Overview of Entrepreneurship What are some different types of entrepreneurship? Entrepreneurship is a global phenomenon, with individuals all over the world at various stages of the process. While there are many definitions of entrepreneurs and entrepreneurship , we consider the scholarly field as defined by Shane and Venkataraman Scott Shane, and Sankara Venkataraman, S. 2000. The promise of entrepreneurship as a field of research. Academy of Management Review, 25(1), 217-226. that seeks to understand how opportunities are discovered, created, and exploited; by whom; and with what consequences. When most people think of entrepreneurship, they may think of individuals such as Maria Rose Belding, as well as Jeff Bezos (Amazon) and Elon Musk (Tesla and SpaceX). However, there are many other types of entrepreneurship that we will explore in this chapter. MEANS Database is an example of social entrepreneurship —that is, creating innovative solutions to immediate social and/or environment problems and mobilizing resources to achieve social transformation. MEANS Database illustrates how social entrepreneurs often solve problems more effectively than the government. Entrepreneurs can also operate inside existing organizations: corporate entrepreneurship involves the creation of new products, processes, and ventures within large organizations. Another prevalent type is family entrepreneurship —that is, when a business is owned and managed by multiple family members, usually for more than one generation. Serial or habitual entrepreneurship refers to individuals who start several businesses, simultaneously or one after another. Entrepreneurship can also be classified according to the desired goals—for example, individuals who pursue lifestyle entrepreneurship typically create a venture to suit a personal lifestyle and not for the sole purpose of making profits. High-technology entrepreneurship involves ventures in the information, communication, and technology space, which typically have high expectations for revenue growth. Entrepreneurs can also be classified according to the stage of their venture development, as outlined in the Global Entrepreneurship Monitor (GEM) research program in the next section. Global Entrepreneurship Prevalence Each year, the Global Entrepreneurship Monitor (GEM) Global Entrepreneurship Monitor. 2018. GEM 2017/2018 Global Report. https://gemconsortium.org/report/50012 study gathers data from 60+ countries to determine how many individuals are engaged in various phases of entrepreneurship. The first phase captures potential entrepreneurs who believe that they have the capacity and knowledge to start a venture and don’t fear failure. If you are reading this book and believe that you are developing the skills necessary to someday start your own company, and you believe that the risk-reward payoff is promising, then you fit this definition of a potential entrepreneur. The next GEM category is nascent entrepreneurs who have set up or are in the process of setting up a venture that they will own/co-own that is less than three months old and has not yet generated wages/salaries. New business owners operate a business for over three months but less than three years. And finally, established business owners actively run a business that is over three and a half years old. GEM researchers calculate a Total Entrepreneurial Activity (TEA) rate, which is the percentage of the adult population (ages 18–64) who are either nascent entrepreneurs or owner-managers of a new business. provides an overview of the GEM model to measure entrepreneurial activity in a given economy. As shown, GEM data captures attributes of the individual entrepreneur, industry sector, and expected impact in terms of potential business growth, use of innovation, and share of international customers. shows the most recently available rates of entrepreneurial activities across geographic regions. These regions are classified by their development status, with factor-driven countries the least developed; these countries subsist primarily on agriculture and extraction businesses, and rely heavily on unskilled labor and natural resources. Efficiency-driven economies are more competitive and utilize more advanced and efficient production processes to provide better-quality products and services. Innovation-driven economies are the most developed, typically relying on knowledge-intensive industries and an expanded service sector. As shown, entrepreneurial activity rates range from nearly 20 percent of the adult population in Ecuador to lows of less than 5 percent in several countries such as Bulgaria, Bosnia & Herzegovina, Italy, and Japan. Entrepreneurship rates can be extremely high in factor-driven countries as there are fewer traditional businesses and entrepreneurship may be the only good opportunity in the labor market. Among innovation-driven economies, the U.S. has one of the highest TEA levels, perhaps due to the American culture of individualism and the many organizations that support entrepreneurship. Another key factor is societal value, which we review in the next section. Model and Measures of Entrepreneurial Activity Source: Adapted from Global Entrepreneurship Monitor 2017/2018 report, page 22 (Attribution: Copyright Rice University, OpenStax, under CC BY NC-SA-NC-SA 4.0 license) Entrepreneurial Activity in 2017/2018 Source: Global Entrepreneurship Monitor 2017/2018 report, pages 34-35 (Attribution: Copyright Rice University, OpenStax, under CC BY NC-SA-NC-SA 4.0 license) Societal Value for Global Entrepreneurship The GEM research project also examines societal values for entrepreneurship, which can help drive an abundance or lack of entrepreneurs. In the 2017/2018 report, across 52 economies, there was strong support for entrepreneurship as a good career choice. The lowest levels were reported in innovation-driven economies, perhaps because there are many good corporate career options. GEM researchers identified that almost 70 percent of the adult population believes that entrepreneurs enjoy high status within their societies. There are slight differences, with factor-driven countries reporting higher status levels as compared to innovation- and efficiency-driven countries. Moreover, across 52 economies, about 61 percent of adults believe that entrepreneurs garner substantial media attention, with the higher levels in increasingly developed economies. This data suggests that when entrepreneurs are portrayed favorably in the media, individuals will be more likely to consider entrepreneurship as a career. Development Group Averages for Societal Values about Entrepreneurship in 52 Economies Source: Adapted from Global Entrepreneurship Monitor 2017/2018 report, page 27 (Attribution: Copyright Rice University, OpenStax, under CC BY NC-SA-NC-SA 4.0 license) What are some different types of entrepreneurs? How does entrepreneurship differ across countries? What are some different types of entrepreneurship? Entrepreneurship is the creation of something valuable. Social entrepreneurship involves creating innovative solutions to immediate social and/or environmental problems and mobilizing resources to achieve social transformation. Corporate entrepreneurship involves the creation of new products, processes, and ventures within existing large organizations. Family entrepreneurship involves a business that is owned and managed by multiple family members, usually for more than one generation. Serial or habitual entrepreneurship refers to individuals who start several businesses, simultaneously or one after another. Lifestyle entrepreneurship involves a venture to suit a personal lifestyle and not for the sole purpose of making profit. High-technology entrepreneurship involves ventures in the information, communication, and technology space. corporate entrepreneurship The creation of new products, processes, and ventures within large organizations. entrepreneurs Individuals who recognize and pursue opportunities, take on risk, and convert these opportunities into value-added ventures that can survive in a competitive marketplace. established business owners Individuals who are still active in a business that is more than three and a half years old. family entrepreneurship A business is owned and managed by multiple family members, usually for more than one generation. high-technology entrepreneurship Ventures in the information, communication, and technology space; typically have high growth expectations. lifestyle entrepreneurship Creating a venture to suit a personal lifestyle and not for the sole purpose of making profits. nascent entrepreneurs Individuals who have set up a business they will own or co-own that is less than three months old and has not yet generated wages or salaries for the owners. new business owners Former nascent entrepreneurs who are actively involved in a business for more than three months but less than three and a half years. potential entrepreneurs Individuals who believe that they possess the capacity and knowledge to start a business. serial or habitual entrepreneurship Individuals who start several businesses, simultaneously or one after another. social entrepreneurship Creating innovative solutions to immediate social and/or environment problems and mobilizing resources to achieve social transformation.

