A business plan is a formal written document containing the goals of a business,
the methods for attaining those goals, and the time-frame for the
achievement of the goals. It also describes the nature of the business,
background information on the organization, the organization's financial projections, and the strategies it intends to implement to achieve the stated targets. In its entirety, this document serves as a road-map (a plan) that provides direction to the business.
Written business plans are often required to obtain a bank loan or other kind of financing. Templates and guides, such as the ones offered in the United States by the Small Business Administration can be used to facilitate producing a business plan.
Audience
Business
plans may be internally or externally focused. Externally-focused plans
draft goals that are important to outside stakeholders, particularly
financial stakeholders. These plans typically have detailed information
about the organization or the team making effort to reach its goals.
With for-profit entities, external stakeholders include investors and
customers, for non-profits, external stakeholders refer to donors and clients,
for government agencies, external stakeholders are the tax-payers,
higher-level government agencies, and international lending bodies such
as the International Monetary Fund, the World Bank, various economic agencies of the United Nations, and development banks.
Internally-focused business plans target intermediate goals
required to reach the external goals. They may cover the development of a
new product, a new service, a new IT system, a restructuring of
finance, the refurbishing of a factory or the restructuring of an
organization. An internally-focused business plan is often developed in
conjunction with a balanced scorecard or OGSM or a list of critical success factors. This allows the success of the plan to be measured using non-financial measures.
Business plans that identify and target internal goals, but provide only general guidance on how they will be met are called strategic plans.
Operational plans describe the goals of an internal organization, working group or department.
Project plans, sometimes known as project frameworks, describe the
goals of a particular project. They may also address the project's
place within the organization's larger strategic goals.
Content
Business plans are decision-making tools.
The content and format of the business plan are determined by the
goals and audience. For example, a business plan for a non-profit might
discuss the fit between the business plan and the organization's
mission. Banks are quite concerned about defaults, so a business plan
for a bank loan will build a convincing case for the organization's
ability to repay the loan. Venture capitalists
are primarily concerned about initial investment, feasibility, and exit
valuation. A business plan for a project requiring equity financing
will need to explain why current resources, upcoming growth
opportunities, and sustainable competitive advantage will lead to a high exit valuation.
Preparing a business plan draws on a wide range of knowledge from many different business disciplines: finance, human resource management, intellectual property management, supply chain management, operations management, and marketing, among others. It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines.
"... a good business plan can help to make a good business
credible, understandable, and attractive to someone who is unfamiliar
with the business. Writing a good business plan can't guarantee success,
but it can go a long way toward reducing the odds of failure."
Presentation
The format of a business plan depends on its presentation context. It
is common for businesses, especially start-ups, to have three or four
formats for the same business plan.
An "elevator pitch"
is a short summary of the plan's executive summary. This is often used
as a teaser to awaken the interest of potential investors, customers, or
strategic partners. It is called an elevator pitch as it is supposed to
be content that can be explained to someone else quickly in an
elevator. The elevator pitch should be between 30 and 60 seconds.
A pitch deck
is a slide show and oral presentation that is meant to trigger
discussion and interest potential investors in reading the written
presentation. The content of the presentation is usually limited to the
executive summary and a few key graphs showing financial trends and key
decision-making benchmarks. If a new product is being proposed and time
permits, a demonstration of the product may be included.
A written presentation for external stakeholders is a detailed,
well written, and pleasingly formatted plan targeted at external
stakeholders.
An internal operational plan is a detailed plan describing
planning details that are needed by management but may not be of
interest to external stakeholders. Such plans have a somewhat higher
degree of candor and informality than the version targeted at external
stakeholders and others.
Business plans for start-ups
Typical structure for a business plan for a start-up venture
How does the company plan to manage its operations as it grows?
Who will run the company and what makes them qualified to do so?
What are the risks and threats confronting the business, and what can be done to mitigate them?
What are the company's capital and resource requirements?
What are the company's historical and projected financial statements?
Revising the business plan
Cost overruns and revenue shortfalls
Cost and revenue
estimates are central to any business plan for deciding the viability
of the planned venture. But costs are often underestimated and revenues
overestimated resulting in later cost overruns, revenue shortfalls, and
possibly non-viability. During the dot-com bubble 1997-2001 this was a problem for many technology start-ups. Reference class forecasting has been developed to reduce the risks of cost overruns and revenue shortfalls and thus generate more accurate business plans.
Legal and liability issues
Disclosure requirements
An
externally targeted business plan should list all legal concerns and
financial liabilities that might negatively affect investors. Depending
on the number of funds being raised and the audience to whom the plan
is presented, failure to do this may have severe legal consequences.
Limitations on content and audience
Non-disclosure agreements (NDAs) with third parties, non-compete agreements, conflicts of interest, privacy concerns, and the protection of one's trade secrets
may severely limit the audience to which one might show the business
plan. Alternatively, they may require each party to receive the
business plan to sign a contract accepting special clauses and
conditions.
This situation is complicated by the fact that many venture capitalists will refuse to sign an NDA
before looking at a business plan, lest it put them in the untenable
position of looking at two independently developed look-alike business
plans, both claiming originality. In such situations, one may need to
develop two versions of the business plan: a stripped-down plan that can
be used to develop a relationship and a detailed plan that is only
shown when investors have sufficient interest and trust to sign a
Non-disclosure agreement.
Open business plans
Traditionally business plans have been highly confidential and quite limited in the audience.
The business plan itself is generally regarded as a secret.
An open business plan is a business plan with an unlimited audience. The business plan is typically
web published and made available to all.
In the free software and open source business model, trade secrets, copyright
and patents can no longer
be used as effective locking mechanisms to provide sustainable
advantages to a particular business and therefore a secret business plan
is less relevant in those models.
Business plans are used in some primary and secondary programs to teach economic principles.
Wikiversity has a Lunar Boom Town
project where students of all ages can collaborate with designing and
revising business models and practice evaluating them to learn practical
business planning techniques and methodology
Fundraising
Fundraising is the primary purpose of many business plans since they
are related to the inherent probable success/failure of the company
risk.
Management by objectives
(MBO) is a process of agreeing upon objectives (as can be detailed
within business plans) within an organization so that management and
employees agree to the objectives and understand what they are in the
organization.
