assets, leading to the collapse of the company.

Richard Cantillon, a noted economist and author in the 1700s, understood Law’s mis-take. Cantillon developed one of the early theories of the entrepreneur and is regarded bysome as the founder of the term. He viewed the entrepreneur as a risk taker, observing thatmerchants, farmers, craftsmen, and other sole proprietors “buy at a certain price and sell atan uncertain price, therefore operating at a risk.”1

18th CenturyIn the 18th century, the person with capital was differentiated from the one who needed cap-ital. In other words, the entrepreneur was distinguished from the capital provider (thepresent-day venture capitalist). One reason for this differentiation was the industrializationoccurring throughout the world. Many of the inventions developed during this time werereactions to the changing world, as was the case with the inventions of Eli Whitney andThomas Edison. Both Whitney and Edison were developing new technologies and wereunable to finance their inventions themselves. Whereas Whitney financed his cotton ginwith expropriated British crown property, Edison raised capital from private sources to


entrepreneur Individualwho takes risks and startssomething new


develop and experiment in the fields of electricity and chemistry. Both Edison and Whitneywere capital users (entrepreneurs), not providers (venture capitalists). A venture capitalistis a professional money manager who makes risk investments from a pool of equity capitalto obtain a high rate of return on the investments.

19th and 20th CenturiesIn the late 19th and early 20th centuries, entrepreneurs were frequently not distinguishedfrom managers and were viewed mostly from an economic perspective:

Briefly stated, the entrepreneur organizes and operates an enterprise for personal gain. He paysoservices he employs, and for the capital he requires. He contributes his own initiative, skill, andingenuity in planning, organizing, and administering the enterprise. He also assumes the chanceof loss and gain consequent to unforeseen and uncontrollable circumstances. The net residue ofthe annual receipts of the enterprise after all costs have been paid, he retains for himself.2

KC Irving is one of the best examples of this definition. Irving invented nothing, but ratheradapted and developed new technology in the creation of products to achieve economicvitality. Irving emerged as one of the most dominant entrepreneurs of the twentieth century,primarily through his unremitting competitiveness rather than his inventiveness or creativity.

In the middle of the 20th century, the notion of an entrepreneur as an innovator wasestablished:

The function of the entrepreneur is to reform or revolutionize the pattern of production byexploiting an invention or, more generally, an untried technological method of producing a newcommodity or producing an old one in a new way, opening a new source of supply of materialsor a new outlet for products, by organizing a new industry.3

The concept of innovation and newness is an integral part of entrepreneurship in thisdefinition. Indeed, innovation, the act of introducing something new, is one of the mostdifficult tasks for the entrepreneur. It takes not only the ability to create and conceptual-ize but also the ability to understand all the forces at work in the environment. The new-ness can consist of anything from a new product to a new distribution system to a methodfor developing a new organizational structure. Edward Harriman, who reorganized theOntario and Southern railroad through the Northern Pacific Trust, and John PierpontMorgan, who developed his large banking house by reorganizing and financing the na-tion’s industries, are examples of entrepreneurs fitting this definition. These organiza-tional innovations are frequently as difficult to develop successfully as the moretraditional technological innovations (transistors, computers, lasers) that are usually as-sociated with being an entrepreneur.

This ability to innovate can be observed throughout history, from the Egyptians whodesigned and built great pyramids out of stone blocks weighing many tons each, to theApollo lunar module, to laser surgery, to wireless communication. Although the tools havechanged with advances in science and technology, the ability to innovate has been presentin every civilization.

DEFINITION OF ENTREPRENEUR TODAYThe concept of an entrepreneur is further refined when principles and terms from a busi-ness, managerial, and personal perspective are considered. In particular, the concept of en-trepreneurship from a personal perspective has been thoroughly explored in this century.This exploration is reflected in the following three definitions of an entrepreneur:

entrepreneur as aninnovator An individualdeveloping somethingunique


In almost all of the definitions of entrepreneurship, there is agreement that we are talking abouta kind of behavior that includes: (1) initiative taking, (2) the organizing and reorganizing ofsocial and economic mechanisms to turn resources and situations to practical account, (3) theacceptance of risk or failure.4

To an economist, an entrepreneur is one who brings resources, labor, materials, and otherassets into combinations that make their value greater than before, and also one who introduceschanges, innovations, and a new order. To a psychologist, such a person is typically driven bycertain forces—the need to obtain or attain something, to experiment, to accomplish, or perhapsto escape the authority of others. To one businessman, an entrepreneur appears as a threat, anaggressive competitor, whereas to another businessman the same entrepreneur may be an ally, asource of supply, a customer, or someone who creates wealth for others, as well as finds betterways to utilize resources, reduce waste, and produce jobs others are glad to get.5

Entrepreneurship is the dynamic process of creating incremental wealth. The wealth iscreated by individuals who assume the major risks in terms of equity, time, and/or career com-mitment or provide value for some product or service. The product or service may or may notbe new or unique, but value must somehow be infused by the entrepreneur by receiving andlocating the necessary skills and resources.6

Although each of these definitions views entrepreneurs from a slightly different per-spective, they all contain similar notions, such as newness, organizing, creating, wealth, andrisk taking. Yet each definition is somewhat restrictive, since entrepreneurs are found in allprofessions—education, medicine, research, law, architecture, engineering, social work,distribution, and the government. To include all types of entrepreneurial behaviour, thefollowing definition of entrepreneurship will be the foundation of this book:

Entrepreneurship is the process of creating something new with value by devoting the neces-sary time and effort, assuming the accompanying financial, psychic, and social risks, andreceiving the resulting rewards of monetary and personal satisfaction and independence.7

This definition stresses four basic aspects of being an entrepreneur regardless of thefield. First, entrepreneurship involves the creation process—creating something new ofvalue. The creation has to have value to the entrepreneur and value to the audience for whichit is developed. This audience can be (1) the market of organizational buyers for businessinnovation, (2) the hospital’s administration for a new admitting procedure and software,(3) prospective students for a new course or even college of entrepreneurship, or (4) the con-stituency for a new service provided by a nonprofit agency. Second, entrepreneurshiprequires the devotion of the necessary time and effort. Only those going through the entre-preneurial process appreciate the significant amount of time and effort it takes to createsomething new and make it operational. As one new entrepreneur so succinctly stated,“While I may have worked as many hours in the office while I was in industry, as an entre-preneur I never stop thinking about the business.” Assuming the necessary risks is the thirdaspect of entrepreneurship. These risks take a variety of forms, depending on the field ofeffort of the entrepreneur, but usually centre around financial, psychological, and socialareas. The final part of the definition involves the rewards of being an entrepreneur. Themost important of these rewards is independence, followed by personal satisfaction. Forprofit entrepreneurs, the monetary reward also comes into play. For some profit entrepre-neurs, money becomes the indicator of the degree of success.

For the person who actually starts his or her own business, the experience is filled withenthusiasm, frustration, anxiety, and hard work. There is a high failure rate due to suchthings as poor sales, intense competition, lack of capital, or lack of managerial ability. Thefinancial and emotional risk can also be very high. What, then, causes a person to make thisdifficult decision? The question can be best explored by looking at the decision processinvolved in becoming an entrepreneur.

entrepreneurshipProcess of creatingsomething new andassuming the risks and rewards


ENTREPRENEURSHIP VERSUS SMALL BUSINESSMANAGEMENTThe terms entrepreneur and small business management have been used interchangeablyover the past 25 years by educators, researchers, and authors. While this is generallyaccepted usage, it is important to note that the two terms are defined quite differently andrefer to vastly different practices. As described above, an entrepreneur or a person whoengages in entrepreneurship is someone who innovates or creates. A small business man-ager, on the other hand, is a person who is engaged in the actual management of a business.David Reynolds, described in the “Opening Profile,” is constantly developing new productsand innovative ways of managing his business, thus he would be described as an entrepre-neur. A small business owner who starts a small business but never creates new products ordevelops new ways to manage his business only engaged in one act of entrepreneurshipwhen he started the business.

It is worth mentioning that some entrepreneurs never want to become full-time managersand would prefer to hire professional managers to look after the day-to-day activities asso-ciated with running a company. These entrepreneurs prefer to create rather than manageventures. For example, Craig Dobbin, who founded CHC Helicopter, a Canadian businessthat offers a variety of air services to offshore oil and gas companies, grew the companyfrom a single helicopter into the dominant player in the marketplace. He replaced himselfas CEO when he realized that the company was more of an operating entity rather than anentrepreneurial company. Dobbin acknowledges that while he was good at growing thebusiness, he prefers to let professional managers worry about managing operations whilehe does what he loves—deal-making and expanding the company.8

If you were to ask business executives to name thegreat centres of entrepreneurship, few of them—even the Canadians—would mention Canada. Yetthe reality, contends venture capitalist and technol-ogy entrepreneur Leonard Brody, is that this coun-try punches far above its weight in breedinggroundbreaking companies, especially in the techand Web sectors.

Brody, who was a senior executive at OnviaCanada, Canada’s fastest-growing startup in PROFITmagazine’s 2000 listing, is now a Vancouver-basedventure partner at GrowthWorks Capital, one ofCanada’s largest national technology funds. He co-wrote the recently published Everything I Needed toKnow About Business…I Learned From a Canadian,which profiles 16 Canadian entrepreneurs. In an in-terview with PROFIT senior editor Jim McElgunn,

Brody makes the case for considering Canada one ofthe world’s centres of entrepreneurial excellence.

PROFIT: Just how good are Canadians as entrepre-neurs? If you look at the Canadians who’ve goneout and founded world-class technology companies,very few countries in the world are having as much ofan impact on the technology business on a per-capitabasis as Canada. Look at the size of the companiesthat have come out of here. Look at every subsectorof technology and you haven’t got a Canadian com-pany that’s doing well; rather, you’ve got a Canadiancompany that’s at the pole position in that sector.

Look at the Internet: Yahoo! [co-founded by aCanadian], eBay [co-founded by a Canadian], Flickr,InnerSell, Ice.com, Askmen.com. Look at wireless: Re-search in Motion, Sierra Wireless. Look at software:Akamai, Red Hat, Crystal Decisions. They’re not just

AS SEEN IN PROFIT MAGAZINE

ENTREPRENEURSHIP IN CANADA

names that people say, “Oh yeah, I’ve heard aboutthem.” They’re real players.