Business


Characteristics of Successful Entrepreneurs What characteristics lead individuals to become entrepreneurs? Will you join the millions of entrepreneurs operating around the world? Wanting to be an entrepreneur is not enough—an individual must be able to develop and refine a new business opportunity, and it also requires a special personality as well as key skills. Entrepreneurial Personality Studies of the entrepreneurial personality find that entrepreneurs share certain key traits. Most entrepreneurs are: Ambitious —competitive, with a high need for achievement Independent —individualists and self-starters who prefer to lead rather than follow Self-confident —understand the challenges of starting and operating a business and are decisive and confident in their ability to solve problems Risk takers —willing to accept a moderate (and sometimes large) degree of risk relative to potential returns Visionary —spot trends and act on them Creative —offer innovative solutions and approach functions such as creative product designs and bold marketing strategies Energetic —offer high energy levels and perseverance, often working a full-time job while starting a venture Passionate —love their ideas and are delighted to bring them to the market, sometimes turning a hobby into a venture Committed —willing to make personal sacrifices to achieve their goals Ethical Choices Transform Family Business into International Brand Even as a young girl growing up in Paris, Apollonia always knew what she wanted to do when she grew up: take over the family business. But she didn’t anticipate how quickly this would happen. When her father, Lionel Poilâne, and mother died in a helicopter crash in 2002, France lost its most celebrated baker, and Apollonia stepped into the role. She was just 18 years old at the time with plans to matriculate to Harvard in the fall, but the moment her parents had prepared her for had come. As her Harvard admissions essay said, “The work of several generations is at stake.” With organization and determination, Apollonia managed one of the best French bakeries in the world, based in Paris—from her apartment in Cambridge, Massachusetts. She would usually wake up an extra two hours before classes to make sure she could make all the phone calls for work. “After classes I check on any business regarding the company and then do my homework,” she says. “Before I go to bed I call my production manager in Paris to check the quality of the bread.” Because the name Poilâne has earned a place with a very small group of prestige bakers, the 18-year-old was determined to continue the tradition of customer satisfaction and quality her grandfather established in 1932. When her grandfather suffered a stroke in 1973, his 28-year-old son, Lionel, poured his heart into the business and made the family bread into the global brand it is today. Lionel opened two more bakeries in Paris and another in London. He developed and nurtured a worldwide network of retailers and celebrities where bread is shipped daily via FedEx to upscale restaurants and wealthy clients around the world. Experimenting with sourdough is what distinguished Poilâne’s products from bread produced by Paris’s other bakers, and it has remained the company’s signature product. It is baked with a “P” carved into the crust, a throwback to the days when the use of communal ovens forced bakers to identify their loaves, and it also ensures that the loaf doesn’t burst while it’s baking. Today, Poilâne also sells croissants, pastries, and a few specialty breads, but the company’s signature item is still the four-pound miche , a wheel of sourdough, a country bread, pain Poilâne . “Apollonia is definitely passionate about her job,” says Juliette Sarrazin, manager of the successful Poilâne Bakery in London. “She really believes in the work of her father and the company, and she is looking at the future, which is very good.” Apollonia’s work ethic and passion fueled her drive even when she was a student. Each day presented a juggling act of new problems to solve in Paris while other Harvard students slept. As Apollonia told a student reporter from The Harvard Crimson , “The one or two hours you spend procrastinating I spend working. It’s nothing demanding at all. It was always my dream to run the company.” Her dedication paid off, and Apollonia retained control of important decisions, strategy, and business goals, describing herself as the “commander of the ship,” determining the company’s overall direction. Today, Poilâne is an $18 million business that employs 160 people. Poilâne runs three restaurants called Cuisine de Bar in Paris and in London, serving casual meals such as soups, salads, and open-faced tartines . The company ships more than 200,000 loaves a year to clients in 20 countries, including the United States, Japan, and Saudi Arabia. “More people understand what makes the quality of the bread, what my father spent years studying, so I am thrilled about that,” says Apollonia. Critical Thinking Questions What type of entrepreneur is Apollonia Poilâne? What personal ethics drove Apollonia’s decision to take over the family business? Sources: “About Us,” https://www.poilane.com, accessed February 1, 2018; Meg Bortin, “Apollonia Poilâne Builds on Her Family’s Legacy,” The New York Times, https://www.nytimes.com, accessed February 1, 2018; Lauren Collins, “Bread Winner: A Daughter Upholds the Traditions of France’s Premier Baking Dynasty,” The New Yorker, https://www.newyorker.com, December 3, 2012; Gregory Katz, “Her Daily Bread,” American Way magazine, July 15, 2005, p. 34; Clarel Antoine, “No Time to Loaf Around,” Harvard Crimson, http://www.thecrimson.com, October 16, 2003. Most entrepreneurs combine many of the above characteristics. Sarah Levy, 23, loved her job as a restaurant pastry chef but not the low pay, high stress, and long hours of a commercial kitchen. So, she found a new one—in her parents’ home—and launched Sarah’s Pastries and Candies. Part-time staffers help her fill pastry and candy orders to the soothing sounds of music videos playing in the background. Cornell University graduate Conor McDonough started his own web design firm, OffThePathMedia.com, after becoming disillusioned with the rigid structure of his job. “There wasn’t enough room for my own expression,” he says. “Freelancing keeps me on my toes,” says busy graphic artist Ana Sanchez. “It forces me to do my best work because I know my next job depends on my performance.” Martha Irvine, "More 20-Somethings Are Blazing Own Paths in Business," San Diego Union-Tribune, November 22, 2004, p. C6. Managerial Ability and Technical Knowledge A person with all the characteristics of an entrepreneur might still lack the necessary business skills to run a successful company. Entrepreneurs need the technical knowledge to carry out their ideas and the managerial ability to organize a company, develop operating strategies, obtain financing, and supervise day-to-day activities. Jim Crane, who built Eagle Global Logistics from a start-up into a $250 million company, addressed a group at a meeting, saying, “I have never run a $250 million company before, so you guys are going to have to start running this business.” Keith McFarland, "What Makes Them Tick," Inc. 500, October 19, 2005, http://www.inc.com. Good interpersonal and communication skills are important in dealing with employees, customers, and other business associates such as bankers, accountants, and attorneys. As we will discuss later in the chapter, entrepreneurs believe they can learn these much-needed skills. When Jim Steiner started his toner cartridge remanufacturing business, Quality Imaging Products, his initial investment was $400. He spent $200 on a consultant to teach him the business and $200 on materials to rebuild his first printer cartridges. He made sales calls from 8.00 a.m. to noon and made deliveries to customers from noon until 5:00 p.m. After a quick dinner, he moved to the garage, where he filled copier cartridges until midnight, when he collapsed into bed, sometimes covered with carbon soot. And this was not something he did for a couple of months until he got the business off the ground—this was his life for 18 months. Ibid. But entrepreneurs usually soon learn that they can’t do it all themselves. Often they choose to focus on what they do best and hire others to do the rest. Describe the personality traits and skills characteristic of successful entrepreneurs. What does it mean when we say that an entrepreneur should work on the business, not in it? What characteristics lead individuals to become entrepreneurs? Most entrepreneurs are ambitious, independent, self-confident, risk-taking, visionary, creative, energetic, passionate, and committed. Entrepreneurial individuals are often competitive, with a need to achieve, and are self-starters who prefer to lead. Compared to the average population, entrepreneurs are more decisive and confident in their abilities, and they choose moderate risk where they can affect outcomes. Entrepreneurs spot and act on trends, often producing innovative product designs, marketing strategies, and managerial solutions. Entrepreneurs are able and willing to work hard, and are attached to the work and the outcomes, so much that they are willing to make personal sacrifices to achieve their goals.

