ENTREPRENEURIAL PROCESS

The entrepreneurial process involves finding, evaluating, and developing an opportunity by

overcoming the strong forces that resist the creation of something new.
There are four phases of entrepreneurial process:-

Phase 1: Identifying and Evaluating the Entrepreneurial Opportunity

Most good business opportunities result from an entrepreneur being alert to possibilities.
Entrepreneurial opportunities are “those situations in which new goods, services, raw
materials, and organizing methods can be introduced and sold at greater than their cost of
production.
Some sources are often fruitful, including consumers and business associates. Channel members
of the distribution system like retailers, wholesalers or manufacturer’s representatives are also
helpful.
Technically-oriented individuals often identify business opportunities when working on other
projects. Each opportunity must be carefully screened and valuated; this is the most critical
element of the entrepreneurial process.
The evaluation process involves looking at:-
 The creation and length of the opportunity
 Its real and perceived value
 Its risks and return.
 It’s fit with the skills and goals of the entrepreneur
 It’s differential advantage in its competitive environment
It is important to understand the cause of the opportunity, as the resulting opportunity may have
a different market size and time dimension.
Entrepreneurs act on what they believe is an opportunity. Because opportunities exist in high
uncertainty, entrepreneurs must use their judgment about whether or not to act.
The key to understanding entrepreneurial action is being able to assess the amount of uncertainty
perceived to surround a potential opportunity and the individual’s willingness to bear that
uncertainty.
The individual’s prior knowledge can decrease the amount of uncertainty, and his or her
motivation indicates a willingness to bear uncertainty.

The market size and the length of the window of opportunity are the primarily bases for
determining risks and rewards. The risks reflect the market, competition, technology, and
amount of capital involved. The amount of capital forms the basis for the return and rewards.
The return and reward of the present opportunity needs to be viewed in light of any possible
subsequent opportunities as well. The opportunity must fit the personal skills and goals of the
entrepreneur. The entrepreneur must be able to put forth the necessary time and effort required
for the venture to succeed. One must believe in the opportunity enough to make the necessary
sacrifices.

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Opportunity analysis, or an opportunity assessment plan, should focus on the opportunity and
provide the basis to make the decision, including:
 A description of the product or service
 An assessment of the opportunity
 Assessment of the entrepreneur and the team
 Specifications of all the activities and resources needed
 The source of capital to finance the initial venture
The most difficult aspect of opportunity analysis is the assessment of the opportunity.

Phase 2: Develop a Business Plan

A good business plan must be developed in order to exploit the opportunity defined. A good
business plan is important in developing the opportunity and in determining the resources
required, obtaining those resources and successfully managing the venture.

Phase 3: Determine the Resources Required.

Assessing the resources needed starts with an appraisal of the entrepreneur’s present resources.
Any resources that are critical must be distinguished from those that are just helpful.
Care must be taken not to underestimate the amount and variety of resources needed. Acquiring
needed resources, while giving up as little control as possible, is difficult.
The entrepreneur should try to maintain as large an ownership position as possible, particularly
in the start-up stage. As the business develops, more funds will probably be needed, requiring
more ownership be relinquished.
Alternative resource suppliers should be identified, along with their needs and desires, in order
to structure a deal with the lowest cost and loss of control.

Phase 4: Manage the Enterprise.

The entrepreneur must employ these resources through implementation of the business plan.
This involves implementing a management structure, as well as identifying a control system.

CAUSES FOR RECENT INTEREST IN ENTREPRENEURSHIP

Interest in entrepreneurship has resulted from events occurring on social, cultural, and business
levels.
 There is an increasing interest in "doing your own thing." Individuals frequently desire to
create something of their own.
 They want responsibility and want more freedom in their organizations.
 Frustration can develop and result in the employee becoming less productive or leaving
the organization. This has recently caused more discontent in structured organizations.
 When meaning is not provided within the organization, individuals often search for an
institution, such as entrepreneurship, that will provide it.
 Entrepreneurship is one method for stimulating and capitalizing on those who think that
something can be done differently and better.

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Corporate Entrepreneurship
The resistance to change, flexibility, growth, and diversification can be/ overcome by
developing a spirit of entrepreneurship within the existing organization, called corporate
entrepreneurship.
An increase in corporate entrepreneurship reflects an increase in social, cultural, and business
pressures toward entrepreneurial action.

Hyper-competition has forced companies to have a corporate entrepreneurship and develop

increased interest in such areas as new product development, diversification, increased
productivity, and decreasing costs by methods such as reducing the company’s labor force.