Strategic planning
is an organization's process of defining its strategy, or direction,
and making decisions on allocating its resources to pursue this
strategy, including its capital and people. Business plans can help
decision-makers see how specific projects relate to the organization's
strategic plan.
Total quality management
(TQM) is a business management strategy aimed at embedding awareness of
quality in all organizational processes. TQM has been widely used in
manufacturing, education, call centers, government, and service
industries, as well as NASA space and science programs.
Not for-profit businesses
The business goals may be defined both for non-profit
or for-profit organizations. For-profit business plans typically
focus on financial goals, such as profit or creation of wealth.
Non-profit, as well as government agency business plans tend to focus on
the "organizational mission" which is the basis for their governmental
status or their non-profit, tax-exempt status, respectively—although
non-profits may also focus on optimizing revenue.
The primary difference between profit and non-profit
organizations is that "for-profit" organizations look to maximize wealth
versus non-profit organizations, which look to provide a greater good
to society. In non-profit organizations, creative tensions may develop
in the effort to balance mission with "margin" (or revenue).
Satires
The
business plan is the subject of many satires. Satires are used both to
express cynicism about business plans and as an educational tool to
improve the quality of business plans. For example,
In his presentation, Five Criteria For a Successful Business Plan in Biotech, Dr. Roger Bernier, uses Dilbert comic strips to remind people what not to do when researching and writing a business plan for a biotech start-up.
The "Gnomes" episode satirizes the business plans of the Dot-com era.
Chapter 26 of Neal Stephenson's 1999 novel Cryptonomicon
begins with the business plan of a fictional high tech company,
satirizing both the writing style and the physical form of slickly
produced business publications like business plans and annual reports.
Entrepreneurship is the creation or extraction of economic value
in ways that generally entail beyond the minimal amount of risk
(assumed by a traditional business), and potentially involving values
besides simply economic ones.
An entrepreneur is an individual who creates and/or invests in one or more businesses, bearing most of the risks and enjoying most of the rewards. The process of setting up a business is known as "entrepreneurship". The entrepreneur is commonly seen as an innovator, a source of new ideas, goods, services, and business/or procedures.
More narrow definitions have described entrepreneurship as the
process of designing, launching and running a new business, often
similar to a small business, or (per Business Dictionary) as the "capacity and willingness to develop, organize and manage a business venture along with any of its risks to make a profit". The people who create these businesses are often referred to as "entrepreneurs".
While definitions of entrepreneurship typically focus on the launch and
operation of businesses, due to the high risks involved in launching a startup company,
a significant proportion of startups have to close (in Mikal Belicove's
words) due to "lack of funding, bad business decisions, government
policies, an economic crisis, a lack of market demand, or a combination
of all of these."
In the field of economics, the term entrepreneur is used for an entity which has the ability to translate inventions or technologies into products and services. In this sense, entrepreneurship describes activities on the part of both established firms and new businesses.
Perspectives on entrepreneurship
In the 21st century the governments of nation states have tried to promote entrepreneurship, as well as enterprise culture, in the hope that it would improve or stimulate economic growth and competition. After the end of supply-side economics, entrepreneurship was supposed to boost the economy.
As an academic field, entrepreneurship accommodates different
schools of thought. It has been studied within disciplines such as
management, economics, sociology, and economic history. Some view entrepreneurship as allocated to the entrepreneur. These scholars tend to focus on what the entrepreneur does and what traits an entrepreneur has. This is sometimes referred to as the functionalistic approach to entrepreneurship. Others deviate from the individualistic perspective to turn the spotlight on the entrepreneurial process and immerse in the interplay between agency and context. This approach is sometimes referred to as the processual approach, or the contextual turn/approach to entrepreneurship.
Elements
Entrepreneurship includes the creation or extraction of economic value.
It is the act of being an entrepreneur, or the owner or manager of a
business enterprise who, by risk and initiative, attempts to make
profits.
Entrepreneurs act as managers and oversee the launch and growth of an
enterprise. Entrepreneurship is the process by which either an
individual or a team identifies a business opportunity and acquires and deploys the necessary resources required for its exploitation.
In the early 19th century, the French economist Jean-Baptiste Say
provided a broad definition of entrepreneurship, saying that it "shifts
economic resources out of an area of lower and into an area of higher
productivity and greater yield". Entrepreneurs create something new and
unique—they change or transmute value.
Regardless of the firm size, big or small, it can take part in
entrepreneurship opportunities. There are four criteria for becoming an
entrepreneur. First, there must be opportunities or situations to
recombine resources to generate profit. Second, entrepreneurship
requires differences between people, such as preferential access to
certain individuals or the ability to recognize information about
opportunities. Third, taking on a level of risk is a necessity. Fourth,
the entrepreneurial process requires the organization of people and
resources.
An entrepreneur uses their time, energy, and resources to create
value for others. They are rewarded for this effort monetarily and
therefore both the consumer of the value created and the entrepreneur
benefit.
The entrepreneur is a factor in and the study of entrepreneurship reaches back to the work of Richard Cantillon and Adam Smith
in the late 17th and early 18th centuries. However, entrepreneurship
was largely ignored theoretically until the late 19th and early 20th
centuries and empirically until a profound resurgence in business and
economics since the late 1970s.
In the 20th century, the understanding of entrepreneurship owes much to the work of economist Joseph Schumpeter in the 1930s and other Austrian economists such as Carl Menger, Ludwig von Mises and Friedrich von Hayek.
According to Schumpeter, an entrepreneur is a person who is willing and
able to convert a new idea or invention into a successful innovation.
Entrepreneurship employs what Schumpeter called "the gale of creative
destruction" to replace in whole or in part inferior innovations across
markets and industries, simultaneously creating new products, including
new business models.
It has been argued, that creative destruction
is largely responsible for the dynamism of industries and long-run
economic growth. The supposition that entrepreneurship leads to economic
growth is an interpretation of the residual in endogenous growth theory
and as such is debated in academic economics. An alternative
description posited by Israel Kirzner
suggests that the majority of innovations may be much more incremental
improvements such as the replacement of paper with plastic in the making
of drinking straws.