Business


Business Model Canvas How can the business model canvas help us to describe and assess a business model? A business model describes the rationale of how an organization creates, delivers, and captures value. Entrepreneurs need to develop and refine a business model for themselves as they seek clarity about what they are doing, and also for discussing with colleagues, partners, and other stakeholders. Moreover, this business model will help them to identify opportunities in their internal and external environment. Originally developed by Alex Osterwalder and colleagues, Alexander Osterwalder, Yves Pigneur, Alan Smith, and 470 practitioners from 45 countries. 2010. Business model generation. Wiley. the business model canvas covers the four main areas of any venture: customers, offering, infrastructure, and financial viability. There are nine building blocks that describe and assess a business model: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure. depicts the business model canvas. Business Model Canvas Key Partnerships Who are our key partners and suppliers? Which key resources are from which partner? What key activities are done by partners? Key Activities What key activities do our value proposition, channels, customer relationships, and revenue streams require? Value Proposition What do we provide our customers? What problem are we solving? What are we offering to each customer segment? Customer Relationships What type of relationship does each customer segment want? How costly are the relationships? How do we integrate them with the rest of our business model? Customer Segments Who are our customers? From whom are we creating value? Key Resources What key resources do our value proposition, channels, customer relationships, and revenue streams require? Channels How will we reach our customer segments? How are our channels integrated? Which channels are the most efficient? Cost Structure What are the most important costs in our business model? Which key activities and key resources are the most expensive? Revenue Streams What are customers willing to pay? What and how do they currently pay? How much does each revenue stream contribute to overall revenue? (Attribution: Copyright Rice University, OpenStax, under CC BY NC-SA-NC-SA 4.0 license) Nine Building Blocks of the Business Model Canvas Customer segments : Without customers, businesses cannot survive. Businesses must identify and understand their customers, and they can group these customers into segments with common characteristics. Value propositions : A company creates value, or benefits, for customers by solving a problem or satisfying a need. The value proposition is the reason that customers choose one option over another when deciding what to buy. Although certainly not an exhaustive list, customers may value: newness, performance, customization, design, brand, price, cost reduction, risk reduction, accessibility, and convenience. Channels : Channels bring the value proposition to the customers through communication, distribution, and sales. Companies can reach their customer segments through a mix of channels, both direct (e.g., through sales force and web sales) and indirect (e.g., through own stores, partner stores, and wholesalers), to raise awareness, allow for purchase and delivery, provide customer support, and support other important functions of the business. Customer relationships : Companies need to maintain relationships with their customers to acquire and retain customers and boost sales. Strong customer relationships can significantly impact overall customer experience. There are many categories of customer relationships including personal assistance, self-service, automated service, user communities, and cocreation. Revenue streams : There are two types of revenue stream: revenues from one-time customers and revenues from ongoing payments. Revenue pricing mechanisms vary from fixed (e.g., predefined prices based on static variables) to dynamic (e.g., price changes based on market conditions). Revenue streams can be generated through asset sales (e.g., selling a physical product), usage fees, subscription fees, licensing, brokerage fees, advertising, and temporarily selling the use of a particular asset (e.g., lending, renting, or leasing). Key resources : Any business needs resources—physical, financial, intellectual, and/or human—to function. These resources enable the company to provide their products or services to their customers. Key activities : Key activities are the critical tasks that a company does to succeed and operate successfully. Different companies focus on different activities in categories such as production, problem-solving, and platform/network. Key partnerships : Companies build partnerships to optimize their business, reduce risk, or gain resources. There are four main types of partnerships: strategic alliances between noncompetitors, coopetition—strategic alliances between competitors, joint ventures, and buyer-supplier relationships. Cost structure : All businesses incur costs through operation, whether fixed or variable. They may also face economies of scale and scope. Companies consider their cost structures in two strategies—cost-driven, where all costs are reduced wherever possible, and value-driven, where the focus is on greater value creation. Cost structures will often consider fixed costs, variable costs, economies of scale, and economies of scope. Business Model Canvas Application: Apple To best illustrate the business model canvas, we can take a look at Apple illustrated in . Customer segments : Apple’s main consumer segment is the mass market, and Apple sells globally to customers all over the world. These customers tend to have similar needs and problems that can be addressed through globally standardized offerings such as the iPhone and iPad (hardware) as well as iTunes (software). Value proposition : In a competitive marketplace, Apple must offer a bundle of products and services that cater to the customer segment. As one illustration, Apple iTunes offers a seamless music experience where customers can easily find, purchase, and download music all in one place. Channels : Customers are able to interact with Apple in person through retail stores and Apple stores as well as online through the iTunes store and Apple’s company website. Customer relationships : Apple’s customers are dedicated to the brand and often have many Apple products, such as iPhones, iPads, and MacBooks. The Apple lovemark has become a status symbol. Revenue streams : Apple earns most of its revenues from selling products such as iPods, and the iTunes store protects them from competition with similar features. Key resources : Apple’s key resources include its name brand, hardware and software, and content. Key activities : Apple products have outstanding marketing and hardware design. Key partnerships : Through negotiations and contracts, Apple’s iTunes store is one of the world’s largest online music libraries. Cost structure : Most of Apple’s costs come through manufacturing and marketing, including employee salaries. Business Model Canvas for Apple Key Partnerships Record companies OEMs People Content & agreements Key Activities Marketing Hardware design Value Proposition Seamless music experience Customer Relationships Lovemark Switching costs Customer Segments Mass market Key Resources Apple brand iPad hardware iTunes software Content & agreements Channels Retail stores Apple stores Apple.com iTunes store Cost Structure People Manufacturing Marketing/sales Revenue Streams iTunes store Large hardware revenues Some music revenues (Attribution: Copyright Rice University, OpenStax, under CC BY NC-SA-NC-SA 4.0 license) The business model canvas can be used to determine how to compete, as either an initial entrant or a fast follower. An entrepreneurial organization is often a first mover by introducing a new product or service category that can potentially define an innovation’s characteristics in the minds of buyers, gaining valuable name recognition and brand loyalty. First movers can also lock in key resources (such as certain distribution channels) and set a technology standard. Second movers have the potential advantage of learning from and improving on the first mover’s efforts. For example, second movers can take advantage of existing customers and optimize the first mover’s product to add new features, especially when customers are willing to switch. Research on the battle between first and second movers indicates that they are equally likely to win the market. Lieberman, M.B. and Montgomery, D.B., 1988. First-mover advantages. Strategic Management Journal, 9(S1), pp.41-58. One illustration of first and second movers is in China’s competitive mobile payment industry. The War