Sudhin shahani net worth

116 PART 2 | Planning

6 chapter

Entrepreneurship

After studying Chapter 6, you will be able to

LO1 Describe why people become entrepreneurs and what it takes, personally.

LO2 Summarize how to assess opportunities to start new businesses.

LO3 Identify common causes of success and failure.

LO4 Discuss common management challenges.

LO5 Explain how to increase your chances of success, including good business planning.

LO6 Describe how managers of large companies can foster entrepreneurship.

Learning Objectives

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117

S ome extraordinary individuals have founded companies that have become famously successful: 1

• Bill Gates and Paul Allen started Microsoft.

• Oprah Winfrey founded Harpo Productions.

• Steve Jobs and Steve Wozniak created Apple Computer.

• Mary Kay Ash established Mary Kay.

• N. R. Narayana Murthy founded Infosys.

• Martha Stewart started Martha Stewart Living Omnimedia.

• Larry Page and Sergey Brin founded Google.

• Estée Lauder created her namesake company.

• Elon Musk founded Tesla Motors and Space X.

• Mark Zuckerberg started Facebook.

• Vera Wang founded her namesake firm.

services, publishing, and retail- ing. Today the Virgin empire has nearly 50,000 employees in 50 countries, and Branson has a mind-boggling net worth of more than $5 billion. In 1999 he was knighted by Queen Elizabeth. 5

Entrepreneurs differ from managers generally. An entre- preneur is a manager but engages in additional activities that not all managers do. 6 Traditionally, managers operate in a formal management hierarchy with well-defined authority and responsibility. In contrast, entrepre- neurs use networks of contacts more than formal authority. And although managers usually prefer to own assets, entrepreneurs often rent or use assets on a temporary basis. Some say that man- agers often are slower to act and tend to avoid risk, whereas entre- preneurs are quicker to act and actively manage risk.

An entrepreneur’s organization may be small, but it differs from a typical small business: 7

• A small business has fewer than 100 employees, is independently owned and operated, is not dominant in its field, and is not charac- terized by many innovative practices. Small business owners tend not to manage particularly aggressively, and they expect normal, moderate sales, profits, and growth.

entrepreneurship the process by which enterprising individuals initiate, manage, and assume the risks and rewards associated with a business venture

small business a business having fewer than 100 employees, independently owned and operated, not dominant in its field, and not characterized by many innovative practices

As they and countless others have demonstrated, great opportu- nity is available to talented people who are willing to work hard to achieve their dreams. Entrepreneurship occurs when an enter- prising individual pursues a lucrative opportunity under condi- tions of uncertainty. 2 To be an entrepreneur is to initiate and build an organization, rather than being only a passive part of one. 3 It involves creating new systems, resources, or processes to produce new goods or services and/or serve new markets. 4

Richard Branson is a perfect example. He seems to have busi- ness in his blood. He was only a teen when he started his first com- pany, a magazine called Student, in the mid-1960s. In 1970 Branson launched his next enterprise, the iconic Virgin Records, which generated his first fortune. Since then, Branson has built 300 other businesses, all under the Virgin umbrella: a space travel venture, a global airline, a mobile phone enterprise, and companies in financial

Engage your professors Even though you are extremely busy, you should find time to visit with your professors when you have questions about the reading material or a challenging assignment. Similarly, you should go to office hours within a few days of taking an exam to see what questions you missed. This is a good time to ask the professor’s advice regarding how to improve your studying strategy to make a higher grade on the next exam.

study tip 6

LISTEN & LEARN ONLINE

YOUNG MANAGERS

Speak Out! “ I encourage my employees to be entrepreneurial. To think. To be creative. I encourage them by asking the hard questions and making sure they have a solid plan going forward. ”

— Joe Gaspar , Bicycle Shop Owner/Manager

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118 PART 2 | Planning

• An entrepreneurial venture has growth and high profitability as its primary objectives. Entrepreneurs manage aggressively and develop innovative strategies, practices, and products. They and their financial backers usually seek rapid growth, immediate and high profits, and sometimes a quick sellout with large capital gains.