Corporate entrepreneurship is most strongly reflected in entrepreneurial activities as well as in

top management orientations in organizations.

These entrepreneurial endeavors consist of the following four key elements: new business
venturing, innovativeness, self-renewal, and pro-activeness.

New business venturing (sometimes called corporate venturing) refers to the creation of a new
business within an existing organization. These entrepreneurial activities consist of creating
something new of value either by redefining the company’s current products or services,
developing new markets, or forming more formally autonomous or semiautonomous units or
firms. Formations of new corporate ventures are the most salient manifestations of corporate
entrepreneurship.

Organizational innovativeness refers to product and service innovation, with an emphasis on

development and innovation in technology. It includes new product development, product
improvements, and new production methods and procedures.

Self-renewal is the transformation of an organization through the renewal of the key ideas on
which it is built. It has strategic and organizational change connotations and includes a
redefinition of the business concept, reorganization, and the introduction of system-wide
changes to increase innovation.

Pro-activeness includes initiative and risk taking, as well as competitive aggressiveness and
boldness, which are particularly reflected in the orientations and activities of top management. A
proactive organization tends to take risks by conducting experiments; it also takes initiative and
is bold and aggressive in pursuing opportunities. Organizations with this proactive spirit attempt
to lead rather than follow competitors in such key business areas as the introduction of new
products or services, operating technologies, and administrative techniques.

Acting entrepreneurially is something that people choose to do based on their perceptions of the
desirability and feasibility of creating a new venture to pursue an opportunity. In the same way,
existing companies can also pursue opportunities, but this requires that the management of these

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firms create an environment that encourages employees to think and act entrepreneurially. Such
an environment is one that helps people realize that entrepreneurial behavior within the firm is
both personally desirable and feasible.

MANAGERIAL VERSUS ENTREPRENEURIAL DECISION MAKING

The difference between the entrepreneurial and managerial styles in decision making involves
many business dimensions.
Howard Stevenson, a professor at Harvard University, believes that entrepreneurship represents
a mode of managing an existing firm that is distinct from the way existing firms are traditionally
managed.

Entrepreneurial management is distinct from traditional management in terms of eight

dimensions namely: Strategic orientation, commitment to opportunity, commitment of
resources, control of resources, management structure, reward philosophy, growth orientation,
and entrepreneurial culture.

Strategic Orientation
Strategic orientation refers to those factors that are inputs into the formulation of the firm’s
strategy.
The entrepreneur’s strategic orientation depends on his or her perception of the opportunity.
This orientation is most important when other opportunities have diminishing returns
accompanied by rapid changes in technology, consumer economies, social values or political
rules. When the use of planning systems is the strategic orientation, there is more pressure for
the administrative domain to be operant.

Commitment to Opportunity
Entrepreneurially and traditionally managed firms can be distinguished in terms of their
commitment to opportunity.
More entrepreneurially managed firms have an entrepreneurial orientation toward opportunity
in that they are committed to taking action on potential opportunities and therefore can pursue
opportunities rapidly, making the most of windows of opportunity.
They also are able to withdraw their resources from a particular opportunity and do so rapidly,
such that if initial feedback from the pursuit of a potential opportunity provides information
suggesting that it might not be the right opportunity for the firm, then management can “pull the
plug,” minimizing losses from the initial pursuit.

Commitment of Resources
It is important to note that entrepreneurs still care about the resources they must commit to the
pursuit of an opportunity, but they have an entrepreneurial orientation toward the commitment
of resources that is focused on how to minimize the resources that would be required in the
pursuit of a particular opportunity.

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An entrepreneur is used to having resources committed at periodic intervals, often based on
certain tasks or objectives being reached. In acquiring these resources the entrepreneur is forced
to achieve significant milestones using very few resources

Control of Resources
Over and above their commitment of resources, entrepreneurially and traditionally managed
firms differ in their control of resources. Entrepreneurially managed firms are less concerned
about the ownership of resources and more concerned about having access to others’ resources,
including financial capital, intellectual capital, skills, and competencies.
Access to resources is possible to the extent that the opportunity allows the firm to effectively
deploy others’ resources for the benefit of the entrepreneurial firm and the owner of the invested
resources. In contrast, traditionally managed firms focus on the ownership of resources and the
accumulation of further resources. They believe that if they control their own resources then
they are self-contained.