of Two “Horses”: First and Second Movers in China’s Mobile Payment Industry Over the last decade, Chinese people have been rapidly and systematically utilizing mobile payment—that is, payment services performed through a mobile device. This trend kicked off with China’s first e-commerce wholesale platform Alibaba, founded by Jack Ma from his humble apartment in Hangzhou, China, in 1999. Responding to eBay’s growing presence in China a few years later, Jack Ma launched taobao.com, a consumer-to-consumer (C2C) and business-to-consumer (B2C) online marketplace. To support taobao.com’s transactions, Jack Ma released Alipay later that year as a “third-party online payment platform.” Mobile payment became a reality in China when Alipay released its mobile app in 2008, which can be used to pay water, electricity, and gas bills as well as mobile phone fees. After 2011, when the first third-party payment license was issued to Alipay, more Chinese consumers replaced their credit cards and debit cards with Alipay. By 2013, Alipay overtook PayPal as the world's largest mobile payment platform. Alipay dominated 69.6 percent of China’s mobile payment market. Jack Ma was the “only horse” (the surname Ma means “horse” in Chinese) in the field and a clear first mover, but faced a solid rival in second mover IT giant Tencent. Ma Huateng founded Tencent Inc. in 1998, and its early years focused on the iconic product of QQ, China’s first instant messaging software product. Tencent expanded into other Internet fields such as games, music, microblogging, and online shopping. By 2011, Tencent’s QQ was China’s most successful instant messaging software with over 700 million active users, and the company released WeChat, another instant messaging software product. Tencent’s two software products competed in the same space, with QQ primarily PC-based with “online” and “offline” status, and WeChat smartphone-based without “offline” status. WeChat soon acquired over 300 million users. Tencent is often described as a successful “second mover,” imitating a promising business model introduced by innovative first-mover firms and then surpassing these firms. The two IT giants faced off in 2013 when each invested in a taxi booking app: Didi (by Tencent) and Kuaidi (by Alibaba). In an August 2013 5.0 version update of WeChat, users were surprised to find a “wallet” function added to the app, but most did not know how to use it. However, for Jack Ma and Ma Huateng, all had become clear: the two “horses” were going to war. Tencent offered and then linked three seemingly unrelated apps: smartphone-based WeChat, taxi-booking app Didi, and a new wallet function. In January 2014, WeChat wallet was linked to Didi as the payment method. Passengers using WeChat to pay the taxi fare received a generous subsidy from Tencent, making taxi fare lower than bus fare. Alipay and the Kuaidi app responded in a similar way. While widely welcomed by white-collar workers, the money-burning campaign cost each side approximately 1.5 billion RMB (US$244 million). For Ma Huateng, the campaign is not just about occupying the newly born taxi-booking app market in China, but also about penetrating Jack Ma’s precious share of the mobile payment market by “teaching” WeChat users how to use make mobile payments. Weeks later, Ma Huateng continued his “teaching” in the virtual red envelope campaign during Chinese Spring Festival. The virtual red envelope is modeled after the Chinese tradition of exchanging packets of money among friends and family members during holidays. WeChat introduced the “red envelope shake” to the Chinese Spring Festival Gala, during which users were invited to shake their smartphones for a chance to win red envelopes, and eight million WeChat users participated in this promotion campaign. WeChat users can save the money won to their WeChat “wallet” and then send it to others with their own red envelope. WeChat sent 1.2 billion red envelopes worth over half a billion RMB (US$82 million) during the promotion. However, to use the money from the red envelope, WeChat users needed to add their bank card to their WeChat account and thus fully activate the WeChat payment function. Retrospectively, Jack Ma regarded the WeChat red envelope promotion as a “Pearl Harbor attack” on his territory. After the Chinese Spring Festival, the money-burning war game between first mover Alipay and second mover WeChat continued. Both sides heavily subsidized taxi passengers on their taxi-booking apps through 2014. In the third quarter of 2014, Alipay’s market share reached a peak of 82.6 percent, but WeChat’s increasing presence the in mobile payment market was unstoppable. Both sides engaged in a new red envelope campaign during the next Spring Festival holiday. While Alipay fought hard to defend its market share, WeChat’s social nature smoothly transformed users into payers. By the end of 2016, both sides saw continuous growth in user population; however, Alipay’s market share dropped to 54.10 percent, and Tencent and WeChat’s market share rose to 37.02 percent. In that year, consumers spent 157.55 trillion RMB (US$23.72 trillion) on mobile devices in China, and QR codes and POS machines supporting both Alipay and WeChat could be found at street food vendors, supermarkets, department stores, and online markets. Discussion Questions: What tactics did Tencent use to encroach on Alibaba’s share of the mobile payment market? What key resources did WeChat use to compete with Alipay? Does WeChat’s presence in the mobile payment market always negatively affect Alipay? Would you rather be a first mover or a second mover in a new technology market? Sources: Sophia Yan, “6 things you never knew about Alibaba”, CNN, May 12, 2015, http://money.cnn.com/2015/05/12/technology/alibaba-surprising-facts/index.html; Paul Mozur, “In Urban China, Cash Is Rapidly Becoming Obsolete”, New York Times, July 16, 2017, https://www.nytimes.com/2017/07/16/business/china-cash-smartphone-payments.html; Eva Xiao, “How WeChat Pay became Alipay’s largest rival”, Tech in Asia, April 20, 2017, https://www.techinasia.com/wechat-pay-vs-alipay; Anonymous Author, “WeChat”, Wikipedia, October 2 2017, https://en.wikipedia.org/wiki/WeChat#WeChat_Pay_payment_services; Anonymous Author, “WeChat red envelope”, Wikipedia, September 19, 2017, https://en.wikipedia.org/wiki/WeChat_red_envelope; Anonymous Author, “Alipay”, Wikipedia; September 8, 2017, https://en.wikipedia.org/wiki/Alipay; Nie Chenjing, “Mobile Payment Report: Alipay Shares Occupy Half of the Country”, Xinhuanet, March 31, 2017; http://news.xinhuanet.com/fortune/2017-03/31/c_1120732899.htm; Li Yanxia, “Central Bank Report: China Mobile’s payment amount increased by nearly 50% year-on-year in 2016, March 16, 2017, http://it.people.com.cn/n1/2017/0316/c1009-29150183.html. What are the key components of the business model canvas? What are the advantages and disadvantages of being a first mover? How can the business model canvas help us to describe and assess a business model? A business model provides an explanation of how an organization creates, delivers, and captures value. The business model canvas achieves this goal by describing four main areas of any venture—customers, offering, infrastructure, and financial viability—through nine building blocks that describe and assess a business model. Customer segments are categories of customers that have common characteristics. The value proposition is the reason that customers choose one option over another when deciding what to buy. Channels bring the value proposition to the customers through communication, distribution, and sales. Companies need to maintain relationships with their customers to acquire and retain customers and boost sales. There are two general types of revenue stream: revenues from one-time customers and revenues from ongoing payments. Any business needs resources—physical, financial, intellectual, and/or human—to function and provide their products or services to their customers. Key activities are the critical tasks that a company does to succeed and operate successfully. Companies build partnerships to optimize their business, reduce risk, or gain resources. All businesses incur costs through operation, whether fixed or variable. business model Rationale of how an organization creates, delivers, and captures value. business model canvas A tool to describe and assess a business model, encompassing nine components: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure. first mover Introducing a new product or service category first can potentially define an innovation’s characteristics in the minds of buyers, gaining valuable name recognition and brand loyalty. second movers Second-to-market organization that can learn from and improve on the first mover’s efforts.