Entrepreneurship Excitement Consider these words from Jeffry Timmons, a leading entrepreneurship scholar and author: “During the past 30 years, America has unleashed the most revolutionary generation the nation has experienced since its founding in 1776. This new generation of entrepreneurs has altered permanently the economic and social structure of this nation and the world . . . . It will determine more than any other single impetus how the nation and the world will live, work, learn, and lead in this century and beyond.” 8

Overhype? Sounds like it could be, but it’s not. Entrepreneurship is transforming economies all over the world, and the global economy in general. In the United States since 1980, more than 95 percent of the wealth has been created by entrepreneurs. 9 It has been estimated that since World War II, small entrepreneurial firms have generated 95 percent of all radical innovation in the United States. The Small Business Administration has found that in states with more small busi- ness start-ups, statewide economies tend to grow faster and employment levels tend to be higher than in states with less entrepreneurship. 10 An estimated 20 million Americans are running a young business or actively trying to start one. 11

The self-employed love the entrepreneurial process, and they report the highest levels of pride, satisfaction, and income. Importantly, entrepreneurship is not about the privileged descendants of the Rockefellers and the Vanderbilts; instead it provides opportunity and upward mobility for anyone who performs well. 12

Myths about Entrepreneurship Simply put, entrepreneurs generate new ideas and turn them into business ventures. 13 But entrepreneurship is not simple, and it is frequently misunder- stood. Exhibit 6.1 describes 12 myths and realities regarding entrepreneurship. 14

Here is another myth: being an entrepreneur is great because you can “get rich quick” and enjoy a lot of leisure time while your employees run the company. But the reality is much more difficult. During the start-up period, you are likely to have a lot of bad days. It’s exhausting. Even if you don’t have employ- ees, you should expect communications breakdowns and other “people problems” with agents, vendors, distributors, family,

subcontractors, lenders, whomever. Dan Bricklin, the founder of VisiCalc, advises that the most important thing to remem- ber is this: “You are not your business. On those darkest days when things aren’t going so well—and trust me, you will have them—try to remember that your company’s failures don’t make you an awful person. Likewise, your company’s suc- cesses don’t make you a genius or superhuman.” 15

As you read this chapter, you will learn about two primary sources of new venture creation:

1. Independent entrepreneurs are individuals who establish a new organization without the benefit of corporate support.

2. Intrapreneurs are new venture creators working inside big com- panies; they are corporate entrepreneurs, using their company’s resources to build a profitable line of business based on a fresh new idea. 16

“Chase the vision, not the money. The money will end up following you.”

— Tony Hsieh , CEO of Zappos

● Ryan Clark (bottom) who won the Student Leadership Award from the Black Engineer of the Year Awards, poses with his twin brother, Ashton, at the Coordinated Science Laboratory in Urbana, IL. The Clark brothers (a.k.a., Dynamik Duo) graduated from the University of Illinois and in the past 12 years have formed more than a dozen successful web-based businesses, with products ranging from online music to sports apparel to parking place reservations.

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CHAPTER 6 | Entrepreneurship 119

Myths Realities

1. “Anyone can start a business.”

Starting is easy. The hard part is building and sustaining a successful venture.

2. “Entrepreneurs are gamblers.”

They take careful, calculated risks and are not afraid to act on those decisions.

3. “Entrepreneurs want the whole show to themselves.”

Higher-potential entrepreneurs build a team, an organization, and a company.

4. “Entrepreneurs are their own bosses and independent.”

They have to answer to many stakeholders, including partners, investors, customers, suppliers, creditors, employees, and families.

5. “Entrepreneurs work harder than managers in big firms.”

There is no evidence to support this claim. Some work more, some less.

6. “Entrepreneurs experience a great deal of stress.”

Entrepreneurs experience stress, but they also have high job satisfaction. They tend to be healthier and less likely to retire than those who work for others.

7. “Entrepreneurs are motivated solely by the quest for the dollar.”

More are driven by building high-potential ventures and realizing long-term capital gains than instant gratification from high salaries. Feeling in control of their own destinies and realizing vision and dreams are powerful motivators.

8. “Entrepreneurs seek power and control over others.”

Many are driven by responsibility, achievement, and results. Successful entrepreneurs may become powerful and influential, but these are by-products.

9. “If an entrepreneur is talented, than success will happen quickly.”

Actually, many new businesses take three to four years to solidify. A saying from venture capitalists sums it up: “The lemons ripen in two and a half years, but the pearls take seven or eight.”

10. “Any entrepreneur with a good idea can raise venture capital.”

In practice, only 1 to 3 (out of 100) ventures are funded.

11. “If an entrepreneur has enough start-up capital, s/he can’t miss.”

Too much money at the beginning often leads to impulsive or undisciplined spending that usually result in serious problems or failure.

12. “Unless you attained a high score on your SATs or GMATs, you’ll never be a successful entrepreneur.”

Entrepreneurial IQ is actually a unique combination of creativity, motivation, integrity, leadership, team building, analytical ability, and ability to deal with ambiguity and adversity.

Source: Adapted from J. A. Timmons and S. Spinelli, New Venture Creation, 6th ed., pp. 67–68. Copyright © 2004. Reproduced with permission of McGraw-Hill Education.