Entrepreneurical opportunities
The exploitation of entrepreneurial opportunities may include:
The economist Joseph Schumpeter (1883–1950) saw the role of the entrepreneur in the economy as "creative destruction",
Which he defined as launching innovations that simultaneously destroy
old industries while ushering in new industries and approaches. For
Schumpeter, the changes and "dynamic economic equilibrium brought on by the innovating entrepreneur [were] the norm of a healthy economy".
While entrepreneurship is often associated with new, small, for-profit
start-ups, entrepreneurial behavior can be seen in small-, medium- and
large-sized firms, new and established firms and in for-profit and
not-for-profit organizations, including voluntary-sector groups,
charitable organizations and government.
Government programs and services that promote entrepreneurship and support entrepreneurs and start-ups
Non-governmental organizations such as small-business associations
and organizations that offer advice and mentoring to entrepreneurs (e.g.
through entrepreneurship centers or websites)
Small-business advocacy organizations
that lobby governments for increased support for entrepreneurship
programs and more small business-friendly laws and regulations
In the 2000s, usage of the term "entrepreneurship" expanded to
include how and why some individuals (or teams) identify opportunities,
evaluate them as viable, and then decide to exploit them.
The term has also been used to discuss how people might use these
opportunities to develop new products or services, launch new firms or
industries, and create wealth. The entrepreneurial process is uncertain because opportunities can only be identified after they have been exploited.
Entrepreneurs exhibit positive biases
towards finding new possibilities and seeing unmet market needs, and a
tendency towards risk-taking that makes them more likely to exploit business opportunities.
History
Historical usage
Emil Jellinek-Mercedes (1853–1918), here at the steering wheel of his Phoenix Double-Phaeton
"Entrepreneur" (/ˌɒ̃trəprəˈnɜːr,-ˈnjʊər/ⓘ, UK also/-prɛ-/) is a loanword from French. The word first appeared in the French dictionary entitled Dictionnaire Universel de Commerce compiled by Jacques des Bruslons and published in 1723. Especially in Britain, the term "adventurer" was often used to denote the same meaning. The study of entrepreneurship reaches back to the work in the late 17th and early 18th centuries of Irish-French economist Richard Cantillon, which was foundational to classical economics. Cantillon defined the term first in his Essai sur la Nature du Commerce en Général, or Essay on the Nature of Trade in General, a book William Stanley Jevons considered the "cradle of political economy".
Cantillon defined the term as a person who pays a certain price for a
product and resells it at an uncertain price, "making decisions about
obtaining and using the resources while consequently admitting the risk
of enterprise". Cantillon considered the entrepreneur to be a risk taker
who deliberately allocates resources to exploit opportunities to
maximize the financial return.Cantillon emphasized the willingness of the entrepreneur to assume the
risk and to deal with uncertainty, thus he drew attention to the
function of the entrepreneur and distinguished between the function of
the entrepreneur and the owner who provided the money.
Jean-Baptiste Say also identified entrepreneurs as a driver for
economic development, emphasizing their role as one of the collecting
factors of production allocating resources from less to fields that are
more productive. Both Say and Cantillon belonged to French school of
thought and known as the physiocrats.
Dating back to the time of the medieval guilds in Germany, a craftsperson required special permission to operate as an entrepreneur, the small proof of competence (Kleiner Befähigungsnachweis), which restricted training of apprentices to craftspeople who held a Meister certificate. This institution was introduced in 1908 after a period of so-called freedom of trade (Gewerbefreiheit, introduced in 1871) in the German Reich.
However, proof of competence was not required to start a business. In
1935 and in 1953, greater proof of competence was reintroduced (Großer Befähigungsnachweis Kuhlenbeck),
which required craftspeople to obtain a Meister apprentice-training
certificate before being permitted to set up a new business.
In the Ashanti Empire,
successful entrepreneurs who accumulated large wealth and men as well
as distinguished themselves through heroic deeds were awarded social and
political recognition by being called "Abirempon" which means big men.
By the eighteenth and nineteenth centuries AD, the appellation
"Abirempon" had formalized and politicized to embrace those who
conducted trade from which the whole state benefited. The state rewarded
entrepreneurs who attained such accomplishments with Mena(elephant
tail) which was the "heraldic badge"
20th century
In the 20th century, entrepreneurship was studied by Joseph Schumpeter in the 1930s and by other Austrian economists such as Carl Menger (1840-1921), Ludwig von Mises (1881-1973) and Friedrich von Hayek (1899–1992). While the loan from French of the English-language word "entrepreneur" dates to 1762, the word "entrepreneurism" dates from 1902 and the term "entrepreneurship" also first appeared in 1902. According to Schumpeter, an entrepreneur is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship employs what Schumpeter called the "gale of creative destruction"
to replace in whole or in part inferior offerings across markets and industries, simultaneously creating new products and new business models, thus creative destruction is largely
responsible for long-term economic growth. The idea that
entrepreneurship leads to economic growth is an interpretation of the
residual in endogenous growth theory and as such continues to be debated in academic economics. An alternative description by Israel Kirzner (1930– ) suggests that the majority of innovations may be incremental
improvements – such as the replacement of paper with plastic in the
construction of a drinking straw – that require no special qualities.
For Schumpeter, entrepreneurship resulted in new industries and
in new combinations of currently existing inputs. Schumpeter's initial
example of this was the combination of a steam engine and then current
wagon-making technologies to produce the horseless carriage. In this case, the innovation (i.e. the car) was transformational
but did not require the development of dramatic new technology. It did
not immediately replace the horse-drawn carriage, but in time
incremental improvements reduced the cost and improved the technology,
leading to the modern auto industry. Despite Schumpeter's early 20th-century contributions, traditional microeconomic
theory did not formally consider the entrepreneur in its theoretical
frameworks (instead of assuming that resources would find each other
through a price system). In this treatment, the entrepreneur was an
implied but unspecified actor, consistent with the concept of the
entrepreneur being the agent of x-efficiency.
For Schumpeter, the entrepreneur did not bear risk:
the capitalist did. Schumpeter believed that the equilibrium was
imperfect. Schumpeter (1934) demonstrated that the changing environment
continuously provides new information about the optimum allocation of
resources to enhance profitability. Some individuals acquire the new
information before others and recombine the resources to gain an
entrepreneurial profit. Schumpeter was of the opinion that entrepreneurs shift the production-possibility curve to a higher level using innovations.