Business


New Venture Financing How do entrepreneurs finance their new business ideas? Many entrepreneurs don’t start a business because they believe that starting a venture will require substantial sums of funding, and they personally do not possess these reserves. The most common means of starting new ventures is by bootstrapping —that is, attempting to found and build a company from personal finances or from the operating revenues of the new company. This term comes from the expression “pull yourself up by your bootstraps” (the fingerholds on boots). Bootstrapping can complement traditional finance sources, helping entrepreneurs to reduce their reliance on them or eliminate these sources entirely. depicts seven bootstrapping strategies. Bootstrapping Strategies Strategy Example Source: Adapted from Martin Zwilling,“7 Ways to Bootstrap Your Business,” Entrepreneur Magazine, December 25, 2015, https://www.entrepreneur.com/article/254217; https://business.fau.edu/centers/adams-center/ace-success-stories/ ; Lucy England, “The artist who painted Facebook's 1st office took stock instead of cash — and now he is worth $200 million,” Business Insider , June 9, 2015, https://www.businessinsider.com/graffiti-artist-painted-facebooks-first-office-now-worth-200-million-2015-6; Todd Bishop, “Amazon at 20 years: From garage startup to global technology powerhouse,” GeekWire , July 9, 2014, https://www.geekwire.com/2014/amazon-20-years-garage-startup-global-powerhouse/. Stick to a business domain you know and love. Two recent Florida Atlantic University alumni transformed their love of surfing and the ocean into 4ocean, which sells bracelets and other products. The sales pay local fishermen to clean up plastic and trash in waterways. Find team members to work for equity rather than cash. In 2005, Sean Parker, founding president of Facebook, asked artist David Choe to take stock instead of cash for painting the Facebook office walls. That stock was eventually worth $200 million. Build a plan around your budget rather than your wishes. Cam Ross started Celise, a biodegradable goods supplier, in college. Strapped for financing, Cameron planned around his available budget, which depended on current sales and wins in business plan competitions. Defer your urge to have office space until you have customers. In July 2014, Amazon founder Jeff Bezos started the company from the garage of a home he rented in Bellevue, Washington. Ask for advances on royalties and vendor-deferred payments. In the music industry, many songwriters have sought advances against future royalties from their songs. Negotiate inventory management with suppliers and distributors. Pet food delivery start-up Petcircle is one of Australia’s fastest-growing companies. They attribute their early success to bootstrapping via managing supplier terms carefully. Choose a business model to optimize your revenue flow and timing. Chicago-based restaurant Alinea creates themes and sells out seats month in advance, allowing them to buy in bulk with cash from customers. As payments are upfront and all sales are final, revenue is fixed prior to delivering the meals. This business model eliminates many of the downsides of traditional restaurants’ business models. (Attribution: Copyright Rice University, OpenStax, under CC BY NC-SA-NC-SA 4.0 license) Types of Capital There are two main types of capital for entrepreneurs. Entrepreneurs can access debt capital , which is borrowed money that must be repaid at some agreed-upon future date (e.g., from banks, credit cards, or finance companies), and equity capital , which is the owner’s investment in the company and does not have a specific date for repayment (e.g., angel investors, venture capital). Debt financing is available to most entrepreneurs and can involve loans of various lengths. Short-term loans typically require repayment in less than 1 year and are often credit-created or bank loans. Immediate-term loans must be repaid in between 1 and 10 years, usually in periods. They are useful for small and moderate-sized companies. Long-term loans last over 10 years. Businesses must be operating for a long period of time to be approved for these loans to show stability and reliability to repay their debt. Equity capital does not require a business to promise to repay any debt. Equity capital is an investment in the business, frequently from selling common stock. Sources of Capital Entrepreneurs can utilize capital from several sources. The most common type of capital is personal savings. By using personal savings, the venture eliminates the expectation of repayment on a loan, and the entrepreneur does not face as much financial backlash when profits do not meet expectations. Friends and relatives can often be a fast way to gain capital. However, financial issues may create tension in these relationships. Angel investors are individual investors or groups of experienced investors who provide venture financing from their own funds. Venture capital is financing obtained from venture capitalists, investment firms that specialize in financing small, high-growth companies and receive an ownership interest and a voice in management in return for their investment. Internal funds are retained earnings within a firm that can be reinvested into the business. Banks offer many types of loan services, including lines of credit, straight commercial loans, term loans, accounts-receivable loans, warehouse-receipt loans, and collateral loans. A line of credit is an informal agreement between the bank and the borrower (the business). Straight commercial loans are based on the borrower’s financial statements and are typically made for 30–90 days. Term loans mature in 1 to 10 years. Accounts-receivable loans are made against a borrower’s receivables, and once collected, the bank is repaid. Warehouse-receipt loans use inventory as collateral for a loan, and as the inventory is sold, the loan is paid off. Collateral loans use real estate mortgages, life insurance policies, stocks, and bonds as security to ensure loan repayment. Crowdfunding is the process of raising new venture funds from a large “crowd” audience, typically virtually from the Internet. Crowdfunding is rapidly becoming a popular way to fund new ventures, with over $1.04 billion in 2018 for U.S. businesses alone. Crowdfunding comes in three main forms: (1) reward-based, in which backers receive an early version of the product or another reward, (2) equity, through which individual investors receive a company share, and (3) debt, which allows the backer to earn interest. The world’s largest crowdfunding platform is Kickstarter, which has received over $4 billion in pledges from 15.5 million backers for 25,700 projects. Kickstarter. 2019. Kickstart stats. https://www.kickstarter.com/help/stats The average crowdfunding campaign raises $818 Statista. 2019. Crowdfunding worldwide. https://www.statista.com/outlook/335/100/crowdfunding/worldwide#market-users ; however, some companies raise millions of dollars. Typically, each crowdfunding project sets a goal for a specific time period, and entrepreneurs publish web pages to depict their product services. Making a Heavenly Deal You need financing for your start-up business. How do you get angels interested in investing in your business venture? Show them something they understand, ideally a business from an industry they’ve been associated with. Know your business details: potential investors want to know about annual sales, gross profit, profit margin, and expenses. Be able to describe your business—what it does and who it sells to—in less than a minute. Limit PowerPoint presentations to 10 slides. Angels can always leave their money in the bank or invest in another promising ventures, so an investment is often in a sector that interests them. Timing is also important—knowing when to reach out to an angel can make a huge difference. Present a competent management team with a strong, experienced leader who can explain the business and answer questions from potential investors with specifics, and can quickly earn potential investors’ trust and respect. Angels prefer something they can bring added value to and may want to be involved with your company—for example, with a seat on your board of directors. Emphasize the likely exits for investors and know who the competition is, why your solution is better, and how you are going to gain market share with an infusion of cash. Sources: Guy Kawasaki, “The Art of Raising Angel Capital,” https://guykawasaki.com, accessed February 2, 2018; Murray Newlands, “How to Raise an Angel Funding Round,” Forbes, https://www.forbes.com, March 16, 2017; Melinda Emerson, “5 Tips for Attracting Angel Investors,” Small Business Trends, https://smallbiztrends.com, July 26, 2016; Nicole Fallon, “5 Tips for Attracting Angel Investors,” Business News Daily, https://www.businessnewsdaily.com, January 2, 2014; Stacy Zhao, “9 Tips for Winning over Angels,” Inc., https://www.inc.com, June 15, 2005; Rhonda Abrams, “What Does It Take to Impress an Angel Investor?” Inc., https://www.inc.com, March 29, 2001. What sources of capital are available to entrepreneurs? What are the associated risks for various sources of capital? How do entrepreneurs finance their new business ideas? Bootstrapping is attempting to found and build a company from personal finances or from the operating revenues of the new company. Entrepreneurs can access debt capital, which is borrowed money that must be repaid by a future date, and equity capital, which is the owner’s investment in the company and does not have a specific date for repayment. Crowdfunding is the process of raising new venture funds from a large “crowd” audience, typically virtually from the Internet. angel investors Individual investors or groups of experienced investors who provide venture financing from their own funds. crowdfunding Process of raising new venture funds from a large “crowd” audience, typically virtually from the Internet. debt capital Borrowed money that must be repaid at some agreed-upon future date. equity capital Owner’s investment in the company; does not have a specific date for repayment. venture capital Financing obtained from venture capitalists, investment firms that specialize in financing small, high-growth companies and receive an ownership interest and a voice in management in return for their investment.