What evidence do you have that Canadians are highlyentrepreneurial? There’s a ton of data. We havetwice the percentage of people self-employed as theU.S. does: 20% vs. 10%. That is an important facet forCanadians to accept, that we are double the [relative]size of the entrepreneurial community south of theborder. Look at The World Competitiveness Yearbookranking Canada as the fifth-most-competitive econ-omy in the world, and The Economist rating us as themost competitive economy globally between now and2009. We are second in the world in quality of man-agement practices, according to The World Competi-tiveness Yearbook. Canadian VCs always bellyacheabout how we’re not good managers, but the WCYsees that differently.

What’s driving the creation of these new companies?One of the factors is that a family of first-generationentrepreneur success stories are now breeding alumniwho are starting their own companies. Look at what’shappened in Vancouver with Electronic Arts, theworld’s biggest video-game developer. A huge video-game cluster has developed as all these former EA em-ployees have set up great companies. And because ofRIM, you’ve got great companies coming out ofWaterloo, such as Descartes and Sandvine.

What are typical Canadian strengths as entrepre-neurs? First, we have an innovation fabric. Our ge-ography forced us into technology and R&D rightaway. Very few countries have the roots of their na-tionhood tied inextricably to technology, innovationand entrepreneurship. At almost every step in our his-tory, Canadians were early adopters. We were alwaysat the height of the adoption curve for satellite, cable,radio, television, broadband. Whenever the nationneeded to use technology to unite itself, we did it.

Second, there’s respect. One of the big issues in busi-ness is trust. When you walk into a room and say you’rea Canadian, that brand means something. It meansyou’re trustworthy, it means you’re reliable, it meansyou have sustainability. And those things are critical forentrepreneurs when they’re building companies.

Another factor is the ability to see the third period.Americans tend to focus very much on the first period,whereas Canadians, while understanding the first pe-riod, are well-trained to understand sustainability. Theywant to understand, “Where’s this going to be in 15years? What’s the road going to look like in 15 years?”

So Canadians design companies that are built to last?That’s exactly right. You can see that in the muchlower rates of bankruptcy here than in the U.S. forearly-stage companies. In the dot-com era, for in-stance, not as many Canadians were burned becauseof that view of the long game. And that goes back tohow we were raised. We grew up with very sustain-able models of business. Every market had a long-standing telco, every market had a cable company, acouple of banks; we have The Bay.

Where do we need to improve? We need to over-come our risk aversion. Canadians are not yet ofthe school of thought that failure is a badge ofhonour, not of shame. Entrepreneurs do not becomegreat until they fail. Rupert Murdoch went bankruptseven times. Failure is something we need to em-brace. If we don’t start accepting the importance offailure as a lesson rather than a badge of shame, weare going to lose out on opportunities.

Second, we need to work on our marketingprowess. We are not good marketers. We need to getbetter. The very fact that we need to have a conver-sation about whether Canadians are good entrepre-neurs says something—we wouldn’t need to havethat in the U.S.

Finally, we need to become more venturesome.Canadians need to get out of this “lord of the middlekingdom” mentality. We need to start taking someserious swings for the fences. If we match that with agreater tolerance for risk and our ability to look atthat third period and sustainability, we’ll have a greatmix for future growth for this country.

DiscussionAfter reading the article, are you surprised by someof the findings and statements made by Brody? Doyou think Canadians see themselves as “excellententrepreneurs”? Why or why not? Why do you thinkBrody contends that Canadians are not good mar-keters? Could this be related to Canadian culture?While the article contends we are a nation of entre-preneurs, many Canadians cannot identify leadingCanadian entrepreneurs. Does the media and edu-cation system do enough to promote entrepreneur-ship in this country?

Source: Reprinted with permission of Rogers Media, “CanadianEntrepreneurs Kick Ass,” by Jim McElgunn, August 25, 2005,PROFIT magazine: www.PROFITguide.com.

11

THE ENTREPRENEURIAL DECISION PROCESSThough many individuals have creative new ideas, few can bring their ideas to the marketand create a new venture. Yet entrepreneurship and the actual entrepreneurial decisions haveresulted in several million new businesses being started throughout the world. Although noone knows the exact number, in Canada, estimates indicate that in recent years around1 million new companies have been formed each year.

Indeed, millions of ventures are formed despite recession, inflation, high interest rates,lack of infrastructure, economic uncertainty, and the high probability of failure. Each ofthese ventures is formed through a very personal human process that, although unique, hassome characteristics common to all. While some ventures result from specific circum-stances many entrepreneurs follow the entrepreneurial decision process, which entails amovement from something to something—a movement from a present lifestyle to forminga new enterprise, as indicated in Table 1.2.

Change from Present LifestyleThe decision to leave a career or lifestyle is not an easy one. It takes a great deal of energyand courage to change and do something new and different. Although individuals tend tostart businesses in areas that are familiar, two work environments have been particularlygood for spawning new enterprises: research and development and marketing. While work-ing in technology (research and development), individuals develop new product ideas orprocesses and often leave to form their own companies when these new ideas are notaccepted by their present employers. Similarly, individuals in marketing have becomefamiliar with the market and customers’ unfilled wants and needs, and they frequently leaveto start new enterprises to fill these needs.


Change from present lifestyle Form new enterprise

Work environmentDisruption

Desirable1. Cultural2. Subcultural3. Family4. Teachers5. PeersPossible1. Government2. Background3. Marketing4. Financing5. Role models

Source: Adapted from Robert D. Hisrich, “Entrepreneurship and Intrapreneurship: Methods for Creating New Companies ThatHave an Impact on the Economic Renaissance of an Area.” In Entrepreneurship, Intrapreneurship, and Venture Capital, ed.Robert D. Hisrich (Lexington, MA: Lexington Books, 1986), p. 90.

entrepreneurial decisionprocess Deciding tobecome an entrepreneurby leaving presentactivity

TABLE 1.2 Decisions for a Potential Entrepreneur


This year promises to be a big one for anniversaries. . . spelling challenges and opportunities forentrepreneurs:

1. DVD becomes ubiquitous: DVD players crossed athreshold in 2002: They’re now in 33 percent ofU.S. homes. That’s caused several movie studiosto stop distributing films on VHS tape. But mostDVD players lack VHS’ prime benefit: recording.DVD recordables are still $800-plus products, saysTara Dunion, director of the Consumer ElectronicsAssociation. That means there’s a short-termopportunity providing a service to converttreasured tapes to DVD format (think weddingand baby videos). Whenever a new device gains awide following, says Dunion, an aftermarket issure to follow. That can mean everything fromDVD carrying cases (say, one with a licensedSpongeBob Squarepants design on the cover forthe kids’ minivan movies) to cigarette-lighterchargers for portable DVD players. Already run avideo store? Time to accelerate your DVDtransition, and think about renting DVD playersto accommodate VHS clients who desire DVD-only releases.

2. HIPAA regulations take effect: On April 14, thefederal government institutes new health-careprivacy regulations based on the HealthInsurance Portability and Accountability Act of1996 (HIPAA). Entrepreneurial firms such asNaviMedix Inc. will profit from the deadline.NaviMedix provides a Web-based repository ofmedical offices’ information. In addition tomaking it possible to check patients’ eligibilityunder their health plans, the company also actsas a vault for records, customizing features toadhere to the privacy procedures of individualmedical practices. There’s non-tech opportunityas well. “A lot of offices are still fairly paper-based,” says Lynne Dunbrack, NaviMedix’sdirector of HIPAA compliance. That means eachpractice’s “gatekeeper” needs training in whatinformation can be given to whom, and

procedures such as verifying identities whenaccessing paper files. The same training will goon at insurance companies and their partners,including software providers like NaviMedixitself. But doctors’ offices are a goldenopportunity because turnover is high, andregulations require existing staff to takerefresher courses.

3. Video on demand becomes reality: Video-on-demand has been heralded as the next big thingfor more than a decade. This time it’s for real.Really. By midyear, cable companies will berunning large-scale trials. Still dubious? “Theindustry itself was skeptical,” says Steve Fredrickof Novak Biddle Venture Partners. “There were alot of things that needed to come together, butby all measures, we’ve met critical mass.”(Translation: The cable companies have spent somuch money that it has to succeed.) Other thanthe cable, says Fredrick, almost every componentin the video food chain is wide open. Among theareas ripe for activity: technologies to distributemultiple video streams over digital cable, newcontent providers, and new advertising models.One reason for optimism is the rocket-like takeoffof video recorders like TiVo. “Video-on-demanddeploys that functionality, but the hardware is inthe network,” says Fredrick. “It will do for videoand movies what the Web did for static text.”

4. Fuel-cell technology takes off: The media havefawned over fuel cells for years, but usually forcars. (Fuel cells convert fuel to electricity withminimal pollution.) But the initial consumerapplication of the technology may come in asmaller format: handheld computers. MTIMicroFuel Cells Inc. of Albany, New York,completed three technology prototypes last year.This year, the company is launching productprototypes with an eye toward a 2004 rollout.Competitors are trying to beat it to the punch. Fuelcells outlast lithium ion batteries, today’s portablepower champ. “Electronics are going to a 24/7

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CHANGES IN THE ENVIRONMENT

continued


mode of operation,” says Bill Acker, MicroFuel’spresident and CEO. Fuel cell PDAs and mobilephones won’t conk out before your day ends. Theextra juice is also enabling such combinations asdigital cameras that link to mobile phones.Applying fuel cells to other devices will also opennew opportunities. Think of wireless speakers.Rather than substituting a dangling power cord fordangling speaker wire, build a fuel cell andwireless connection into the speakers—and,suddenly, they can be anywhere in a living room.

ADVICE TO AN ENTREPRENEUR1. What is it about these “anniversaries” that

provides entrepreneurs opportunities?

2. Which “anniversary” above do you believeprovides the greatest opportunity for you to forma management team and enter the industry?

3. Does an analysis of trends like this provide ideasabout possible entrepreneurial opportunities or isit like trying to drive a car by looking in the rear-view mirror?

4. What advice would you give an entrepreneurwho says “I want to create a company and enterthe fuel cell industry not because I think there isa lot of money to be made there, but I want todo some good, I want to help the environment”?

Source: Reprinted with permission of Entrepreneur Media, Inc.,“Remember When: These Are the Milestones You’ll Remember2003 By. Hope You Take Advantage,” By Chris Sundlund, January2003, Entrepreneur magazine: www.entrepreneur.com. Pleasecontact Jeremy at Scoop Reprint Source to assist you with yourreprint needs: (800) 767-3263, ext. 307.