Initially, economists made the first attempt to study the entrepreneurship concept in depth.
Alfred Marshall viewed the entrepreneur as a multi-tasking capitalist
and observed that in the equilibrium of a completely competitive market
there was no spot for "entrepreneurs" as economic-activity creators.
Changes in politics and society in Russia and China the late-20th
century saw a flowering of entrepreneurial activity, producing Russian oligarchs
and Chinese millionaires.
21st century
In 2012, Ambassador-at-Large for Global Women's Issues Melanne Verveer greets participants in an African Women's Entrepreneurship Program at the State Department in Washington, D.C.
In the 2000s, entrepreneurship was extended from its origins in for-profit businesses to include social entrepreneurship, in which business goals are sought alongside social, environmental or humanitarian goals and even the concept of the political entrepreneur. Entrepreneurship within an existing firm or large organization has been referred to as intrapreneurship and may include corporate ventures where large entities "spin-off" subsidiary organizations.
Entrepreneurs are leaders willing to take risk and exercise
initiative, taking advantage of market opportunities by planning,
organizing and deploying resources, often by innovating to create new or improving existing products or services. In the 2000s, the term "entrepreneurship" has been extended to include a specific mindset resulting in entrepreneurial initiatives, e.g. in the form of social entrepreneurship, political entrepreneurship or knowledge entrepreneurship.
According to Paul Reynolds, founder of the Global Entrepreneurship Monitor,
"by the time they reach their retirement years, half of all working men
in the United States probably have a period of self-employment of one
or more years; one in four may have engaged in self-employment for six
or more years. Participating in a new business creation is a common
activity among U.S. workers over the course of their careers".
In recent years, entrepreneurship has been claimed as a major driver of
economic growth in both the United States and Western Europe.
Entrepreneurial activities differ substantially depending on the
type of organization and creativity involved. Entrepreneurship ranges in
scale from solo, part-time projects to large-scale undertakings that
involve a team and which may create many jobs. Many "high value"
entrepreneurial ventures seek venture capital or angel funding (seed money) to raise capital for building and expanding the business. Many organizations exist to support would-be entrepreneurs, including specialized government agencies, business incubators (which may be for-profit, non-profit, or operated by a college or university), science parks
and non-governmental organizations, which include a range of
organizations including not-for-profits, charities, foundations and
business advocacy groups (e.g. Chambers of commerce). Beginning in 2008, an annual "Global Entrepreneurship Week"
event aimed at "exposing people to the benefits of entrepreneurship"
and getting them to "participate in entrepreneurial-related activities"
was launched.
Relationship between small business and entrepreneurship
The term "entrepreneur" is often conflated with the term "small business"
or used interchangeably with this term. While most entrepreneurial
ventures start out as a small business, not all small businesses are
entrepreneurial in the strict sense of the term. Many small businesses
are sole proprietor operations consisting solely of the owner—or they
have a small number of employees—and many of these small businesses
offer an existing product, process or service and they do not aim at
growth. In contrast, entrepreneurial ventures offer an innovative
product, process or service and the entrepreneur typically aims to scale
up the company by adding employees, seeking international sales and so
on, a process which is financed by venture capital and angel investments. In this way, the term "entrepreneur" may be more closely associated with the term "startup". Successful
entrepreneurs have the ability to lead a business in a positive
direction by proper planning, to adapt to changing environments and
understand their own strengths and weaknesses.
According
to Christopher Rea and Nicolai Volland, cultural entrepreneurship is
"practices of individual and collective agency characterized by mobility
between cultural professions and modes of cultural production", which
refers to creative industry activities and sectors. In their book The Business of Culture (2015), Rea and Volland identify three types of cultural
entrepreneur: "cultural personalities", defined as "individuals who
buil[d] their own personal brand of creativity as a cultural authority
and leverage it to create and sustain various cultural enterprises";
"tycoons", defined as "entrepreneurs who buil[d] substantial clout in
the cultural sphere by forging synergies between their industrial,
cultural, political, and philanthropic interests"; and "collective
enterprises", organizations which may engage in cultural production for
profit or not-for-profit purposes.
In the 2000s, story-telling has emerged as a field of study in
cultural entrepreneurship. Some have argued that entrepreneurs should be
considered "skilled cultural operators" that use stories to build legitimacy, and seize market opportunities and new capital. Others have concluded that we need to speak of a 'narrative turn' in cultural entrepreneurship research.
Ethnic
The term "ethnic entrepreneurship" refers to self-employed business owners who belong to racial or ethnic minority groups in the United States and Europe.
A long tradition of academic research explores the experiences and
strategies of ethnic entrepreneurs as they strive to integrate
economically into mainstream U.S. or European society. Classic cases
include Jewish merchants and tradespeople in large U.S. cities in the
19th and early 20th centuries as well as Chinese and Japanese small
business owners (restaurants, farmers, shop owners) on the West Coast.
In the 2010s, ethnic entrepreneurship has been studied in the case of
Cuban business owners in Miami, Indian motel owners of the U.S. and
Chinese business owners in Chinatowns
across the United States. While entrepreneurship offers these groups
many opportunities for economic advancement, self-employment and
business ownership in the United States remain unevenly distributed
along racial/ethnic lines.
Despite numerous success stories of Asian entrepreneurs, a recent
statistical analysis of U.S. census data shows that whites are more
likely than Asians, African-Americans and Latinos to be self-employed in
high prestige, lucrative industries.
Religious
Religious
entrepreneurship refers to both the use of entrepreneurship to pursue
religious ends as well as how religion impacts entrepreneurial pursuits.
While religion is a central topic in society, it is largely overlooked
in entrepreneurship research.
The inclusion of religion may transform entrepreneurship including a
focus on opportunities other than profit as well as practices, processes
and purpose of entrepreneurship.
Gümüsay suggests a three pillars model to explain religious
entrepreneurship: The pillars are the entrepreneurial,
socio-economic/ethical, and religio-spiritual in the pursuit of value,
values, and the metaphysical.
Feminist
A feminist
entrepreneur is an individual who applies feminist values and
approaches through entrepreneurship, with the goal of improving the
quality of life and well-being of girls and women.
Many are doing so by creating "for women, by women" enterprises.