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Design Thinking How can entrepreneurs leverage design thinking to solve complex problems and navigate uncertain environments? Design thinking is a process commonly used by designers to find the solution to complex issues, navigate new or uncertain environments, and create a new product for the world. Design thinking uses core elements and skills of play, empathy, reflection, creation, and experimentation to collaborate, create, and build upon findings. In design thinking, failure is not a threat, but an avenue to further learning. Through observation, synthesis, alternatives, critical thinking, feedback, visual representation, creativity, problem-solving, and value creation, entrepreneurs can use design thinking to identify unique venture opportunities. Design thinkers welcome difficulties and constraints, as these pave the way to innovative ideas and solutions. It is important, however, that these ideas are feasible, viable, and desired by people. Ideo To demonstrate the process for innovation for a 1999 episode of ABC’s late-night news show Nightline , IDEO created a new shopping cart concept, considering issues such as maneuverability, shopping behavior, child safety, and maintenance cost. The show concentrated on IDEO’s design process, recording as a multidisciplinary team brainstormed, researched, prototyped, and gathered user feedback on a design that went from idea to a working appearance model in four days. (Credit: David Armano/ flickr/ Attribution 2.0 Generic (CC BY 2.0)) There are three main phases of design thinking: inspiration, ideation, and implementation. The problem, or design challenge, is the inspiration. Ideation is a creative process of solving the design challenge based on observations. Ideas are turned into actions in the implementation phase. Possible solutions are tested through experiments to create the best version of the product. In all of these phases, there are two main types of thinking: convergent and divergent. Convergent thinking moves from broad thoughts to concrete understanding, where the thoughts from divergent thinking can be narrowed down to the most promising ideas and solutions. Divergent thinking uses the imagination to open the mind to new possibilities and solutions, and ultimately become more innovative. Stanford Design Thinking IDEO 6 Tips Always say yes to an offer. Whether the other person offers you a glass of water, snacks, or even a tour of their home, you should always accept. This small gesture allows you to transition from a researcher to a guest in their home. It’s always important to spend time building rapport, even if your initial conversation feels completely off topic. Later, when you actually dive into your research questions, the conversation will flow more freely. Wear generic clothing. Oftentimes, clothing can communicate social status or reflect personal taste that others may disagree with. It’s better to make yourself as neutral as possible so that you can fit in with people of all backgrounds. Try to avoid wearing logos or looking too fancy. Treat people like partners in research. The people you interview aren’t just research subjects or data points. Instead, you should be transparent with them and show that you value their input. Their stories and feedback play a huge role in what we end up designing, so it’s great to let them know why they are a fundamental part of our project. Leave comfortable silences. When it seems like the other person is finished speaking, most people feel the need to immediately move on to the next question. Instead, you should create some space by just nodding and writing things down—it gives the other person room to continue speaking beyond the parameters of the previous question and to perhaps reveal information about themselves that you wouldn’t learn otherwise. Take the spotlight off the other person. As part of our design process, we like to bring provocations into research sessions. This means that we sketch out rough concepts to show the other person, and we ask them for feedback. By shifting our attention from the person to another object, we can remove any pressure they're feeling. These outside objects also allow participants to communicate in a nonverbal way—the way they interact with them can reveal tacit attitudes or behaviors. As a side bonus, you get to bring home some tangible artifacts that you can refer back to during the design process. Try very intentionally to fall in love with each person (even if it’s just a little bit). Even if you don’t naturally click with someone, you can always find something you truly appreciate about them, whether it’s their voice or their passion for the topic at hand. When you want to fall in love with someone, everything changes—your curiosity about their life story, your body language, and your empathy toward their situation. These small shifts will show your interviewee that they don’t have to perform or show the “best” parts of themselves, because they can tell that you're deeply on their side. Even after the interview, you'll find yourself coming up with better ideas because it’s much easier to design for someone that you love. Source: Maggie Zhao. 6 Tips from IDEO designers on how to unlock insightful conversation. https://www.ideou.com/blogs/inspiration/6-tips-from-ideo-designers-on-how-to-unlock-insightful-conversation; https://dschool.stanford.edu/resources. What is design thinking? What are some advantages of design thinking? How can entrepreneurs leverage design thinking to solve complex problems and navigate uncertain environments? Design thinking uses core elements and skills of play, empathy, reflection, creation, and experimentation to collaborate, create, and build upon findings. Through observation, synthesis, alternatives, critical thinking, feedback, visual representation, creativity, problem-solving, and value creation, entrepreneurs can use design thinking to identify unique venture opportunities. There are three main phases of design thinking: inspiration, ideation, and implementation. The problem, or design challenge, is the inspiration. Ideation is a creative process of solving the design challenge based on observations. Ideas are turned into actions in the implementation phase. Possible solutions are tested through experiments to create the best version of the product. In all of these phases, there are two main types of thinking: convergent and divergent. Convergent thinking moves from broad thoughts to concrete understanding, while the thoughts from divergent thinking can be narrowed down to the most promising ideas and solutions. Divergent thinking uses the imagination to open the mind to new possibilities and solutions, and ultimately to become more innovative. design thinking Processes used by designers and entrepreneurs to find the solution to complex issues, navigate new or uncertain environments, and create a new product for the world.

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Optimal Support for Entrepreneurship How can government support entrepreneurship? Governments generally want to support entrepreneurship because successful businesses create value among the population. This value permits companies to provide jobs, pay corporate taxes, and enable workers to pay taxes. Governments also get political credit for policies that increase commerce, wealth creation, and job creation. In general, government sets and changes the institutional conditions that encourage or discourage entrepreneurs from either innovating or seeking profit by other means. Government can support entrepreneurship by reducing negative incentives or by increasing positive ones. In particular, government can: Reduce barriers to entrepreneurship erected by previous governments or in society. Protect intellectual property and capital through the patent system and the rule of law. Provide businesses with technology ready for commercialization. Increase incentives for entrepreneurship, which comes at a cost to other priorities. Provide special benefits to favored industries, businesses, or regions, although such cronyism can come at a political and economic cost by distorting markets and playing favorites. Less Discouragement: Reducing Barriers Regulations, like laws, set rules that help entrepreneurs predict what will happen if they take certain risks. For this reason, regulations should be clear and should not change quickly or merely when a new political majority takes power. In general, a regulation is a restriction, and any restriction tends to reduce innovation by limiting options. For this reason, reducing regulations tends to unleash innovation. This is not always the case. For example, zoning restrictions might push similar businesses to be near one another, leading to increased cross-fertilization of ideas. Also, when government enforces property rights including intellectual property, preventing others from using that property, entrepreneurs feel more secure in employing their capital. Similarly, entrepreneurs feel more secure when their government refrains from appropriating property via eminent domain or socialist takeovers. Laws and regulations often reflect the values of a particular political and economic moment, and they become outdated because of the speed of innovation. Technology changes faster than bureaucrats can keep up. For example, two different companies had similar revolutionary technology: Skype and Free World Dialup (FWD). Both were able to provide free “telephone calls” over the Internet worldwide. In the United States, FWD had to wait 18 months for regulators to determine that FWD was exempt from traditional U.S. telecommunication regulations. Meanwhile, abroad, free from this process, Skype had years to develop its user base. FWD could not compete and went out of business, leaving Skype the undisputed champion. Adam Thierer, Permissionless Innovation, 109-10. Regulations also tend to favor larger, established businesses that innovate less, and they tend to disfavor smaller, entrepreneurial ventures. International trade barriers such as tariffs often protect a country’s existing businesses and make it relatively difficult for new businesses from other countries to compete. Bureaucracy also