As mentioned in the text, disruption in your life, suchas losing a job or an opportunity, can often lead tosomeone starting his or her own business. This isexactly what happened to Marcia Kilgore, who ven-tured from her home in tiny Outlook, Saskatchewan,to New York City to pursue her university educationat Columbia University. Upon arrival, the funding shehad secured for her tuition fell through and she wasalmost broke, “I had $300 plus pocket change and noreturn ticket.” Rather than return to Canada, Marciabecame determined to stay in the city and startedworking as a personal trainer. During this time shebecame interested in skin care due to her own strug-gles with acne and eventually enrolled in a cosmeticchemistry course. Soon afterward, at the age of 23,she invested all her savings into Let’s Face It, a smallspa and skin care company. The company was so

successful that she expanded three years later into a520-square-metre spa and changed the companyname to Bliss. From there, Marcia went into rapidexpansion, opening another location, a mail ordercatalogue, and an online store. The company becameso popular that it was not uncommon to wait sixmonths to book an appointment, causing JulieRoberts to complain to People magazine that evenshe couldn’t get in. Eventually, one of the largest lux-ury product companies in the world, LVMH noticedthe success of Bliss and purchased 70 percent of thecompany for $30 million.

Source: Leonard Brody and David Raffa, Everything I Needed toKnow about Business…I Learned from a Canadian (Toronto: JohnWiley & Sons Canada Ltd., 2005), p. 40; and Karen Blackman,“Fast Talk: Marcia Kilgore,” Travel+Leisure, February 2002,http://travelandleisure.com/invoke.cfm?ObjectID=A66C2638-09F3-11D6-82A00002B3309983.

WHEN LIFE GIVES YOU LEMONS . . .

CHANGES IN THE ENVIRONMENT (continued)

Perhaps an even stronger incentive to overcome the inertia and leave a present lifestyle tocreate something new comes from a negative force—disruption. A significant number ofcompanies are formed by people who have retired, who are relocated due to a move by theother member in a dual-career family, or who have been fired. There is probably no greaterforce than personal dislocation to galvanize a person’s will to act. One study indicates thatthe number of new listings in the Yellow Pages increases by 12 percent during a layoff period.

Another cause of disruption that can result in company formation is someone’s completionof an educational degree. For example, a student who is not promoted after receiving anMBA degree may become frustrated and decide to leave and start a new company.

What causes this personal disruption to result in a new company being formed? Thedecision to start a new company occurs when an individual perceives that forming a newenterprise is both desirable and possible.

Desirability of New Venture FormationThe perception that starting a new company is desirable results from an individual’s culture,subculture, family, teachers, and peers. A culture that values an individual who successfullycreates a new business will spawn more venture formations than one that does not. The Cana-dian culture places a high value on being one’s own boss, having individual opportunities,being a success, and making money—all aspects of entrepreneurship. Therefore, it is not sur-prising to find a high rate of company formation in Canada. On the other hand, in some coun-tries successfully establishing a new business and making money are not as highly valued,and failure may be a disgrace. Countries with cultures that more closely emulate this attitudedo not have as high a business formation rate. It will be interesting to watch which of theonce-controlled economies will develop a strong pro-entrepreneur culture.

No culture is totally for or against entrepreneurship. Many subcultures that shapevalue systems operate within a cultural framework. There are pockets of entrepreneur-ial subcultures in Canada. Although the more widely recognized ones include OttawaRiver Valley, Toronto, and Calgary, some less-known but equally important entrepre-neurial centres include Halifax, Vancouver, Montreal, and Edmonton. These subculturessupport and even promote entrepreneurship—the forming of a new company—as one ofthe best occupations. No wonder more individuals actively plan new enterprises in thesesupportive environments.

There are also variations within these subcultures caused by family traits. Studies ofcompanies in a variety of industries throughout the world indicate that a very high percent-age of the founders of companies had fathers and/or mothers who valued independence. Theindependence achieved by company owners, professionals, artists, professors, or farmerspermeates their entire family life, giving encouragement and value to their children’scompany-formation activities.

Encouragement to form a company is further stimulated by teachers, who can signif-icantly influence individuals to regard entrepreneurship as a desirable and viable careerpath. Schools with exciting courses in entrepreneurship and innovation tend to developentrepreneurs and can actually drive the entrepreneurial environment in an economicarea. The number of entrepreneurship courses a person takes increases the probability ofstarting a venture. In Ontario, Brock University and Ryerson University facilitate theentrepreneurial environment; the University of Calgary offers unique entrepreneurialcourses and programs to potential entrepreneurs in Alberta; McGill offers students inMontreal a wide variety of entrepreneurship courses; and Acadia University, MemorialUniversity, Saint Mary’s, Dalhousie, and Mount Saint Vincent University offer studentsnumerous entrepreneurial courses and extracurricular activities in Atlantic Canada. Astrong university education base is an important factor for entrepreneurial activity andcompany formation in an area.

Finally, peers are very important in the decision to form a company. An area with anentrepreneurial pool and a meeting place where entrepreneurs and potential entrepreneurscan discuss ideas, problems, and solutions spawns more new companies than an area wherethese are not available.


desirability of newventure formationAspects of a situation thatmake it desirable to starta new company


POSSIBILITY OF NEW VENTURE FORMATIONAlthough the desire derived from the individual’s culture, subculture, family, teachers,and peers needs to be present before forming a new venture is considered, the secondfeature necessary centres around this question: “What makes it possible to form a newcompany?” Several factors—government, background, marketing, role models, andfinances—contribute to the creation of a new venture (see Table 1.2). The governmentcontributes by providing the infrastructure to help and support a new venture. It is nowonder that more companies are formed in Canada—given the roads, communication andtransportation systems, utilities, and economic stability—than in many other countries.Even the Canadian tax rate for companies and individuals is better than in countries suchas England or Switzerland. Countries that have a repressive tax rate on businesses or in-dividuals can suppress company formation, since companies will not have the money tostart and grow and monetary gain cannot be achieved. Since the social, psychological, andfinancial risks are still present, the entrepreneur must also have the necessary background.Formal education and previous business experience give a potential entrepreneur the skillsneeded to form and manage a new enterprise. Although educational systems are impor-tant in providing the needed business knowledge, individuals will tend to be moresuccessful in forming businesses in fields in which they have worked. Entrepreneurs arenot born: They develop.

An understanding of marketing also plays a critical role in forming a new company. Inaddition to the presence of a market of sufficient size, there must also be a level of mar-keting know-how to put together the best total package of product, price, distribution, andpromotion needed for successful product launching. A company is more easily formedwhen the driving force is more from market demand than a technology push. An exampleof a company that was built to fill a need in the market is Montreal-based coffee company,Servomax. Company founder Arie Koifman noticed in 1996 that people in Montreal werestarting to embrace the high-quality coffee culture that was sweeping across North Amer-ica and spending much of their leisure time visiting and purchasing products from nu-merous high-end coffee stores in the area. While the coffee craze was making inroads inthe city, Koifman found that many businesses still offered its employees and visitors low-quality coffee made with low-quality equipment. Koifman recalls, “The coffee in theoffice was horrible 10 years ago.” Koifman decided that the market demanded superiorproducts and he would fill this demand. He ventured to trade shows, purchased the high-est quality equipment, and started offering his equipment and service to the business com-munity. Since that time, he has added espresso machines, vending services, and watercoolers to his product line, but premium coffee and brewing equipment has remained themain product. By 2004, Koifman’s business had grown to $2.1 million in revenue and hewas proud to state that this had been accomplished by improving the quality of coffee inbusiness environments, “Your office can have the same quality [coffee] as in Second Cup.There is no difference.”9

A role model can be one of the most powerful influences in making company formationseem possible. To see someone else succeed makes it easier to picture yourself engaged ina similar activity—of course, more successfully. A frequent comment of entrepreneurswhen queried about their motivations for starting their new venture is, “If that person coulddo it, so can I!”

Finally, financial resources must be readily available. Although most of the start-upmoney for any new company comes from personal savings, credit, friends, and relatives,there is often a need for additional risk capital. Risk-capital availability plays an essentialrole in the development and growth of entrepreneurial activity. More new companies formwhen risk capital is readily available.

possibility of new ventureformation Factorsmaking it possible tocreate a new venture


If you have ever wondered whether you have an en-trepreneurial gene in your body, you may soon findout. J. Craig Venter is a scientist—and an entrepre-neur. He started Celera Genomics Group in 1998with one main mission: to map the human genome.Now he is working out of a nonprofit organizationhe founded in Rockville, Maryland: The Center forthe Advancement of Genomics. His goal is to mass-produce CDs with everybody’s personal geneticmaps, and sell them for $1,000 each. Who cares?Presumably people who want to see what life-threatening genes are lurking in their bodies. Ven-ter’s organization will work on producing a gene CDfor you now—if you have half a million dollars lyingaround. Some critics have sniffed that scienceshouldn’t be so commercialized. We caught up withVenter to get his reaction.

I read an article stating everybody’s personalgenome code should be available for free.What’s wrong with that thinking?

J. Craig Venter: That’s one of the silliest things I’veever heard. I would like everything in life to befree. I would like gasoline to be free. In fact, I’dlike people to just deliver it right to my house;it’s a pain to go to the gas station. I don’t evenunderstand that [logic]. If somebody candetermine their own genetic code—that onlyhappens because of scientific breakthroughs. All these things cost huge amounts of money.Somebody has to pay for it.

OK, so assuming business is good for science, howcan entrepreneurs be more involved?

Venter: The reason scientists are able to makebreakthroughs is because of people who havemade money in their businesses and want touse that to help society. And the intentions ofthe people involved don’t really matter. You canhave pure, altruistic intentions in just wantingto help society by creating new treatments fordisease, or you can be motivated by purefinancial greed. But the investment cycle in theU.S. encourages people to participate regardlessof their background or what they’re bringing to the table.

And when do business and science not work welltogether?

Venter: They collide when people let the pursuit ofmoney overrule their ethical decisions. And itdoesn’t just happen with science and business.I’ve seen more greed in the academic communitythan in the business community. It depends onpeople’s individual ethics. There have been casesof [unethical behavior] with clinical trials ofdrugs, for example, or scientists diverting theirgovernment-funding research lab into privatecompanies. And, of course, we’ve seenbusinessmen having their companies buy themairplanes and large homes. I’ve seen people inbusiness acting with better altruistic motives thanmany scientists, and I’ve seen many in academiawho pursue things out of financial greed. Themotives don’t go with one category or the other.