Feminist entrepreneurs are motivated to enter commercial markets by
desire to create wealth and social change, based on the ethics of
cooperation, equality and mutual respect. These endeavours can have the effect of both empowerment and emancipation.
Institutional
The American-born British economist Edith Penrose
has highlighted the collective nature of entrepreneurship. She mentions
that in modern organizations, human resources need to be combined to
better capture and create business opportunities. The sociologist Paul DiMaggio
(1988:14) has expanded this view to say that "new institutions arise
when organized actors with sufficient resources [institutional
entrepreneurs] see in them an opportunity to realize interests that they
value highly". The notion has been widely applied.
Millennial
The term "millennial entrepreneur" refers to a business owner who is affiliated with millennials (also known as Generation Y), those people born from approximately 1981 to 1996. The offspring of baby boomers and early Gen Xers, this generation
was brought up using digital technology and mass media. Millennial
business owners are well-equipped with knowledge of new technology and
new business models and have a strong grasp of its business
applications. There have been many breakthrough businesses that have
come from millennial entrepreneurs such as Mark Zuckerberg, who created Facebook.
Despite the expectation of millennial success, there have been recent
studies that have proven this to not be the case. The comparison
between millennials who are self-employed and those who are not
self-employed shows that the latter is higher. The reason for this is
because they have grown up in a different generation and attitude than
their elders. Some of the barriers to entry for entrepreneurs are the
economy, debt from schooling, and the challenges of regulatory
compliance.
Nascent
A nascent entrepreneur is someone in the process of establishing a business venture. In this observation, the nascent entrepreneur can be seen as pursuing an opportunity,
i.e. a possibility to introduce new services or products, serve new
markets, or develop more efficient production methods in a profitable
manner. But before such a venture is actually established, the opportunity is just a venture idea.
In other words, the pursued opportunity is perceptual in nature,
propped by the nascent entrepreneur's personal beliefs about the
feasibility of the venturing outcomes the nascent entrepreneur seeks to
achieve.
Its prescience and value cannot be confirmed ex ante but only
gradually, in the context of the actions that the nascent entrepreneur
undertakes towards establishing the venture as described in Saras Sarasvathy's theory of Effectuation,
Ultimately, these actions can lead to a path that the nascent
entrepreneur deems no longer attractive or feasible, or result in the
emergence of a (viable) business. In this sense, over time, the nascent
venture can move towards being discontinued or towards emerging
successfully as an operating entity.
The distinction between the novice, serial and portfolio entrepreneurs is an example of behavior-based categorization. Other examples are the (related) studies by,
on start-up event sequences. Nascent entrepreneurship that emphasizes
the series of activities involved in new venture emergence,
rather than the solitary act of exploiting an opportunity. Such
research will help separate entrepreneurial action into its basic
sub-activities and elucidate the inter-relationships between activities,
between an activity (or sequence of activities) and an individual's
motivation to form an opportunity belief, and between an activity (or
sequence of activities) and the knowledge needed to form an opportunity
belief. With this research, scholars will be able to begin constructing a
theory of the micro-foundations of entrepreneurial action.
Scholars interested in nascent entrepreneurship tend to focus
less on the single act of opportunity exploitation and more on the
series of actions in new venture emergence, Indeed, nascent entrepreneurs undertake numerous entrepreneurial
activities, including actions that make their businesses more concrete
to themselves and others. For instance, nascent entrepreneurs often look
for and purchase facilities and equipment; seek and obtain financial
backing, form legal entities, organize teams; and dedicate all their time and energy to their business
Project-based
Project entrepreneurs are individuals who are engaged in the repeated assembly or creation of temporary organizations.
These are organizations that have limited lifespans which are devoted
to producing a singular objective or goal and get disbanded rapidly when
the project ends. Industries where project-based enterprises are
widespread include: sound recording, film production, software development, television production, new media and construction.
What makes project-entrepreneurs distinctive from a theoretical
standpoint is that they have to "rewire" these temporary ventures and
modify them to suit the needs of new project opportunities that emerge. A
project entrepreneur who used a certain approach and team for one
project may have to modify the business model or team for a subsequent
project.
Project entrepreneurs are exposed repeatedly to problems and tasks typical of the entrepreneurial process.
Indeed, project-based entrepreneurs face two critical challenges that
invariably characterize the creation of a new venture: locating the
right opportunity to launch the project venture and assembling the most
appropriate team to exploit that opportunity. Resolving the first
challenge requires project-entrepreneurs to access an extensive range of
information needed to seize new investment opportunities. Resolving the
second challenge requires assembling a collaborative team that has to
fit well with the particular challenges of the project and has to
function almost immediately to reduce the risk that performance might be
adversely affected. Another type of project entrepreneurship involves
entrepreneurs working with business students to get analytical work done
on their ideas.
Social
Student organizers from the Green Club at Newcomb College Institute formed a social entrepreneurship organization in 2010.
Social entrepreneurship is the use of the by start up companies and other entrepreneurs to develop, fund and implement solutions to social, cultural, or environmental issues. This concept may be applied to a variety of organizations with different sizes, aims, and beliefs. For-profit entrepreneurs typically measure performance using business metrics like profit, revenues and increases in stock prices, but social entrepreneurs are either non-profits
or blend for-profit goals with generating a positive "return to
society" and therefore must use different metrics. Social
entrepreneurship typically attempts to further broad social, cultural,
and environmental goals often associated with the voluntary sector in areas such as poverty alleviation, health care and community development. At times, profit-making social enterprises
may be established to support the social or cultural goals of the
organization but not as an end in itself. For example, an organization
that aims to provide housing and employment to the homeless may operate a restaurant, both to raise money and to provide employment for the homeless people.
Biosphere
Biosphere entrepreneurship is "entrepreneurial activity that generates value for the biosphere and ecosystem services."
It is part of a larger trend of business schools seeking to incorporate
environmental topics more actively into their curricula.
Entrepreneurial behaviours
The entrepreneur is commonly seen as an innovator—a designer of new ideas and business processes.
Management skills and strong team building abilities are often
perceived as essential leadership attributes for successful
entrepreneurs. Political economist Robert Reich considers leadership, management ability and team-building to be essential qualities of an entrepreneur.