can make it difficult, costly, and time consuming to start a business. In countries with high levels of corruption, proprietors may have to pay extra fees to bureaucrats to get their paperwork to the top of the pile. Taxation also reduces the profit from an enterprise, so taxation reduces the likelihood that entrepreneurs will risk their capital. Progressive taxation, unlike a flat tax, penalizes businesses at higher rates for making more money, which also can discourage entrepreneurship. Reducing taxes and regulation can encourage entrepreneurship, although these changes also can increase the competitiveness of established businesses, which entrepreneurs will take into account. Also, providing tax exemption for nonprofit enterprises and social entrepreneurship encourages a wide variety of value-creating services in civil society. In addition to government barriers to entrepreneurship, there often are cultural barriers. For example, in some countries, discrimination on the basis of sex, race, or religion prevents many would-be entrepreneurs from getting equal access to the resources they would need to thrive. Government can step in to outlaw such discrimination and protect equal rights. Government also can address culturally discriminatory attitudes that are not illegal by means of education campaigns. Government also can subsidize external constraints on growing a business, such as by subsidizing childcare so that entrepreneurs can spend more time on their work at lower cost. More Discouragement: Increasing Positive Incentives Government can reduce the cost of technological innovation by simply giving government-produced technology to the private sector so that the technology can be commercialized. Government also can change the rules of financing to reduce the transaction cost or the actual cost of acquiring funds. For instance, government can make it easier or less costly for businesses to receive government loans, can subsidize lending, or can subsidize borrowing. All of these efforts come at a cost either directly, at the cost of the subsidy, or indirectly, by providing cheaper funds to riskier ventures than the private loan market would otherwise provide. Government also can provide venture capital to attract new ventures, especially in areas where the private sector cannot afford to take expensive risks or has little experience with this kind of funding. This capital, however, can prop up lower-quality businesses that ultimately will not succeed. The private sector, risking its own capital instead of taxpayers’ money, generally may not have supported such less-investible businesses. Furthermore, by focusing on potential high-growth firms, government can shortchange other kinds of firms. Finally, research suggests that high-quality projects are what attract dollars, rather than extra dollars attracting investible projects. Steve Kreft, and Russell Sobel, "Public Policy, Entrepreneurship, and Economic Freedom," Cato Journal 25:3 (2005). Government also can subsidize other elements of innovation and building businesses, such as direct subsidies for research and technology development or for building facilities. This kind of support easily slides into cronyism where, for a variety of reasons, particular industries or regions receive special treatment even when they are not the best-positioned options from an economic perspective. For example, government might limit its business contracts to only certain kinds of small businesses, even though a larger business might provide better service per dollar. Government also can put resources into training programs, which can include formal entrepreneurship and business courses at institutions of higher education, “incubators” that provide business advice, or informal networking events in local communities. Longer-term projects, closer to the beginning of the entrepreneur pipeline, include public financing of education in financial literacy, comfort with risk taking, historical exemplars of entrepreneurship, and leadership to develop a culture of entrepreneurial thinking that can start as early as elementary school. The local government can market the value of social entrepreneurship and small businesses for the community, providing moral support for volunteerism, low-profit and nonprofit service ventures, and structures such as a local chamber of commerce. In thriving economies where many people have leisure to pursue low-profit and nonprofit ventures, there is room for more social entrepreneurship. Therefore, to maximize social entrepreneurship, pro-growth policies that support entrepreneurship in general may be the best policies in the long run. Finally, the government can also support entrepreneurship by making technology developed in federal labs available for commercialization, as illustrated by The Right Stuff case. The Right Stuff Rather than use traditional advertising methods like magazine, newspaper, and television advertising, many entrepreneurs use social media to connect to existing and future customers. Posting information about products and services is the obvious use. Twitter also gives entrepreneurs a two-way channel for listening to and finding out more about their customers—what they like or dislike about their products and services, how they feel about the brand, and what suggestions they have for improvement. (Credit: David Belaga/ Attribution 2.0 Generic (CC BY 2.0)) Technology and Innovation: The Right Stuff David Belaga enjoyed a successful corporate career of over 25 years at Pepsi, Wyeth, Hallmark, and other leading companies, and was keen to start his own technology-based venture. Although Belaga possessed an undergraduate degree in psychology, he sought to take advantage of technology from federal labs across the United States. While searching the National Aeronautics and Space Administration (NASA) database of available patents to license, Belaga discovered NASA scientist Dr. John Greenleaf’s patent to rehydrate astronauts who suffer from severe dehydration when reentering Earth’s atmosphere. Greenleaf et al.’s research suggested that the formula would also be ideal for athletes facing dehydration due to exertion, sun exposure, or altitude, which could then result in headaches, muscle cramps, dizziness or light-headedness, and other side effects. Key ingredients are: filtered water, sodium citrate (to protect against gastrointestinal upset), sea salt or sodium chloride (key components of sweat), all-natural flavors, citric acid (to cut saltiness), high-intensity sweetener, natural flavors, and preservatives. The liquid concentrate ensure s quick absorption by the body, and the formula does not contain any World Anti-Doping Agency (WADA)-listed banned substances, heavy metals, or other adulterants. NASA’s Technology Partnership Division has the mission of developing partnerships between NASA enterprises and nonaerospace U.S. industrial firms to commercialize innovative technologies. NASA’s Technology Partnership Division offers space, licensing, software, and other small business agreements, and NASA benefits from division license agreements that help fund vital research and development for future products. NASA prioritizes “small business” partnerships, classified by the U.S. Small Business Administration as “. . . firms that are independently owned and operated, organized for profit, and not dominant in the field.” Belaga liked that the formula was used by astronauts, and thought to himself, “The reality is that in less time than it takes to read this paragraph, Coke (Powerade) and Pepsi (Gatorade) could do a work-around formula, but it wouldn’t be the one supported by all the science.” Belaga named the formula “The Right Stuff,” reflecting the book and movie linked to the NASA program and due to the formula’s superior efficacy. Following the submission of a 150-page business plan for The Right Stuff’s commercialization and a 60-day public comment period on the Federal Register , Belaga negotiated final approval and exclusive rights to the technology with a share of royalties for NASA and a guarantee of production in the U.S. Belaga started his venture with $300,000 in personal funds and $325,000 in “friends and family” investment, and developed a network of contracts with suppliers for supply chain management, manufacturing, and marketing activities. Prior to the launch, Belaga empaneled a set of endurance athletes to create the preferred flavor profiles. He later learned that power athletes (e.g., football, baseball, hockey, and basketball) prefer a sweeter and fruitier taste than do endurance athletes. Although initial consumer market research suggested the possibility for use by individual endurance athletes (e.g., runners) and first responders (e.g., military, fire, and police), Belaga focused on the institutional market of professional athletic teams, universities, sports clubs, and high schools. Today The Right Stuff is used by most professional North American sports teams (MLB, NBA, NFL, NHL, MLS, etc.) and hundreds of universities across the U.S. Discussion Questions What benefits do David Belaga and The Right Stuff accrue from the affiliation with NASA technology? What are the societal benefits of the government making technology available for commercialization licensing? Sources: Siri Terjesen. 