Week 2 - Entrepreneurship and start-ups

Week 2: Entrepreneurship and Start-ups Study Guide (Sept 2024)

Lecture Overview

• Characterization of an Entrepreneur:

  • Ambitious

  • Reflective

  • Risk Taker

• Session Details:

  • Replace Monday Afternoon Session: Entrepreneurial Inspirations co-hosted by Blue Factory, ESCP Incubator, and Professor.

  • Benefits:

    • Inspiration for ideas

    • Live examples of idea-market testing

    • Testimonials of entrepreneurs

Objectives

• Discuss entrepreneurship and underlying concepts.

• Explain effectuation and entrepreneurial mindset.

• Identify common traits of successful entrepreneurs.

• Highlight contributions of small businesses to the economy.

• Identify causes of business failure and sources for advice.

• Discuss sources of small-business financing.

• Explain franchising advantages and disadvantages.

Key Names in Start-ups

• Notable Entrepreneurs:

  • Coco Chanel

  • James Dyson

  • Elon Musk

• Common Traits:

  • Visionary

  • Risk Taker

  • Creative

  • Break-through ideas

Statistics

Failures and Success Rates

• 2 out of 10 new businesses fail in the first year.

• 7.5 out of 10 venture-backed startups fail.

• 9 out of 10 startups fail.

Opportunities in Problems

• Mindset: Interaction with the environment can turn ideas into opportunities.

Understanding Entrepreneurship

Definition

• Entrepreneurship: Solving user problems/unmet needs using opportunities.

• An opportunity arises as a favorable set of circumstances creating a need.

Theoretical Foundations

• Shane & Venkataraman (2000): Entrepreneurial opportunities exist and some entrepreneurs exploit them.

• Sarasvathy (2001): Entrepreneurs create opportunities.

Effectuation

Principles of Effectuation

• Effectual Cycle:

  • You + Catalyst = Idea

  • Idea + Action = Opportunity

  • Opportunity + Engagements = Viable Project

Mindset in Entrepreneurship

• Entrepreneurs focus on existing means and their possible effects rather than fixed goals.

• Five Principles:

  1. Bird in Hand: Start with available resources.

  2. Affordable Loss: Limit risks to manageable levels.

  3. Co-Creation Partnerships: Build networks for shared success.

  4. Leverage Contingencies: Embrace surprises as opportunities.

  5. Worldview: Control outcomes through actions rather than predictions.

Common Traits of Entrepreneurs

• Attributes:

  • Bias to action

  • Welcoming change

  • Optimistic

  • Resourceful

  • Risk management skills

  • Strong curiosity

  • Experimentation readiness

  • Resilience in the face of failure

  • Customer focus

  • Permission-seeking behavior

Characteristics of Small Businesses

Overview

• Limited resources and narrow focus.

• Higher freedom for innovation and quick decision-making.

Economic Contributions

• Job creation

• Introduction of new products

• Fulfillment of larger businesses' needs

• Injection of capital into the economy

• Risk-taking elements absent in larger firms.

Entrepreneurial Firm Types

Categories

1. Salary Substitute Firms: Provide income similar to conventional jobs.

2. Lifestyle Firms: Enable ownership and a preferred lifestyle.

3. Entrepreneurial Firms: Introduce innovative products/services through opportunity creation.

Business Start-up Options

Options Overview

1. Create a New Business

   • Requires significant effort and resources.

2. Buy an Existing Business

   • Easier but often at a high price.

3. Buy into a Franchise

   • Established systems but comes with strict guidelines.

Franchise Considerations

• Questions Before Agreement:

  • Total start-up costs? Initial franchise fee coverage?

  • Employee training costs?

  • Royalty calculations?

  • Advertising responsibilities?

Reasons for Business Failure

Common Issues

• Market fit problems

• Leadership and managerial incompetence

• Ineffective marketing strategies

• Financial mismanagement

• Poor cash management, location, and inventory control.

Support Resources

Business Incubators

• Facilities providing support to start-ups.

• ESCP’s Blue Factory offers resources and assistance.

Financing Options

• Seed money, micro-lenders, venture capitalists, angel investors, crowdfunding opportunities, and IPOs.