Uncertainty perception and risk-taking
Theorists Frank Knight and Peter Drucker
defined entrepreneurship in terms of risk-taking. The entrepreneur is
willing to put his or her career and financial security on the line and
take risks in the name of an idea, spending time as well as capital on
an uncertain venture. However, entrepreneurs often do not believe that
they have taken an enormous amount of risks because they do not perceive
the level of uncertainty to be as high as other people do. Knight
classified three types of uncertainty:
Risk,
which is measurable statistically (such as the probability of drawing a
red color ball from a jar containing five red balls and five white
balls)
Ambiguity,
which is hard to measure statistically (such as the probability of
drawing a red ball from a jar containing five red balls but an unknown
number of white balls)
True uncertainty
or Knightian uncertainty, which is impossible to estimate or predict
statistically (such as the probability of drawing a red ball from a jar
whose contents, in terms of numbers of coloured balls, are entirely
unknown)
Entrepreneurship is often associated with true uncertainty,
particularly when it involves the creation of a novel good or service,
for a market that did not previously exist, rather than when a venture
creates an incremental improvement to an existing product or service. A
2014 study at ETH Zürich found that compared with typical managers,
entrepreneurs showed higher decision-making efficiency and a stronger
activation in regions of frontopolar cortex (FPC) previously associated
with explorative choice.
"Coachability" and advice taking
The
ability of entrepreneurs to work closely with and take advice from
early investors and other partners (i.e. their coachability) has long
been considered a critical factor in entrepreneurial success.
At the same time, economists have argued that entrepreneurs should not
simply act on all advice given to them, even when that advice comes from
well-informed sources, because entrepreneurs possess far deeper and
richer local knowledge about their own firm than any outsider. Indeed,
measures of coachability are not actually predictive of entrepreneurial
success (e.g. measured as success in subsequent funding rounds,
acquisitions, pivots and firm survival). This research also shows that
older and larger founding teams, presumably those with more subject
expertise, are less coachable than younger and smaller founding teams.
Entrepreneurial marketing strategies for interactive and innovative networking
Designing individual/opportunity nexus
According
to Shane and Venkataraman, entrepreneurship comprises both
"enterprising individuals" and "entrepreneurial opportunities", so
researchers should study the nature of the individuals who identify
opportunities when others do not, the opportunities themselves and the
nexus between individuals and opportunities. On the other hand, Reynolds et al.
argue that individuals are motivated to engage in entrepreneurial
endeavours driven mainly by necessity or opportunity, that is
individuals pursue entrepreneurship primarily owing to survival needs,
or because they identify business opportunities that satisfy their need
for achievement. For example, higher economic inequality tends to increase necessity-based entrepreneurship rates at the individual level.
Opportunity perception and biases
One study has found that certain genes affecting personality may influence the income of self-employed people. Some people may be able to use "an innate ability" or quasi-statistical sense to gauge public opinion
and market demand for new products or services. Entrepreneurs tend to
have the ability to see unmet market needs and underserved markets.
While some entrepreneurs assume they can sense and figure out what
others are thinking, the mass media plays a crucial role in shaping
views and demand.
Ramoglou argues that entrepreneurs are not that distinctive and that it
is essentially poor conceptualizations of "non-entrepreneurs" that
maintain laudatory portraits of "entrepreneurs" as exceptional
innovators or leaders.
Entrepreneurs are often overconfident, exhibit illusion of control,
when they are opening/expanding business or new products/services.
Styles
Differences in entrepreneurial organizations often partially reflect their founders' heterogenous identities. Fauchart and Gruber have classified entrepreneurs into three main types: Darwinians, communitarians and missionaries.
These types of entrepreneurs diverge in fundamental ways in their
self-views, social motivations and patterns of new firm creation.
Communication
Entrepreneurs
must practice effective communication both within their firm and with
external partners and investors to launch and grow a venture and enable
it to survive. An entrepreneur needs a communication system that links
the staff of her firm and connects the firm to outside firms and
clients. Entrepreneurs should be charismatic leaders, so they can communicate a vision effectively to their team and help to create a strong team. Communicating a vision to followers may be the most important act of the transformational leader. Compelling visions provide employees with a sense of purpose and encourage commitment. According to Baum et al. and Kouzes and Posner,
the vision must be communicated through written statements and through
in-person communication. Entrepreneurial leaders must speak and listen
to articulate their vision to others.
Communication is pivotal in the role of entrepreneurship because
it enables leaders to convince potential investors, partners and
employees about the feasibility of a venture. Entrepreneurs need to communicate effectively to shareholders. Nonverbal
elements in speech such as the tone of voice, the look in the sender's
eyes, body language, hand gestures and state of emotions are also
important communication tools. The Communication Accommodation Theory posits that throughout communication people will attempt to accommodate or adjust their method of speaking to others. Face Negotiation Theory describes how people from different cultures manage conflict negotiation to maintain "face".
Hugh Rank's "intensify and downplay" communications model can be used
by entrepreneurs who are developing a new product or service. Rank
argues that entrepreneurs need to be able to intensify the advantages of
their new product or service and downplay the disadvantages to persuade
others to support their venture.
Links to sea piracy
Research from 2014 found links between entrepreneurship and historical sea piracy.
In this context, the claim is made for a non-moral approach to looking
at the history of piracy as a source of inspiration for entrepreneurship
education as well as for research in entrepreneurship and business model generation.
Psychological makeup
Ross Levine, an economist at the University of California, Berkeley, and Yona Rubinstein, a professor at the London School of Economics
released a study which suggests entrepreneurs are disproportionately
white, male, from wealthy and highly educated backgrounds, and prone to
"aggressive, illicit, risk-taking activities" as teenagers and young
adults. Entrepreneurs also performed above average on aptitude tests.
This masculine image is also found when studying how male entrepreneurs
are represented in media. A supporting but invisible family are one of
the success factors when being portrayed as a male entrepreneur in
media.
A study conducted by the Census Bureau and two MIT professors, after
compiling a list of 2.7 million company founders who hired at least one
employee between 2007 and 2014, found the average age of a successful
start-up founder when he or she founded it is 45. They consistently
found chances of entrepreneurial success rises with age.
Apple co-founder and longtime leader Steve Jobs (pictured in 2010) led the introduction of many innovations in the computer, smartphone and digital music industries.