2015. The Right Stuff. Entrepreneurship Theory & Practice. How can governments reduce barriers to entrepreneurship? How can governments increase positive incentives for entrepreneurship? How can government support entrepreneurship? Government can support entrepreneurship by reducing negative incentives or by increasing positive ones. In particular, government can: Reduce barriers to entrepreneurship erected by previous governments or in society. Protect intellectual property and capital through the patent system and the rule of law. Provide businesses with technology ready for commercialization. Increase incentives for entrepreneurship, which comes at a cost to other priorities. Provide special benefits to favored industries, businesses, or regions, although such cronyism can come at a political and economic cost by distorting markets and playing favorites. Chapter Review Questions What are the differences between classic entrepreneurs, multipreneurs (entrepreneurs with many start ups), and intrapreneurs (Entrepreneurs in traditional businesses)? What differentiates an entrepreneur from a small-business owner? What are some major factors that motivate entrepreneurs to start businesses? How can potential business owners find new business ideas? Why is it important to develop a business plan? What should such a plan include? What financing options do small-business owners have? What risks do they face? How do the small-business owner’s and entrepreneur’s roles change over time? What are the benefits to small firms of doing business internationally, and what steps can small businesses take to explore their options? Describe the financial and management assistance programs offered by the SBA. What significant trends are occurring in the small-business arena? How is entrepreneurial diversity impacting small business and the economy? How do ethics impact decision-making with small-business owners? Management Skills Application Exercises After working in software development with a major food company for 12 years, you are becoming impatient with corporate “red tape” (regulations and routines). You have an idea for a new snack product for nutrition-conscious consumers and are thinking of starting your own company. What entrepreneurial characteristics do you need to succeed? What other factors should you consider before quitting your job? Working with a partner, choose one to be the entrepreneurial employee and one to play the role of his current boss. Develop notes for a script. The employee will focus on why this is a good idea—reasons he will succeed—and the employer will play devil’s advocate to convince him that staying on at the large company is a better idea. Then switch roles and repeat the discussion. What does it really take to become an entrepreneur? Find out by interviewing a local entrepreneur or researching an entrepreneur you’ve read about in this chapter or in the business press. Get answers to the following questions, as well as any others you’d like to ask: How did you research the feasibility of your idea? How did you develop your vision for the company? How long did it take you to prepare your business plan? Where did you obtain financing for the company? Where did you learn the business skills you needed to run and grow the company? What are the most important entrepreneurial characteristics that helped you succeed? What were the biggest challenges you had to overcome? What are the most important lessons you learned by starting this company? What advice do you have for would-be entrepreneurs? Your class decides to participate in a local business plan competition. Divide the class into small groups, and choose one of the following ideas: A new computer game based on the stock market A company with an innovative design for a skateboard Travel services for college and high school students Prepare a detailed outline for the business plan, including the objectives for the business and the types of information you would need to develop product, marketing, and financing strategies. Each group will then present its outline for the class to critique. Managerial Decision Exercises A small catering business in your city is for sale for $250,000. The company specializes in business luncheons and small social events. The owner has been running the business for four years from her home but is expecting her first child and wants to sell. You will need outside investors to help you purchase the business. Develop questions to ask the owner about the business and its prospects, as well as a list of documents you want to see. What other types of information would you need before making a decision to buy this company? Summarize your findings in a memo to a potential investor that explains the appeal of the business for you and how you plan to investigate the feasibility of the purchase. As the owner of a small factory that makes plastic sheeting, you are constantly seeking ways to increase profits. As the new year begins, one of your goals is to find additional funds to offer annual productivity and/or merit bonuses to your loyal, hardworking employees. Then a letter from a large national manufacturer of shower curtains seems to provide an answer. As part of a new “supplier diversity” program it is putting in place, the manufacturer is offering substantial purchase contracts to minority-owned suppliers. Even though the letter clearly states that the business must be minority owned to qualify for the program, you convince yourself to apply for it based on the fact that all your employees are Latino. You justify your decision by deciding they will benefit from the increased revenue a larger contract will bring, some of which you plan to pass on to them in the form of bonuses later in the year. Using a web search tool, locate articles about this topic, and then write responses to the following question. Be sure to support your arguments and cite your sources. Is it wrong for this business owner to apply for this program even though it will end up benefiting his employees as well as his business? Critical Thinking Case Fostering Entrepreneurship in "Innovation Deserts" You may have heard of food deserts or Internet deserts -- those places where groceries or online access are difficult to come by. But certain communities fall into similar “innovation deserts,” where the population is cut off from educational, technical, and other resources connected to small business and entrepreneurial success. Often coinciding with economically distressed locations, innovation deserts force residents to look elsewhere for opportunities and support, causing both a talent and economic drain that exacerbates the problem. Felecia Hatcher has committed herself to ridding communities of these deserts. A self-described C-student in high school, she found creative ways to achieve and finance her education and early career. As a freshman at Lynn University, she launched a company focused on mentoring high school students. Upon graduating, she went on to lead social media campaigns for major brands such as Nintendo, Sony, Microsoft, and Little Debbie. Soon after, she landed a major position with the Minnesota Lynx of the WNBA. She left it to start an ice cream company. That company, Feverish Ice Cream, went from a small food truck and cart operation to a venture capital-backed promotional partner to some of the biggest brands in the world. Her success -- and the financial resources it provided -- enabled Felecia to pivot once again. In 2012, Hatcher started Code Fever, an organization focused on teaching Miami residents how to integrate technical knowledge into their skillset. Soon after, Hatcher and her partners brought Black Girls Code to Miami, and hosted numerous camps and events for local youth. In 2015, they started Black Tech Week to further the cause of creating inclusive innovation communities. The conference hosted several thousand attendees and some of the nation’s top entrepreneurs, venture capitalists, educators, and tech professionals. The following year, Hatcher’s organizations further expanded their entrepreneurship programs. They began a VC-in-residence program to connect Black innovators with potential mentors and investors. They also partnered with PowerMoves to launch bootcamps and pitch competitions. Black Tech Week soon expanded from Miami to eight other cities. Like many communities in South Florida, the Overton section of Miami was an innovation desert. Social mobility was relatively low, and potential entrepreneurs had few support networks or access to resources. Even though Miami was the nation’s densest city for co-working spaces (seen as particularly helpful for start-ups), Overton didn’t have one. Hatcher sought to directly fill the gap by opening a co-working space named a Space Called Tribe. The two-story hub offers individuals or small companies low-cost access to WiFi, office space, conference rooms, collaboration opportunities, and a wide array of workshops and guest speaker events. Even though members are from different companies serving different industries and customers, their shared experience can create networking and support relationships. Felecia Hatcher and her group recently rebranded to The Center for Black Innovation; beyond the services and events described above, they work as a think tank and advocacy organization to further promote investment and innovation in the Black community, and better help all marginalized communities. During the COVID-19 pandemic, they launched a number of educational programs to help those affected launch “side hustles” to supplement their income. The Center also continues to serve as an incubator and capital investment networker to help people develop and scale their start-ups. And after helping thousands of business people, the Center frequently collaborates with past participants to mentor new ones and continue the cycle of innovation. Critical Thinking Questions What qualities or characteristics might lead to the emergence of an innovation desert? Is it always a geographical definition, or could it be defined in other ways? In her efforts to help marginalized people gain technical and business experience, how was Felecia Hatcher’s progression similar to business growth and grand expansion? How might a Space Called Tribe and the larger efforts of the Center for Black Innovation lead to opportunity for local entrepreneurs? Sources: Center for Black Innovation website, https://www.centerforblackinnovation.org/#what-we-do ; Felecia Hatcher-Pearson, “Ridding Communities of Innovation Deserts,” Impakter, September 5, 2019, https://impakter.com/ridding-communities-of-innovation-deserts-how-corporations-and-governments-can-support-black-communities-innovation-potential/ ; Blair Levin and Larry Downes, “Cities, Not Rural Areas, Are The Real Internet Deserts,” Washington Post, September 13, 2019, https://www.washingtonpost.com/technology/2019/09/13/cities-not-rural-areas-are-real-internet-deserts/ ; Rob Wile, “In a long-neglected Miami neighborhood, a new co-working space stirs to life,” Miami Herald, May 30, 2018, https://www.miamiherald.com/news/business/technology/article212112389.html;

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