ADVICE TO AN ENTREPRENEURAn entrepreneur, who has invented a new drug thatsubstantially eases the pain associated with tuber-culosis, has read the above article and comes to youfor advice.

I have spent a lot of my money and seven years ofmy life into developing this drug. The investors haveinjected a lot of capital and taken a substantial risk.They deserve a good return on their money. If Ilicense the drug exclusively to a drug company then Iwill receive a big “pay day.” I think the article sug-gests that I am entitled to maximize the profit frommy invention. But the article also seems to suggestthat I should do the ethical thing and that wouldinvolve a series of nonexclusive licenses which allowsthe drug to be sold at cost in third and fourth worldcountries. Should I maximize return and use thatmoney to start a new research and development pro-gram that could lead to another new drug or shouldI maximize the societal benefit of this drug?

Source: Reprinted with permission of Entrepreneur Media, Inc.,“I Dream of Genes. Meet a Man with the Courage to See HumanGenetics as the Business Opportunity It Is,” by Geoff Williams,February 2003, Entrepreneur magazine: www.entrepreneur.com.Please contact Jeremy at Scoop Reprint Source to assist you withyour reprint needs: (800) 767-3263, ext. 307.

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PROVIDE ADVICE TO AN ENTREPRENEUR ABOUT FIRM AND SOCIETAL BENEFITS

ADVANTAGES AND DISADVANTAGES OFENTREPRENEURSHIPWhile each start-up offers entrepreneurs different advantages and disadvantages, they allshare common characteristics. Entrepreneurs are usually motivated by some of theseadvantages, but they also take into consideration some of the disadvantages prior to engag-ing in a new venture.

Advantages

Independence Statistics Canada has indicated that the number-one reason entrepre-neurs start their own business is independence. Entrepreneurship offers people the chanceto be their own boss, make meaningful decisions, and answer to no one but themselves. Oneyoung entrepreneur, Jerome Turner, started HubbaTubba, a hot tub leasing company. Hesums up this sentiment in a few words, “I was tired of making others rich, tired of askingpermission, and tired of saying, ‘Yes sir.’ I started my own business because I have the free-dom to do what I want, when I want. I am responsible to one person—me—and I love it!”

Financial Rewards There is an old saying that says, “Nobody ever becomes richworking for somebody else.” This sums up one of the most common reasons given by busi-ness owners when asked why they left traditional employment for entrepreneurship. Entre-preneurs are often motivated by the possibility of earning a higher salary than the one theywould traditionally earn as an employee.

Enjoyment Entrepreneurs seem to thrive on the enjoyment of being in business forthemselves. In countless interviews with both successful and unsuccessful entrepreneurs,the vast majority state they love being a business owner. In Canada, over 90 percent ofCanadian entrepreneurs say that they would start their own business again.10

Challenge Many business owners love dealing with the various challenges associatedwith entrepreneurship. Entrepreneurs are almost never complacent as they are constantlypushing their skill set in new and different directions. Sharon Beasley of Mrs. Beasley’sCookies says that one of the biggest reasons she started her own business was to challengeherself and see how far her own abilities could take her: “I started my company because Iwanted to know that I could. I wanted to push my abilities into areas that my traditionalemployer would not allow.” Many young entrepreneurs start a business because they areunsatisfied with the limited responsibility they receive upon graduation due to their age andlack of experience.

Disadvantages

Risk Entrepreneurship is considered much riskier than traditional employment for goodreason. As an employee, the worst case scenario is losing a job. For many entrepreneurs, theworst case scenario often involves losing one’s life savings. This risk is compounded whenone considers that the majority of new ventures fail within the first three years of operation.

Stress Business owners often experience a high degree of anxiety and stress. Manyentrepreneurs have problems dealing with the self-reliance aspect of owning a business andhave difficulty separating their business from their family life, thus causing stress and


hardship. For example, at a recent entrepreneurship conference, over 55 percent of entre-preneurs stated that running their own business seriously hurt personal or family relationsat one time or another in the preceding five years.

Working Hours Many entrepreneurs are attracted to business ownership because theywant to set their own schedules and believe they will work fewer hours when compared topaid employment. This has not proven to be the case, as indicated in a recent study com-pleted by Industry Canada, which found that entrepreneurs work on average 40.8 hours perweek compared to 35.5 hours for employees, and 33 percent of entrepreneurs worked over50 hours per week compared to only 5 percent of employees.11

Lack of Skills Many entrepreneurs start a business based on a belief that they have theskills necessary to run their own business. This is often not the case. Entrepreneurs oftenquickly realize that they need to develop different competencies or hire people to comple-ment their skill set. Sharon Beasley expressed this when recalling problems with startingher company: “I started a cookie company because I loved to bake and felt my cookies wereunique. I assumed that the majority of my time would be spent baking cookies with a smallamount of time allocated to running the company. Was I ever wrong! The majority of mytime was spent making presentations, contacting current and potential customers, and man-aging my cash flow. I spent less time baking in the first three years of business then I couldever imagine and had to develop skills I didn’t even know I had.”

Financial Rewards A vast number of entrepreneurs start their business dreamingabout financial independence. Unfortunately this is not always the case. Most businessesstruggle during the start-up phase. Industry Canada has found that entrepreneurs are paid91.4 percent of what they would normally earn if they were being employed by others.12

TYPES OF START-UPSWhat types of start-ups result from the entrepreneurial decision process? One very usefulclassification system divides start-ups into four categories: cottage company, lifestyle firms,foundation companies, and high-potential ventures. A cottage company (or micro-enterprise) is a privately held business that generally employs fewer than 10 people and hasrevenues of less than $1 million. This type of firm often supplements traditional employ-ment or other income, has only one employee (usually the owner), may or may not beoperated as a home business, and often experiences very little growth. Cottage companiesare growing in popularity as many baby boomers are retiring and starting up small compa-nies to supplement their retirement income.

It is important to note that while many cottage companies are owner-operated, they stillemploy more that 50 percent of working Canadians. In addition, many of Canada’s largebusinesses started as cottage companies and grew over time. For example, in 2005, 27 ofCanada’s 100 fastest-growing companies as reported by PROFIT magazine had fewer thanfive employees in 1999. Glacier Ventures International Corp., a Vancouver company thatpublishes agricultural newspapers and community weekly papers, has grown from justthree employees in 1999 to 355 in 2005.13

A lifestyle firm is privately held and usually achieves only modest growth due to the natureof the business, the objectives of the entrepreneur, and the limited money devoted to researchand development. This type of firm may grow after several years to 30 or 40 employees andhave annual revenues of about $2 million. A lifestyle firm exists primarily to support theowners and usually has little opportunity for significant growth and expansion.


cottage companyA small venture that generally employs fewerthan 10 people and has revenues of less than $1 million

lifestyle firm A smallventure that supports theowners and usually doesnot grow

The third type of start-up—the foundation company—is created from research anddevelopment and lays the foundation for a new business area. This firm can grow in 5 to10 years from 40 to 400 employees and from $10 million to $20 million in yearly revenues.Since this type of start-up rarely goes public, it usually draws the interest of privateinvestors only, not the venture-capital community.

The final type of start-up—the high-potential venture—is the one that receives the great-est investment interest and publicity. While the company may start out like a foundationcompany, its growth is far more rapid. After 5 to 10 years, the company could employaround 500 employees, with $20 million to $30 million in revenue. These firms are alsocalled gazelles and are integral to the economic development of an area.

Given that the results of the decision-making process need to be perceived as desirableand possible for an individual to change from a present lifestyle to a radically new one, itis not surprising that the type and number of new business formations vary greatlythroughout the world as well as throughout Canada. Some regions in Canada have moresupport infrastructure and a more positive attitude toward new business creation.

ROLE OF ENTREPRENEURSHIP IN ECONOMICDEVELOPMENTThe role of entrepreneurship in economic development involves more than just increasingper capita output and income; it involves initiating and constituting change in the structure


Almost every Canadian over the past 25 years hasprobably heard or read the following words, “AngusReid polling company reports that…” or “Accordingto the latest Angus Reid poll . . .,” followed by somestatistics on politics, economic development, educa-tion, or some other matter that is making news head-lines that year. Angus Reid has garnered a lot of mediaattention and has been very accurate in predicting andforecasting the opinions of Canadians. Most Cana-dians have probably never thought about Angus Reidbeyond the fact it was the name of a company thatseemed to be constantly in the media. But there isanother interesting story about Angus Reid—not thecompany, but the entrepreneur behind the business.

Angus Reid founded the company in 1979 whenhe left his job as a tenured sociology professor to pur-sue his dream of owning a market research andpolling company. Why would Reid leave a tenureduniversity job, a rare move among professors, to starta research company in a fragmented industry? Theanswer can be found in many of the reasons cited

above—he liked the work and craved the challengesand independence associated with entrepreneurship.Reid, who knew very little about business manage-ment, turned out to be a great salesman and entre-preneur, expanding the business to more than80 countries, in 40 languages, and with over 1,200clients. Reid says that he didn’t even know basicaccounting terms when he started but perseveredthrough hard work and determination: “I didn’tknow what a balance sheet was . . . but with a lot ofhard work, a bit of luck and some fortunate timing, Iwas able to grow this business from nearly zilch inyear one to about $50 million in sales 20 years later.”In 2000, Reid decided to sell his company to Ipsos andform a new Canadian company called Ipsos-AngusReid. Ipsos paid close to $100 million for the business,and Reid agreed to stay on as head of the company.

Source: Angus Reid Consultants Web site, www.angus-reid.com,member bios; and Leonard Brody and David Raffa, Everything INeeded to Know about Business…I Learned from a Canadian(Toronto: John Wiley & Sons Canada Ltd., 2005), p. xii.

ANGUS REID—ATTRACTED TO THEADVANTAGES OF ENTREPRENEURSHIP

foundation company Atype of company formedfrom research anddevelopment that usuallydoes not go public

high-potential ventureA venture that has highgrowth potential andtherefore receives greatinvestor interest

gazelles Very highgrowth ventures

of business and society. This change is accompanied by growth and increased output, whichallows more wealth to be divided by the various participants. What in an area facilitates theneeded change and development? One theory of economic growth depicts innovation as thekey, not only in developing new products (or services) for the market but also in stimulat-ing investment interest in the new ventures being created. This new investment works onboth the demand and the supply sides of the growth equation; the new capital createdexpands the capacity for growth (supply side), and the resultant new spending utilizes thenew capacity and output (demand side).