Stanford University economist Edward Lazear found in a 2005 study that variety in education and in work experience was the most important trait that distinguished entrepreneurs from non-entrepreneurs A 2013 study by Uschi Backes-Gellner of the University of Zurich and Petra Moog of the University of Siegen
in Germany found that a diverse social network was also an important
characteristic of students that would go on to become entrepreneurs.
Studies show that the psychological propensities for male and female entrepreneurs are more similar than different. Empirical studies suggest that female entrepreneurs possess strong negotiating skills and consensus-forming abilities.
Åsa Hansson, who looked at empirical evidence from Sweden, found that
the probability of becoming self-employed decreases with age for women,
but increases with age for men. She also found that marriage increased the probability of a person's becoming an entrepreneur.
Jesper Sørensen wrote in 2010 that significant influences on the
decision to become an entrepreneur include workplace peers and social
composition. Sørensen discovered a correlation between working with
former entrepreneurs and how often these individuals become
entrepreneurs themselves, compared to those who did not work with
entrepreneurs.
Social composition can influence entrepreneurialism in peers by
demonstrating the possibility for success, stimulating a "He can do it,
why can't I?" attitude. As Sørensen stated: "When you meet others who
have gone out on their own, it doesn't seem that crazy."
Entrepreneurs may also be driven to entrepreneurship by past
experiences. If someone has faced multiple work stoppages or has been
unemployed in the past, the probability of becoming an entrepreneur
increases.
Per Cattell's personality framework, both personality traits and
attitudes are thoroughly investigated by psychologists. However, in case
of entrepreneurship research these notions are employed by academics
too, but vaguely. Cattell states that personality is a system that is
related to the environment and further adds that the system seeks
explanation to the complex transactions conducted by both—traits and
attitudes. This is because both of them bring about change and growth in
a person. Personality is that which informs what an individual will do
when faced with a given situation. A person's response is triggered by
his/her personality and the situation that is faced.
Innovative entrepreneurs may be more likely to experience what psychologist Mihaly Csikszentmihalyi calls "flow".
"Flow" occurs when an individual forgets about the outside world due to
being thoroughly engaged in a process or activity. Csikszentmihalyi
suggested that breakthrough innovations tend to occur at the hands of
individuals in that state. Other research has concluded that a strong internal motivation is a vital ingredient for breakthrough innovation. Flow can be compared to Maria Montessori's concept of normalization, a state that includes a child's capacity for joyful and lengthy periods of intense concentration. Csikszentmihalyi acknowledged that Montessori's prepared environment offers children opportunities to achieve flow. Thus quality and type of early education may influence entrepreneurial capability.
Research on high-risk settings such as oil platforms, investment
banking, medical surgery, aircraft piloting and nuclear-power plants has
related distrust to failure avoidance.
When non-routine strategies are needed, distrusting persons perform
better, while when routine strategies are needed trusting persons
perform better. Gudmundsson and Lechner extended this research to
entrepreneurial firms.
They argued that in entrepreneurial firms the threat of failure is
ever-present, resembling non-routine situations in high-risk settings.
They found that the firms of distrusting entrepreneurs were more likely
to survive than the firms of optimistic or overconfident entrepreneurs.
The reasons were that distrusting entrepreneurs would emphasize
failure-avoidance through sensible task selection and more analysis.
Kets de Vries has pointed out that distrusting entrepreneurs are more
alert about their external environment.
He concluded that distrusting entrepreneurs are less likely to discount
negative events and are more likely to engage control mechanisms.
Similarly, Gudmundsson and Lechner found that distrust leads to higher
precaution and therefore increases chances of entrepreneurial-firm
survival.
Researchers Schoon and Duckworth completed a study in 2012 that
could potentially help identify who may become an entrepreneur at an
early age. They determined that the best measures to identify a young
entrepreneur are family and social status, parental role-modelling,
entrepreneurial competencies at age 10, academic attainment at age 10,
generalized self-efficacy, social skills, entrepreneurial intention and experience of unemployment.
Strategic entrepreneurship
Some
scholars have constructed an operational definition of a more specific
subcategory called "Strategic Entrepreneurship". Closely tied with
principles of strategic management,
this form of entrepreneurship is "concerned about growth, creating
value for customers and subsequently creating wealth for owners".
A 2011 article for the Academy of Management provided a three-step,
"Input-Process-Output" model of strategic entrepreneurship. The model's
three steps entail the collection of different resources, the process of
orchestrating them in the necessary manner and the subsequent creation
of competitive advantage, value for customers, wealth and other
benefits. Through the proper use of strategic management/leadership
techniques and the implementation of risk-bearing entrepreneurial
thinking, the strategic entrepreneur is, therefore, able to align
resources to create value and wealth.
Leadership
Leadership
in entrepreneurship can be defined as "process of social influence in
which one person can enlist the aid and support of others in the
accomplishment of a common task" in "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods".
This refers to not only the act of entrepreneurship as managing
or starting a business, but how one manages to do so by these social
processes, or leadership skills. (Entrepreneurship in itself can be
defined somewhat circularly as "the process by which individuals, teams,
or organizations identify and pursue entrepreneurial opportunities
without being immediately constrained by the resources they currently
control".) An entrepreneur typically has a mindset that seeks out potential opportunities during uncertain times. An entrepreneur must have leadership skills or qualities to see potential opportunities and act upon them. At the core, an entrepreneur is a decision-maker. Such decisions often affect an organization as a whole, which is representative of entrepreneurial leadership within the organization.
With the growing global market and increasing technology use
throughout all industries, the core of entrepreneurship and the
decision-making has become an ongoing process rather than isolated
incidents. This becomes knowledge management,
which is "identifying and harnessing intellectual assets" for
organizations to "build on past experiences and create new mechanisms
for exchanging and creating knowledge". This belief
draws upon a leader's past experiences that may prove useful. It is a
common mantra for one to learn from their past mistakes, so leaders
should take advantage of their failures for their benefit. This is how one may take their experiences as a leader for the use in the core of entrepreneurship decision-making.
Global leadership
The majority of scholarly research done on these topics has taken place in North America.