Exhibit 6.1 Myths and realities about entrepreneurship

1 | ENTREPRENEURSHIP Two young entrepreneurs who recently founded a highly suc- cessful business are Tony Hsieh and Nick Swinmurn. In 1999 Swinmurn had the then-new idea to sell shoes online, but he needed money to get started. Hsieh, who at age 24 had already just sold his first start-up (LinkExchange, sold to Microsoft for $265 million), agreed to take a chance on the new venture. Swinmurn has moved on, but Hsieh remains at the helm of the

LO1 Describe why people become entrepreneurs and what it takes, personally

entrepreneurial venture a new business having growth and high profitability as primary objectives

entrepreneur an individual who establishes a new organization without the benefit of corporate sponsorship

intrapreneurs new venture creators working inside big companies

online shoe retailer, Zappos. The successful online retail venture attracted Amazon, which purchased Zappos for $1.2 billion in 2009. 17

Exceptional though their story may be, the real, more complete story of entrepre- neurship is about people you’ve probably never heard of. They have built compa- nies, thrived personally, cre- ated jobs, and contributed to their communities through their businesses. Or they’re just starting out. Consider Shama Kabani, a 20-something who

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120 PART 2 | Planning

Why do Bill Gross and other entrepreneurs do what they do? Entrepreneurs start their own firms because of the challenge, profit potential, and enormous satisfaction they hope lies ahead. People starting their own businesses are seeking a better quality of life than they might have at big companies. They seek inde- pendence and a feeling that they are part of the action. They get tremendous satisfaction from building something from nothing, seeing it succeed, and watching the market embrace their ideas and products.

People also start their own companies when they see their progress or ideas blocked at big corporations. When people are laid off, believe they will not receive a promotion, or are frus- trated by bureaucracy or other features of corporate life, they may become entrepreneurs. Years ago Philip Catron became disillusioned with his job as a manager at ChemLawn because he concluded that the lawn care company’s reliance on pes- ticides contributed to illness in its employees, its custom- ers’ pets, and even the lawns themselves. Catron left to start NaturaLawn of America, based on the practice of integrated pest management (IPM), which uses natural and nontoxic prod- ucts as much as possible, reducing pesticide use on lawns by 93 percent. Over nearly 25 years, Catron built NaturaLawn into 64 franchises in 23 states—and helped take IPM into the main- stream, as even his former employer has changed many of its practices. 22

Immigrants may find conventional paths to economic suc- cess closed to them and turn to entrepreneurship. 23 The Cuban community in Miami has produced many successful entre- preneurs, as has the Vietnamese community throughout the United States. Sometimes the immigrant’s experience gives him or her useful knowledge about foreign suppliers or mar- kets that present an attractive business opportunity. Rakesh Kamdar immigrated to the United States from India to study computer science but noticed a way he could meet the huge U.S. demand for nursing talent. He set up DB Healthcare to recruit nurses from India to work in the United States. Unlike U.S. competitors that had failed, Kamdar set up meetings at DB’s Indian offices, and he invited nurses to attend with their husbands, parents, and in-laws. His staff discussed family and individual questions related to the American jobs. Within a few years, DB Healthcare expanded its service offerings to staffing other medical personnel and IT professionals for the health care industry, ultimately earning the firm millions of dollars. 24

Born Josephine Esther Mentzer, the beauty company entrepreneur Estée Lauder was raised in Queens, New York, by her Hungarian mother and Czech father. Living on the floor above her father’s hardware store, Lauder was always interested in beauty. In 1946 Lauder’s chemist uncle created a handful of skin creams that she began selling to beauty salons and hotels. Two years after start- ing her business, she expanded her enterprise by convincing the managers at New York City department stores to give her counter space to sell her beauty products. Holding strong to the belief that

went from graduate student to social media millionaire. An early proponent of using social media to market firms’ prod- ucts and services, Kabani wrote her masters’ thesis on “why people use Twitter and other social networking sites.” After applying and being rejected for jobs at large management consulting firms, she decided to trust her own entrepreneur- ial instincts and founded a web marketing company, The Marketing Zen Group. In just three years, Kabani has grown the company to 30 employees and $1.2 million in revenue. 18 In 2012, Kabani accepted an award at the White House for being one of Empact’s top 100 companies started by an entre- preneur under the age of 35. 19 As president of The Marketing Zen Group, Kabani is a constant learner who provides strategy and implementation services for businesses that want to lever- age the power of the Internet. Her company operates virtually with 30 employees in different countries and offers a range of services to clients, including social media marketing, search engine optimization, website design, content marketing, and consulting.