In spite of the importance of investment and innovation in the economic development ofan area, there is still a lack of understanding of the product-evolution process. This is theprocess through which innovation develops and commercializes through entrepreneurialactivity, which in turn stimulates economic growth.

The product-evolution process, illustrated in Figure 1.1 as a cornucopia, the tradi-tional symbol of abundance, begins with knowledge in the base technology andscience—such as thermodynamics, fluid mechanics, or electronics—and ends withproducts or services available for purchase in the marketplace.14 The critical point in theproduct-evolution process is the intersection of knowledge and a recognized social need,which begins the product development phase. This point, called iterative synthesis, oftenfails to evolve into a marketable innovation and is where the entrepreneur needs to con-centrate his or her efforts. The lack of expertise in this area—matching the technologywith the appropriate market and making the needed adjustments—is an underlyingproblem in any technology transfer.

The innovation can, of course, be of varying degrees of uniqueness. Most innovationsintroduced to the market are ordinary innovations, that is, with little uniqueness or tech-nology. As expected, there are fewer technological innovations and breakthrough innova-tions, with the number of actual innovations decreasing as the technology involvedincreases. Regardless of its level of uniqueness or technology, each innovation (particu-larly the latter two types) evolves into and develops toward commercialization through oneof three mechanisms: the government, intrapreneurship, or entrepreneurship.

Government as an InnovatorThe government is one conduit for commercializing the results of the synthesis of socialneed and technology. This is frequently called technology transfer and has been the focusof a significant amount of research effort. Despite this effort, relatively few inventionsresulting from sound scientific government-sponsored research have reached (been trans-ferred to) the commercial market. Most of the by-products of this scientific research havelittle application to any commercial need. The few by-products that are applicable requiresignificant modification to have market appeal. Though the government has the financialresources to successfully transfer the technology to the marketplace, it lacks the businessskills, particularly marketing and distribution, necessary for successful commercializa-tion. In addition, government bureaucracy and red tape often inhibit the business frombeing formed in a timely manner.

IntrapreneurshipIntrapreneurship (entrepreneurship within an existing business structure) can also bridgethe gap between science and the marketplace. Existing businesses have the financialresources, business skills, and frequently the marketing and distribution systems to com-mercialize innovation successfully. Yet, too often the bureaucratic structure, the emphasis


product-evolution processProcess for developingand commercializing aninnovation

iterative synthesis Theintersection of knowledgeand social need that startsthe product developmentprocess

ordinary innovationsNew products with littletechnological change

technologicalinnovations Newproducts with significanttechnologicaladvancement

breakthroughinnovations Newproducts with sometechnological change

government as aninnovator Agovernment active incommercializingtechnology

technology transferCommercializing thetechnology in thelaboratories into newproducts

intrapreneurshipEntrepreneurship withinan existing organization


Science

Thermodynamics

Industry

Technology

Fluid mechanics

Electronics

II

V

III

IV

Gut feelingKnowledgeVision

I Recognition of social need

II Initiation of technological innovation

Mod

elling

Plan

ning

Fina

ncing

Man

ufac

tu

ring

Mar

ketin

g I

III Iterative synthesis leading to invention (pressing toward invention)

IV Development phase

V Industrial phase

on short-term profits, and a highly structured organization inhibit creativity and preventnew products and businesses from being developed. Corporations recognizing theseinhibiting factors and the need for creativity and innovation have attempted to establish anintrapreneurial spirit in their organizations. In the present era of hypercompetition, the needfor new products and the intrapreneurial spirit have become so great that more and morecompanies are developing an intrapreneurial environment, often in the form of strategicbusiness units (SBUs). Intrapreneurship is discussed in Chapter 2.

FIGURE 1.1 Product Evolution

EntrepreneurshipThe third method for bridging the gap between science and the marketplace is via entrepre-neurship. Many entrepreneurs have a difficult time bridging this gap and creating new ven-tures. They may lack managerial skills, marketing capability, or financial resources. Theirinventions are often unrealistic, requiring significant modification to be marketable. In addi-tion, entrepreneurs frequently do not know how to interface with all the necessary entities,such as banks, suppliers, customers, venture capitalists, distributors, and advertising agencies.

Yet, in spite of all these difficulties, entrepreneurship is presently the most effective methodfor bridging the gap between science and the marketplace, creating new enterprises, and bring-ing new products and services to the market. These entrepreneurial activities significantlyaffect the economy of an area by building the economic base and providing jobs. In someareas, entrepreneurship accounts for the majority of new products and net new employment.Given its impact on both the overall economy and the employment of an area, it is surprisingthat entrepreneurship has not become even more of a focal point in economic development.

ENTREPRENEURIAL CAREERS AND EDUCATIONWhat causes an individual to take all the social, psychological, and financial risks involvedin starting a new venture? At first there was limited research on this aspect of entrepreneur-ship, but since 1985 there has been an increased interest in entrepreneurial careers and edu-cation. This increased interest has been fostered by such factors as the recognition that smallfirms play a major role in job creation and innovation; an increase in media coverage ofentrepreneurs; the awareness that there are more entrepreneurs than those heralded in themedia, as thousands upon thousands of small cottage companies are formed; the view thatmost large organizational structures do not provide an environment for self-actualization; theshift in employment, as women become increasingly more active in the workforce and thenumber of families earning two incomes grows; and the formation of new ventures by femaleentrepreneurs at three times the rate of their male counterparts.

In spite of this increase, many people, still, do not consider entrepreneurship as a career.A conceptual model for understanding entrepreneurial careers, indicated in Table 1.3, viewsthe career stages as dynamic ones, with each stage reflecting and interacting with otherstages and events in the individual’s life—past, present, and future. This life-cycle approachconceptualizes entrepreneurial careers in nine major categories: educational environment,the individual’s personality, childhood family environment, employment history, adultdevelopment history, adult nonwork history, current work situation, the individual’s currentperspective, and the current family situation.15

Although there exists a common perception that entrepreneurs are less educated than thegeneral population, this opinion has proved to be more myth than reality. Studies havefound entrepreneurs overall, and female entrepreneurs in particular, to be far moreeducated than the general populace.16 However, the types and quality of the educationreceived sometimes do not develop the specific skills needed in the venture creation andmanagement process. For example, some female entrepreneurs are at more of a disadvan-tage than their male counterparts in this respect, as they frequently do not take significantbusiness or engineering courses.

Childhood influences have also been explored, particularly in terms of values and theindividual’s personality. The most frequently researched personality traits are the needfor achievement, focus of control, risk taking, and gender identity. Since personalitytraits are more thoroughly discussed in Chapter 3, it is sufficient here to indicate thatfew conclusions can be drawn from all the research regarding any universal personalitytraits of entrepreneurs.


risk taking Takingcalculated chances increating and running aventure

The research on the childhood family environment of the entrepreneur has had moredefinitive results. Entrepreneurs tend to have self-employed fathers, many of whom are alsoentrepreneurs. Many also have entrepreneurial mothers. The family, particularly the fatheror mother, plays an important role in establishing the desirability and credibility of entre-preneurship as a career path. As one entrepreneur said: “My father and mother alwaysencouraged me to try new things and do everything very professionally. They wanted me tobe the very best and have the freedom and independence of being my own boss.”

Employment history also has an impact on entrepreneurial careers, in both a positive and anegative sense. On the positive side, entrepreneurs tend to have a higher probability of successwhen the venture created is in their field of work experience. This increased success rate makesthe providers of risk capital particularly concerned when this work experience is not present.Negative displacement (such as dissatisfaction with various aspects of one’s job, being firedor demoted, being transferred to an undesirable location, or having one’s spouse take a newposition in a new geographic area) encourages entrepreneurship and new venture formation.

Although no definitive research has been done on the adult development history ofentrepreneurs, it appears to also affect entrepreneurial careers. Development history hassomewhat more of an impact on women, since they tend to start businesses at a later stagein life than men, usually after having experienced significantly more job frustration.

There is a similar lack of data on adult family/nonwork history. Although there is someinformation on entrepreneurs’ marital and family situations, the available data add little toour understanding of entrepreneurial career paths.

The impact of the current work situation has received considerably more research andattention. Entrepreneurs are known for their strong work values and aspirations, their longworkdays, and their dominant management style. Entrepreneurs tend to fall in love with theorganization and will sacrifice almost anything in order to ensure its survival. This desire isreflected in the individual entrepreneur’s current career perspective and family/nonworksituation. The new venture usually takes the highest priority in the entrepreneur’s life andis the source of the entrepreneur’s self-esteem.

While in university, few students, but increasing in number, think they will pursueentrepreneurship as their major life goal. Even among those that do, relatively few indi-viduals will start a business immediately after graduation, and even fewer will prepare fora new venture creation by working in a particular position or industry. This mandates that


TABLE 1.3

Life Space Areas Childhood Early Adulthood Present Adulthood

Work/occupation

Individual/personal

Nonwork/family

A Framework for an Entrepreneur’s Career Development

Education and childhoodwork experience

I

Childhood influences onpersonality, values, andinterests

II

Childhood familyenvironment

III

Employment history

IV

Adult developmenthistory

V

Adult family/nonworkhistory

VI

Current work situation

VII

Individual’s currentperspective

VIII

Current family/nonworksituation

IX

Source: Adapted from Donald D. Bowen and Robert D. Hisrich, “The Female Entrepreneur: A Career Development Perspective,” The Academy of ManagementReview II (April 1986), pp. 393–407.


entrepreneurs continually supplement their education through books, trade journals,seminars, or taking courses in weak areas. Generally, skills that need to be acquiredthrough seminars or courses include creativity, financing, control, opportunity identifi-cation, venture evaluation, and deal making.

Entrepreneurship education is a fast-growing area in colleges and universities in Canadaand throughout the world. Many universities offer at least one course in entrepreneurshipat the graduate or undergraduate level, and a few actually have a major or minor concen-tration in the area. In Canada, the number of universities that offer undergraduate entrepre-neurship courses has increased from 53 to 70 in the last five years, while the number ofcourses has grown from 253 to 367. This increase in the number of courses has been fuelledby high student interest. In a recent Gallup poll, 80 percent of high school studentsexpressed an interest in taking at least one entrepreneurial course while at university. Otherstudies indicate that students of all disciplines see entrepreneurship coursework as helpfulto their future goals.