Words like "leadership" and "entrepreneurship" do not always translate
well into other cultures and languages. For example, in North America a
leader is often thought of as charismatic, but German culture frowns on
such charisma due to the charisma of Nazi leader Adolf Hitler (1889–1945). Other cultures, as in some European countries, view the term "leader" negatively, like the French.The participative leadership style that is prevalent in the United
States is considered disrespectful in many other parts of the world due
to the differences in power distance.
Many Asian and Middle Eastern countries do not have "open door"
policies for subordinates, who would never informally approach their
managers/bosses. For countries like that, an authoritarian approach to
management and leadership is more customary.
Despite cultural differences, the successes and failures of
entrepreneurs can be traced to how leaders adapt to local conditions.
Within the increasingly global business environment a successful leader
must be able to adapt and have insight into other cultures. To respond
to the environment, corporate visions are becoming transnational in
nature, to enable the organization to operate in or provide
services/goods for other cultures.
Entrepreneurship training and education
Michelacci
and Schivardi are a pair of researchers who believe that identifying
and comparing the relationships between an entrepreneur's earnings and
education level would determine the rate and level of success. Their
study focused on two education levels, college degree and post-graduate
degree. While Michelacci and Schivardi do not specifically determine
characteristics or traits for successful entrepreneurs, they do believe
that there is a direct relationship between education and success,
noting that having a college knowledge does contribute to advancement in
the workforce.
Michelacci and Schivardi state there has been a rise in the
number of self-employed people with a baccalaureate degree. However,
their findings also show that those who are self-employed and possess a
graduate degree has remained consistent throughout time at about 33
percent. They briefly mention those famous entrepreneurs like Steve Jobs and Mark Zuckerberg
who were college dropouts, but they call these cases all but
exceptional as it is a pattern that many entrepreneurs view formal
education as costly, mainly because of the time that needs to be spent on it.
In the 21st century, a young Danish entrepreneur, Maniyar, had become
famous while perusing his Bachelors of Pharmacy. There are few
entrepreneurs that are also college dropouts, like Mark Zuckerberg however, Maniyar's ability and volition while studying would allow him to create a functioning business.
Michelacci and Schivardi believe that for an individual to reach the
full success they need to have education beyond high school. Their
research shows that the higher the education level the greater the
success. The reason is that college gives people additional skills that
can be used within their business and to operate on a higher level than
someone who only "runs" it.
Recent trends that seek to merge neurosciences into entrepreneurship
Currently
it refers to the concept of "Entrepreneurial Enhancement", which refers
to "the progressive improvement of cognitive, affective and conative
skills in potential entrepreneurs or existing ones using appropriate
neurotechnologies". The term has been coined by engineer Víctor Pérez
Centeno, in relation to the need to fuse neurotechnologies in research,
education and the empowerment of entrepreneurial performance".
Resources and financing
Entrepreneurial resources
An entrepreneurial resource is any company-owned asset that has economic value
creating capabilities. Economic value creating both tangible and
intangible sources are considered as entrepreneurial resources. Their
economic value is generating activities or services through mobilization
by entrepreneurs. Entrepreneurial resources can be divided into two fundamental categories: tangible and intangible resources.
Tangible resources are material sources such as equipment,
building, furniture, land, vehicle, machinery, stock, cash, bond and
inventory that has a physical form and can be quantified. On the
contrary, intangible resources are nonphysical or more challenging to
identify and evaluate, and they possess more value creating capacity
such as human resources including skills and experience in a particular
field, organizational structure of the company, brand name, reputation,
entrepreneurial networks that contribute to promotion and financial
support, know-how, intellectual property including both copyrights, trademarks and patents.
Bootstrapping
Contextual background
At
least early on, entrepreneurs often "bootstrap-finance" their start-up
rather than seeking external investors from the start. One of the
reasons that some entrepreneurs prefer to "bootstrap" is that obtaining equity financing
requires the entrepreneur to provide ownership shares to the investors.
If the start-up becomes successful later on, these early equity
financing deals could provide a windfall for the investors and a huge
loss for the entrepreneur. If investors have a significant stake in the
company, they may as well be able to exert influence on company
strategy, chief executive officer (CEO) choice and other important
decisions. This is often problematic since the investor and the founder
might have different incentives regarding the long-term goal of the
company. An investor will generally aim for a profitable exit and
therefore promotes a high-valuation sale of the company or IPO to sell
their shares. Whereas the entrepreneur might have philanthropic
intentions as their main driving force. Soft values like this might not
go well with the short-term pressure on yearly and quarterly profits
that publicly traded companies often experience from their owners.
Common definition
One
consensus definition of bootstrapping sees it as "a collection of
methods used to minimize the amount of outside debt and equity financing
needed from banks and investors".
Related methodologies
Bootstrapping methods include
Owner financing, including savings, personal loans and credit card debt
Many businesses need more capital than can be provided by the owners
themselves. In this case, a range of options is available including a
wide variety of private and public equity, debt and grants. Private equity options include:
Entrepreneurs are faced with liquidity constraints and often lack the necessary credit needed to borrow large amounts of money to finance their venture.
Because of this, many studies have been done on the effects of taxes on
entrepreneurs. The studies fall into two camps: the first camp finds
that taxes help and the second argues that taxes hurt entrepreneurship.
Cesaire Assah Meh found that corporate taxes create an incentive to become an entrepreneur to avoid double taxation.
Donald Bruce and John Deskins found literature suggesting that a higher
corporate tax rate may reduce a state's share of entrepreneurs. They also found that states with an inheritance or estate tax tend to have lower entrepreneurship rates when using a tax-based measure. However, another study found that states with a more progressive personal income tax have a higher percentage of sole proprietors in their workforce.
Ultimately, many studies find that the effect of taxes on the
probability of becoming an entrepreneur is small. Donald Bruce and
Mohammed Mohsin found that it would take a 50 percentage point drop in
the top tax rate to produce a one percent change in entrepreneurial
activity.
Predictors of success
Dell Women's Entrepreneur Network event in New York City
Factors that may predict entrepreneurial success include the following:
Methods
Establishing strategies for the firm, including growth and survival strategies
Maintaining the human resources (recruiting and retaining talented employees and executives)
Ensuring the availability of required materials (e.g. raw resources used in manufacturing, computer chips, etc.)