While the courses in entrepreneurship vary by university, there is a great deal of com-monality, particularly in the initial one or two courses in this field of study. These coursestend to reflect the overall objectives for a course in entrepreneurship, as indicated inTable 1.4. These tend to centre around skill identification and assessment; understandingentrepreneurial decision making and the entrepreneurial process; understanding the

TABLE 1.4

• Understand the role of new and smaller firms in the economy.

• Understand the relative strengths and weaknesses of different types of enterprises.

• Know the general characteristics of an entrepreneurial process.

• Assess the student’s own entrepreneurial skills.

• Understand the entrepreneurial process and the product planning and development process.

• Know alternative methods for identifying and evaluating business opportunities and the factors that support andinhibit creativity.

• Develop an ability to form, organize, and work in interdisciplinary teams.

• Know the general correlates of success and failure in innovation and new venture creation.

• Know the generic entry strategies for new venture creation.

• Understand the aspects of creating and presenting a new venture business plan.

• Know how to identify, evaluate, and obtain resources.

• Know the essentials of

• Marketing planning

• Financial planning

• Operations planning

• Organization planning

• Venture launch planning

• Know how to manage and grow a new venture.

• Know the managerial challenges and demands of a new venture launch.

• Understand the role of entrepreneurship in existing organizations.

Overall Objectives for a Course in Entrepreneurship

Source: Robert D. Hisrich, “Toward an Organization Model for Entrepreneurial Education,” Proceedings, International Entrepreneurship Conference, Dortmund,Germany (June 1992), p. 29.


characteristics of entrepreneurs and their role in economic development on a domesticand, more recently, on an international basis; assessing opportunities and coming up withan idea for a new venture; writing and presenting a full-scale business plan; knowing howto obtain resources; managing and growing the enterprise; and understanding the role ofentrepreneurship in an existing organization, that is, intrapreneurship.

The skills required by entrepreneurs can be classified into three main areas: technicalskills, business management skills, and personal entrepreneurial skills (see Table 1.5).Technical skills involve such things as writing, listening, oral presentations, organizing,coaching, being a team player, and technical know-how.

Business management skills include those areas involved in starting, developing, andmanaging an enterprise. Skills in decision making, marketing, management, financing,accounting, production, control, and negotiation are essential in launching and growing anew venture. The final skill area involves personal entrepreneurial skills. Some of theseskills differentiate an entrepreneur from a manager. Skills included in this classification areinner control (discipline), risk taking, innovativeness, persistence, visionary leadership, andbeing change oriented.

These skills and objectives form the basis of the modular approach to an entrepre-neurship curriculum. By laying out the modules, a course or sequence of courses can bedeveloped, depending on the needs, interests, and resources of the particular university.This modular approach helps ensure that the most important areas of the field are cov-ered in the courses offered, whether on a quarter or semester basis or involving one or aseries of courses.

An interesting trend in entrepreneurial education has evolved in the last five years withsome entrepreneurs finding the need for and having the desire to obtain MBA degrees.Previously, for generations, entrepreneurs loathed everything about the MBA. But today’sadvanced technology sophistication, telecommunication, computer usage, and hyper-competition have changed that attitude. Entrepreneurs are recognizing the need to learnsome of the “science” of management in an MBA program to compete and grow theirbusinesses effectively in today’s global environment.

University-Wide Entrepreneurship EducationA new trend emerging in Canada is the concept of university-wide entrepreneurship wherestudents regardless of their discipline of study have the opportunity to enrol in entrepre-neurship courses. Prior to this trend, the majority of entrepreneurship and small businesscourses were offered in schools of business that limited access. This was done by requiringstudents to have a high number of prerequisites to enrol or by requiring students to beregistered in their third or fourth year of a business degree.

University-wide entrepreneurship courses allow non-business students to gain accessto the valuable theory and skills available while earning a degree in the arts or sciences.University-wide entrepreneurship is offered through either the magnet model, where thebusiness school offers entrepreneurship courses with no prerequisites, or through theradiant model, where students are offered entrepreneurship courses in their field of study.For example, under the magnet model, a student at Brock University may register in afirst-year entrepreneurship course that is taught by a business faculty member but has noprerequisites. On the other hand, a music student attending Saint Francis Xavier Univer-sity, which uses the radiant model, will take a course that is team-taught and focuses onentrepreneurship and music.

Currently, 47 percent of the 70 universities that teach undergraduate entrepreneurship doso using the university-wide approach. This trend is being driven by a number of different


factors including students and parents who see a link between entrepreneurship and careeroptions, faculty who have identified that non-business students actually have higher venturerates than traditional business students and need entrepreneurial training, and universityadministration impressed by the high enrolment numbers of university-wide courses.

Technical Skills

• Writing

• Oral communication

• Monitoring environment

• Technical business management

• Technology

• Interpersonal

• Listening

• Ability to organize

• Network building

• Management style

• Coaching

• Being a team player

Business Management Skills

• Planning and goal setting

• Decision making

• Human relations

• Marketing

• Finance

• Accounting

• Management

• Control

• Negotiation

• Venture launch

• Managing growth

Personal Entrepreneurial Skills

• Inner control/disciplined

• Risk taker

• Innovative

• Change oriented

• Persistent

• Visionary leader

• Ability to manage change

Source: Robert D. Hisrich, “Toward an Organization Model for Entrepreneurial Education,” Proceedings, InternationalEntrepreneurship 1992 Conference, Dortmund, Germany (June 1992), p. 29.

TABLE 1.5 Types of Skills Required in Entrepreneurship

ETHICS AND SOCIAL RESPONSIBILITY OFENTREPRENEURSThe life of the entrepreneur is not easy. An entrepreneur must take risks with his or her owncapital in order to sell and deliver products and services while expending greater energy thanthe average businessperson in order to innovate. Faced with daily stressful situations andother difficulties, the possibility exists that the entrepreneur will establish a balance betweenethical exigencies, economic expediency, and social responsibility, a balance that differsfrom the point where the general business manager takes his or her moral stance.17

A manager’s attitudes concerning corporate responsibility are related to the organizationalclimate perceived to be supportive of laws and professional codes of ethics. On the other hand,entrepreneurs with a relatively new company who have few role models usually develop aninternal ethical code. Entrepreneurs tend to depend on their own personal value systems muchmore than other managers when determining ethically appropriate courses of action.

Although drawing more on their own value system, entrepreneurs have been shown tobe particularly sensitive to peer pressure and general social norms in the community, aswell as pressures from their competitors. The differences between entrepreneurs in dif-ferent types of communities and in different countries reflect, to some extent, the generalnorms and values of the communities and countries involved. This is clearly the case formetropolitan as opposed to nonmetropolitan locations within a single country. Inter-nationally, there is evidence to this effect about managers in general. North Americanmanagers seem to have more individualistic and less communitarian values than theirGerman and Austrian counterparts.

The significant increase in the number of internationally oriented businesses has impactedthe increased interest in the similarities and differences in business attitudes and practices indifferent countries. This area has been explored to some extent within the context of cultureand is now beginning to be explored within the more individualized concept of ethics. Theconcepts of culture and ethics are somewhat related. Whereas ethics refers to the “study ofwhatever is right and good for humans,” business ethics concerns itself with the investiga-tion of business practices in light of human values. Ethics is the broad field of study explor-ing the general nature of morals and the specific moral choices to be made by the individualin his relationship with others. While business ethics has emerged as an important topicwithin popular and academic publications in the past few decades, to date it has been treatedahistorically and with an orientation dominated by a North American perspective.

Although the English word ethics is generally recognized as stemming from the Greekêthos, meaning “custom and usage,” it is more properly identified as originating fromswëdhêthos, in which the concepts of individual morality and behavioural habits are relatedand identified as an essential quality of existence.

Most Western authors credit the Greek philosophers Socrates (469–399 B.C.), Plato(427–347 B.C.), and Aristotle (384–322 B.C.) as providing the earliest writings upon whichcurrently held ethical conceptions are based. Much earlier writings pertaining to moral codesand laws, however, can be found within both Judaism (1800 B.C.) and Hinduism (1500 B.C.).

American attitudes on ethics result from three principal influences: the Judeo-Christianheritage, a belief in individualism, and opportunities based upon ability rather than socialstatus. The United States was formed by immigrants from other countries, frequently flee-ing oppression in their homelands, dedicated to creating a society where their future andfortunes were determined by their abilities and dedication to work.

Research on business ethics can be broken down into four broad classifications:(1) pedagogically oriented inquiry, including both theory and empirical studies; (2) theory-building without empirical testing; (3) empirical research, measuring the attitudes and


business ethics Thestudy of behaviour andmorals in a businesssituation

29

ethical beliefs of students and academic faculty; and (4) empirical research within businessenvironments, measuring the attitudes and ethical views, primarily of managers withinlarge organizations. Each of these areas offers insight into the ethical dimensions of entre-preneurs and managers. Some aspects of business ethics are indicated in the Ethics box ineach chapter. Ethics is not only a general topic for conversation but a deep concern ofbusinesspeople as the survey results indicate.

THE FUTURE OF ENTREPRENEURSHIPAs evidenced by the many different definitions, the term entrepreneurship means differentthings to different people and can be viewed from different conceptual perspectives. How-ever, in spite of the differences, there are some common aspects: risk taking, creativity,independence, and rewards. These commonalities will continue to be the driving forcebehind the notion of entrepreneurship in the future. One thing is clear: The future forentrepreneurship appears to be very bright. We are living in the age of the entrepreneur,with entrepreneurship endorsed by educational institutions, governmental units, society,and corporations. Entrepreneurial education has never been so important in terms ofcourses and academic research. The number of universities and colleges offering at leastone course in entrepreneurship increases each year. The number of faculty teaching entre-preneurship as well as the number of endowed chairs increases regularly. There are someunique entrepreneurial programs as well, such as the MBA in entrepreneurship from theUniversity of Calgary, and the multi-disciplinary entrepreneurial skills programs offered atthe Cape Breton University, Dalhousie, and Mount Saint Vincent University.

Entrepreneurship education throughout the world is also growing. Many universities inEurope have recently started a program in entrepreneurship. Most universities and associ-ations do research on entrepreneurship, followed by training courses, and then education

E T H I C S

ufacturing facilities. Since the opening profile hasbeen written, David’s parents, relatives and friendshave sunk a great deal of time and money into theproject and he needs to recoup some of their invest-ment. David is concerned about what his parents andinvestors would think if he used a facility that ex-ploited cheap labour, especially since the majority ofinvestors to date have given David money becausethey believe in him and his ideals. Then again hepromised them all he would pay them back with in-terest within three years, and they are starting to asksome tough questions about why the manufacturingprocess has not begun.

The questions to David are pretty straightforward—whether he should manufacture his shoe clip in China,or just abandon the idea and determine at a later datehow to pay back his investors?

As noted in the “Opening Profile,” David Reynolds,owner of QuickSnap, is close to fulfilling his dreamof manufacturing a plastic shoe fastening device.However, he is starting to have second thoughtsabout choosing China as a manufacturing centre.Since he would be hiring a manufacturer withoutever getting to inspect the facility, he is worriedabout the labour practices in the country and is won-dering if he is contributing to the problem by re-warding them for paying low wages and engagingin what some would describe as sweatshop practices.David readily admits he dreams about being richsome day but he never planned on being successfulbased on exploiting others.

David’s worries are compounded by the fact thatthe product is only economically viable based onquotes he has been given from several Chinese man-


courses—courses for which degree credit is given. Very few universities are yet involved inthe actual enterprise creation process where the university, faculty, and/or students share inthe sales and profits of the new venture.

This increase in course offerings has been accompanied by an increase in academicresearch, endowed chairs in the area, entrepreneurship concentrations and majors, and cen-tres of entrepreneurial activity. This trend will continue, supported by an increase in Ph.D.activity, which will in turn provide the needed faculty and research effort to support thefuture increases in course offerings, endowed positions, centres, and other research efforts.

Various governments are taking an increased interest in promoting the growth of entrepre-neurship. Individuals are encouraged to form new businesses and are provided such govern-ment support as tax incentives, buildings, roads, and a communication system to facilitate thiscreation process. Encouragement by the federal and provincial governments should continuein the future as more lawmakers understand that new enterprises create jobs and increase eco-nomic output in the area. Some provincial governments in Canada are developing their owninnovative industrial strategies for fostering entrepreneurial activity and the timely develop-ment of the technology of the area. The impact of this strategy is seen in the venture-capitalindustry, which is always sensitive to government regulations and policies.

Society’s support of entrepreneurship will also continue. This support is critical in pro-viding both motivation and public support. Never before have entrepreneurs been sorevered by the general populace. Entrepreneurial endeavours in Canada are consideredhonourable and even, in many cases, prestigious pursuits. A major factor in the develop-ment of this societal approval is the media. The media has played, and will continue to play,a powerful and constructive role by reporting on the general entrepreneurial spirit inCanada and highlighting specific success cases of this spirit in operation. Major articles insuch newspapers as The Globe and Mail, the National Post, and the Toronto Star havefocused on the pioneer spirit of today’s entrepreneurs, describing how this spirit benefitssociety. General business magazines such as PROFIT, Canadian Business, Forbes, andFortune have provided similar coverage by adding special columns on entrepreneurshipand venturing. Magazines such as Black Enterprise, Entrepreneur, INC., and Journal ofBusiness Venturing—which focus on specific issues of the entrepreneurial process, start-ing new ventures, and small, growing businesses—have built solid and increasing circula-tion rates. Television on both a national and a local level has highlighted entrepreneurshipby featuring specific individuals and issues involved in the entrepreneurial process. Notonly have local stations covered regional occurrences, but national shows such asVenture, MoneyTalk, and Squeeze Play have had special segments devoted to thisphenomenon, and Report on Business Television (ROBTV) is a channel dedicated tobusiness and entrepreneurship issues. This media coverage uplifts the image of the entre-preneur and growth companies and focuses on their contributions to society.

Finally, large companies will continue to have an interest in their special form ofentrepreneurship—intrapreneurship—in the future. These companies will be increasinglyinterested in capitalizing on their research and development (R&D) in today’s hyper-competitive business environment. Other companies will want to create more new busi-nesses through intrapreneurship in the future, particularly in light of the hypercompetitionand the need for globalization.


IN REVIEW

S U M M A R Y

The definition of an entrepreneur has evolved over time as the world’s economicstructure has changed and become more complex. Since its beginnings in the MiddleAges, when it was used in relation to specific occupations, the notion of the entre-preneur has been refined and broadened to include concepts that are related to theperson rather than the occupation. Risk taking, innovation, and creation of wealthare examples of the criteria that have been developed as the study of new businesscreations has evolved. In this text, entrepreneurship is defined as the process ofcreating something new with value by devoting the necessary time and effort;assuming the accompanying financial, psychological, and social risks; and receivingthe resultant rewards of monetary and personal satisfaction and independence.

The decision to start an entrepreneurial venture consists of several sequential steps:(1) the decision to leave a present career or lifestyle, (2) the decision that an entrepre-neurial venture is desirable, and (3) the decision that both external and internal factorsmake new venture creation possible. Although the decision-making process is applica-ble to each of the three types of start-up companies, the emphasis in each one is cer-tainly different. Because of their differing natures, foundation companies andhigh-potential ventures require a more conscious effort to reach a defensible decisionon these points than cottage companies and lifestyle firms.

There are both pushing and pulling influences active in the decision to leave apresent career: the “push” of job dissatisfaction or even a layoff, and the “pull”toward entrepreneurship of seeing an unfilled need in the marketplace. The desir-ability of starting one’s own company is strongly influenced by culture, subculture,family, teachers, and peers. Any of these influences can function as a source ofencouragement for entrepreneurship, with support ranging from government poli-cies that favour business to strong personal role models of family or friends. Beyondthe stage of seeing entrepreneurship as a “good idea,” the potential entrepreneurmust possess or acquire the necessary education, management skills, and financialresources for launching the venture.

The study of entrepreneurship has relevance today, not only because it helps entre-preneurs better fulfill their personal needs but because of the economic contributionof the new ventures. More than increasing national income by creating new jobs, en-trepreneurship acts as a positive force in economic growth by serving as the bridge be-tween innovation and the marketplace. Although the government gives great supportto basic and applied research, it has not had great success in translating the techno-logical innovations to products or services. Although intrapreneurship offers the prom-ise of a marriage of those research capabilities and business skills that one expects froma large corporation, the results so far in many companies have not been spectacular.This leaves the entrepreneur, who frequently lacks both technical and business skills, toserve as the major link in the process of innovation development, and economic growthand revitalization. The study of entrepreneurship and the education of potentialentrepreneurs are essential parts of any attempt to strengthen this link so essential toa country’s economic well-being.


H A N D S - O N A C T I V I T Y

Students should form groups of two to three and start a small business or a mini-venture that will run for a period of four to six hours. The only rules to follow are:

a. The business has to be legal

b. No lotteries

c. Maximum investment of $1

d. Business must cease operations at day’s end

After the students complete the project, they can write a reflection stating what theydid, whether they made a profit, and what they learned. An alternate assignmentcould be to have the students present the results of the assignment to the class.

R E S E A R C H T A S K S

1. Ask five entrepreneurs what the term entrepreneurship means to them. Beprepared to present the commonalities and differences of these definitions to theclass. Can differences in the definitions be explained by the “type” ofentrepreneur interviewed?

2. Find five individuals who considered becoming entrepreneurs but did not do so.Ask them why they first considered becoming entrepreneurs, what steps they tooktoward becoming entrepreneurs, and what obstacles they felt stood in their way.

3. What impact does entrepreneurship have on your local, state (or province), andnational economies? Use data to back up your arguments.

4. Research the policy statements of your local, state (or province), and nationalgovernments for their goals and objectives regarding the importance ofentrepreneurship and means of encouraging it.

5. Speak to people from five different countries and ask them about how theirnational culture helps and/or hinders entrepreneurship.

C L A S S D I S C U S S I O N

1. List the content that you believe is necessary for an entrepreneurship course. Beprepared to justify your answer.

2. Do you believe that ethics and social responsibility should be part of anentrepreneurship course or did the textbook authors just include a section on it tobe “politically correct”?

3. What is the role of government in entrepreneurship? To what extent should ithelp protect people from entrepreneurship or should it simply get out of the wayand leave the market to reward or punish inappropriate behaviour? Given youranswer to the above question, what specific steps should the government take orwhat steps have they taken that should be reversed?

4. What excites you about being an entrepreneur? What are your major concerns?

S E L E C T E D R E A D I N G S

Aldrich, Howard E.; and Martha Argelia Martinez. (Summer 2001). Many Are Called,but Few Are Chosen: An Evolutionary Perspective for the Study of Entrepreneurship.Entrepreneurial Theory and Practice, pp. 41–56.

More than a decade ago, three elements indispensable to an understanding ofentrepreneurial success were identified: process, context, and outcomes. Althoughthe knowledge of entrepreneurial activities has increased dramatically, we still havemuch to learn about how process and context interact to shape the outcome ofentrepreneurial efforts.

Armstrong, Peter. (2001). Science, Enterprise and Profit: Ideology in the Knowledge-Driven Economy. Economy and Society, vol. 30, no. 4, pp. 524–52.

The article argues that despite ideological pressure to demonstrate a link betweenentrepreneurship and risk, none of the relevant research has succeeded in doing so.Nor has risk been a prevalent feature of new venture creation in either general orscience-based start-ups.

Brouwer, Maria T. (2002). Weber, Schumpeter and Knight on Entrepreneurship andEconomic Development. Journal of Evolutionary Economics, vol. 12, pp. 83–105.

This paper interprets the discussion on entrepreneurship and economic developmentthat was started by Weber, Schumpeter, and Knight. The paper demonstrates howthese three authors influenced each other on the topics of importance of innovationand entrepreneurship, uncertainty, and perceptiveness and hidden qualities of people.

Douglas, Evan J.; and Dean A. Shepherd. (Spring 2002). Self-Employment as a CareerChoice: Attitudes, Entrepreneurial Intentions, and Utility Maximization. EntrepreneurialTheory and Practice, pp. 81–90.

This paper investigates the relationship between career choices and people’sattitudes toward income, independence, risk, and work effort and the effect theseattitudes have on the intent to start one’s own business. Significant relationshipswere found between the utility expected from a job and the independence, risk, andincome it offered. Similarly, intention to become self-employed was related totolerance for risk and independence.

Drayton, William. (2002). The Citizen Sector: Becoming as Entrepreneurial and Com-petitive as Business. California Management Review, vol. 44, no. 3, pp. 120–32.

This article explores the aspects that drive entrepreneurial transformation of thesocial half of society that took place over the last two and a half decades, identifiesthree management challenges made urgent by this shift, and describes its impact onthe rest of the society.

Formaini, Robert L. (Fourth Quarter 2001). The Engine of Capitalist Process: Entrepre-neurs in Economic Theory. Economic and Financial Review, pp. 2–11.

Questions about the existence of profits, causes of economic growth, and coordina-tion of resource use by market economy have introduced a concept of theentrepreneur. The concept became relevant with the Internet’s evolution and small-business growth and remains relevant because how entrepreneurs are treated de-pends on overall national economic performance and direction of economic activity.

Gifford, Sharon. (1998). Limited Entrepreneurial Attention and Economic Development.Small Business Economics, vol. 10, no. 1, pp. 17–30.

Economic development depends on the allocation of entrepreneurial resources to ef-forts to discover new profit opportunities. Limited entrepreneurial attention is allo-cated between maintaining current activities and starting new activities. The problemof allocating limited entrepreneurial attention in a variety of contexts is addressed.


Hansen, Morten T.; Henry W. Chesbrough; Nitin Nohria; and Donald N. Sull.(September–October 2000). Networked Incubators. Harvard Business Review, pp. 74–84.

The article argues that organizational models that exploit entrepreneurial drive andnetwork access while preserving the benefits of scale and scope will be the mostpotent models for long-term success in the new economy. Networked incubators areone such emerging form that, in addition to office space, funding, and basic services,offers powerful business connections, enabling start-ups to beat their competitorsto market.

Hayton, James C.; Gerard George; and Shaker A. Zahra (Summer 2002). NationalCulture and Entrepreneurship: A Review of Behavioral Research. EntrepreneurialTheory and Practice, pp. 33–52.

The article reviews and synthesizes the findings of 21 empirical studies that exam-ine the association between national cultural characteristics and aggregate meas-ures of entrepreneurship, individual characteristics of entrepreneurs, and aspects ofcorporate entrepreneurship.

Laukkanen, Mauri. (2000). Exploring Alternative Approaches in High-Level Entrepre-neurship Education: Creating Micro-Mechanisms for Endogenous Regional Growth.Entrepreneurship & Regional Development, vol. 12, pp. 25–47.

The paper argues that there is a downside related to conceptual and efficacy notionsof entrepreneurship and education, breeding unreasonable and unpredictableexpectations. This paper explores alternative strategies in university-based entre-preneurial education describing the dominant pattern of education, based on anindividual-centered mind-set.

Lee, Sang N.; and Suzanne J. Peterson. (2000). Culture, Entrepreneurial Orientation,and Global Competitiveness. Journal of World Business, vol. 35, no. 4, pp. 401–16.

This paper presents a cultural model of entrepreneurship. It proposes that a society’spropensity to generate autonomous, risk-taking, innovative, aggressive, and proactiveentrepreneurs and firms will depend on its cultural foundation. It also proposes thatonly countries with specific cultural tendencies will engender a strong entrepreneurialorientation, hence experiencing more entrepreneurship and global competitiveness.

Mitchel, Ronald K.; Brock Smith; Kristie W. Seawright; and Eric A. Morse. (2000). Cross-Cultural Cognitions and the Venture Creation Decision. Academy of ManagementJournal, vol. 43, no. 5, pp. 974–93.

Theories of social cognition, information processing, and expertise provide thefoundation for a cross-cultural model of venture capital. The paper describes thefindings of the research conducted in seven countries that support and extend thecognitive model and provide preliminary evidence of consistency of cognitive scriptsacross cultures.

Office of Advocacy, U.S. Small Business Administration. (2000). The Third MillenniumSmall Business and Entrepreneurship in the 21st Century.

This report is an update of the report published for the 1995 White House Conferenceon Small Business. The new edition discusses rapid changes in the small-business sector;the heterogeneity, diversity, and complexity of the small-business environment;barriers to entry and inhibitors to growth that small-business will continue to face; andthe overall small-business and entrepreneurial sectors future growth.

Osborne, Stephen W.; Thomas W. Falcone; and Prashanth B. Nagendra. (2000). FromUnemployed to Entrepreneur: A Case Study in Intervention. Journal of DevelopmentalEntrepreneurship, vol. 5, no. 2, pp. 115–36.

A summary of the entrepreneurial potential, training, and success of a group of recentlyunemployed workers from a wide spectrum of previous occupations and industries.



Wennekers, Sander; and Roy Thurik. (1999). Linking Entrepreneurship and EconomicGrowth. Small Business Economics, vol. 13, no. 1, pp. 27–55.

The concept of entrepreneurship is discussed, with the aim of explaining the entre-preneurship role in the process of the economic growth. By considering three levelson which entrepreneurship can be analyzed (individual, firm, and aggregate level)the relationship between entrepeneurship and economic growth is examined.

APPENDIX A: SHOULD YOU START YOUR OWN BUSINESS?Each day, thousands of individuals ask the difficult question, “Should I start my ownbusiness?” When queried, 85 percent of the populace said they would like to be in busi-ness for themselves. The driving force behind this desire to start a new venture is thedesire to be one’s own boss, to be independent. Since there is no definitive measure-ment developed that allows an individual to determine if he or she can be a successfulentrepreneur, each individual needs to carefully appraise his or her situation throughseveral different methods and self-assessment models. One way to determine whetheryou have what it takes to be an entrepreneur is to fill out the questionnaire in Table A.1and check the answers at the end of this appendix. Keep in mind that the answersdevelop an average profile of an entrepreneur. There are many exceptions, and thereis no such person as a typical entrepreneur.

TABLE A.1

1. An entrepreneur is most commonly the _____ child in the family.a. oldest c. youngestb. middle d. doesn’t matter

2. An entrepreneur is most commonly:a. married c. widowedb. single d. divorced

3. An entrepreneur is most typically a:a. man c. eitherb. woman

4. An individual usually begins his or her first significant entrepreneurial business enterpriseat what age?a. teens d. fortiesb. twenties e. fiftiesc. thirties

5. Usually an individual’s entrepreneurial tendency first appears evident in his or her:a. teens d. fortiesb. twenties e. fiftiesc. thirties

6. Typically, an entrepreneur has achieved the following educational attainment by the timethe first significant business venture begins:a. less than high school d. master’s degreeb. high school diploma e. doctor’s degreec. bachelor’s degree

7. An entrepreneur’s primary motivation for starting a business is:a. to make money d. to create job securityb. to be independent e. to be powerfulc. to be famous

Characteristics of an Entrepreneur

continued

Answers to Characteristics of an Entrepreneur Quiz (Table A.1)

1. Oldest. Although, indeed, entrepreneurs come from many different birth orders,there is a slight tendency for an entrepreneur to be the oldest child in the family,thereby having had time alone with parents without other siblings.

2. Married. While there has never been any statistical validation, most entrepre-neurs are married when they start their first significant venture. The spouse playsan important support role.

3. Man. Although men still outnumber women entrepreneurs in terms of actualnumbers, women entrepreneurs are presently forming new ventures at two tothree times the rate of men.

4. Thirties. Although ventures may be started at any age, the first significantventure is usually started in the early thirties for men and late thirties for women.


8. The primary motivation for the entrepreneur’s high ego and need for achievement isbased upon a relationship with:a. spouse c. fatherb. mother d. children

9. To be successful in an entrepreneurial venture, you need:a. money d. a good ideab. luck e. all of the abovec. hard work

10. Entrepreneurs and venture capitalists:a. get along well c. are cordial friendsb. are the best of friends d. are in conflict

11. A successful entrepreneur relies on which of the following for critical managementadvice?a. internal management team c. financial sourcesb. external management professionals d. no one

12. Entrepreneurs are best as:a. managers c. plannersb. venture capitalists d. doers

13. Entrepreneurs are:a. high risk takers (big gamblers) c. small risk takers (take few chances)b. moderate risk takers (realistic gamblers) d. doesn’t matter

14. Entrepreneurs:a. are the life of the party c. will never go to partiesb. are bores at a cocktail party d. just fit into the crowd at a party

15. Entrepreneurs tend to “fall in love” with:a. new ideas d. new financial plansb. new employees e. all of the abovec. new manufacturing ideas

16. Entrepreneurs typically form:a. service businesses d. construction companiesb. manufacturing companies e. a variety of venturesc. financial companies

Characteristics of an Entrepreneur (continued)

Source: From Robert D. Hisrich and Candida Brush, The Woman Entrepreneur, 1985. Reprinted with permission of LexingtonBooks, a member of the Rowman & Littlefield Publishing Group.

5. Teens. An individual’s ability to handle ambiguity, the drive for independence, andcreativity (important characteristics for an entrepreneur) are evident early in life.

6. Bachelor’s degree. While the Horatio Alger story is indeed still possible, mostentrepreneurs are university educated. Women entrepreneurs are even more ed-ucated, with many having a master’s degree. This education is particularly impor-tant in securing financing and starting technology-based ventures. Although notas highly educated as those in North America, entrepreneurs in foreign countriesare at least as educated as the general populace.

7. To be independent. The need for independence (the inability to work for anyoneelse) is what drives the entrepreneur to take the risks to work all the hoursnecessary to create a new venture.

8. Father. Regardless of whether it is a love or hate relationship, entrepreneursreport a strong parental relationship, particularly with the father. This strongfather relationship is particularly important for women entrepreneurs.

9. Luck. Hard work, money, and a good idea are necessary but not sufficient for asuccessful venture. The venture formation by the entrepreneur is characterizedalso as being “lucky”—being in the right place at the right time.

10. Are in conflict. Venture capitalists and entrepreneurs have two different goals.The venture capitalist’s goal is to make money and exit from the businesswithin five years. The entrepreneur’s goal is independence through survival ofthe organization.

11. External management professionals. This use of an external professional foradvice often takes the form of a mentor or at least a good network system. Theuse of this individual(s) helps reduce the loneliness of being an entrepreneur.

12. Doers. Entrepreneurs take pride in creating and doing. They are definitely notmanagers and planners—the appropriate side of the entrepreneurial continuum.Rarely are they also good venture capitalists.

13. Moderate risk takers. The myth that entrepreneurs are high risk takers is nothingmore than just a myth. The calculating decision to risk everything and perhapsfail reflects moderate risk taking.

14. Just fit into a crowd. Unless you knew that an individual was an entrepreneur,there would be no way to distinguish an entrepreneur from a manager based onexternal physical appearance.

15. All of the above. New is an entrepreneurial magnet, as it implies creativity andventure creation, the drive of every entrepreneur.

16. Variety of ventures. Entrepreneurs create a wide variety of ventures, dependingon their field of experience and backgrounds. Women entrepreneurs, however,do tend to be concentrated in the service sector.


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