Managerial Structure
An entrepreneurial orientation toward management structure is organic. That is, the
organizational structure has few layers of bureaucracy between top management and the
customer and typically has multiple informal communication channels. In this way,
entrepreneurially managed firms are able to capture and communicate more information from
the external environment and are sufficiently “fluid” to be able to take quick action based on that
information.
In addition, entrepreneurially managed firms are more structured to make use of both their
internal networks (e.g., through informal communication channels at work) and external
networks (with buyers, suppliers, and financial institutions), which provide information and
other resources important in the discovery/generation and exploitation of opportunities.
In contrast, the traditionally managed firm has a structure well suited for the internal efficiencies
of allocating controlled resources. There is a formalized hierarchy with clear roles and
responsibilities, highly routinized work, and layers of middle management to “manage”
employees’ use of the firm’s resources. Traditionally managed firms have structures that are
typically inwardly focused on efficiency rather than on detecting and rapidly acting on changes
in the external environment.

Reward Philosophy
Firms are organized not only by their structures but also by their reward philosophy. The
entrepreneurially managed firm is focused on pursuing opportunities for new entry that represent
new value for the firm (and hopefully for others, including society as a whole).
The traditionally managed firm, rewards are managed based on employees responsibilities,
where responsibilities are typically determined by the amount of resources (assets and/or people)
that each manager or employee controls.
Promotion is a reward that provides a manager control of even more resources and, therefore,
further scope for rewards.

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Growth Orientation and Entrepreneurial Culture
In a firm that has an entrepreneurial orientation toward growth, there is a great desire to expand
the size of the firm at a rapid pace. Although traditionally managed firms may also desire to
grow, they prefer growth to be slow and at a steady pace. That is, they prefer a pace of growth
that is more “manageable” in that it does not “unsettle the firm” by putting at risk the resources
that the firm controls and thus does not put at risk the jobs and power of top management.
Culture also distinguishes entrepreneurially and traditionally managed firms. A firm with an
entrepreneurial orientation toward culture encourages employees to generate ideas, experiment,
and engage in other tasks that might produce creative output. Such output is highly valued by
entrepreneurial management because it is often the source of opportunities for new entries.
Opportunities are the focus of the entrepreneurially managed firm.
In contrast, the traditionally managed firm begins with an assessment of the resources that it
controls, and this is reflected in its organizational culture. So while a traditionally managed firm
is still interested in ideas, it is mostly interested in ideas that revolve around currently controlled
resources. With only ideas considered that relate to currently controlled resources, the scope of
opportunities discovered and generated by a traditionally managed firm is limited.

Characteristics of Corporate entrepreneurship

 The first of these is that the organization operates on the frontiers of technology.
Since research and development are key sources for successful new product ideas, the
firm must operate on the cutting edge of the industry’s technology, encouraging and
supporting new ideas instead of discouraging them, as frequently occurs in firms that
require a rapid return on investment and a high sales volume.
 Entrepreneurial firms encourage experimentation to facilitate trial-and-error learning.
Successful new products or services usually do not appear fully developed; they evolve.
 Entrepreneurial firms remove obstacles to creativity in the new product development
process. Frequently in an organization, various “turfs” are protected, frustrating attempts
by potential entrepreneurs to establish new ventures.
 Entrepreneurial firms make highly accessible resources for experimentation; they have
slack resources such as money and time.
 Entrepreneurial firms construct and encourage multidisciplinary teams to work on new
ventures.
 The spirit of corporate entrepreneurship cannot be forced upon individuals; it must be on
a volunteer basis.
 An individual willing to spend the excess hours and effort to create a new venture needs
the opportunity and the accompanying reward of completing the project.
 Entrepreneurial firms create a reward system that encourages creativity, risk taking, and
even failure. The corporate entrepreneur needs to be appropriately rewarded for all the
energy, effort, and risk taking expended in the creation of the new venture. Rewards
should be based on the attainment of established performance goals. An equity position in

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 the new venture is one of the best rewards for motivating and eliciting the amount of
activity and effort needed for success.
 An entrepreneurial firm develops sponsors, develops product champions, and matches the
two. That is, a corporate environment favorable for corporate entrepreneurship has
sponsors and champions throughout the organization who not only support the creative
activity but also have the planning flexibility to establish new objectives and directions as
needed.
 Finally, and perhaps most importantly, an entrepreneurial firm is one that has a top
management team that wholeheartedly supports and embraces the entrepreneurial actions
of employees. That is, through their physical presence and allocating sufficient resources
to new ventures, managers explicitly and implicitly send signals to the employees that
their entrepreneurial endeavors are valued and supported. Without top management
support, a successful entrepreneurial environment cannot be created.
Leadership Characteristics of Entrepreneurship
Within this overall corporate environment, certain individual characteristics have been identified
that constitute a successful corporate entrepreneur. These include understanding the
environment, being visionary and flexible, creating management options, encouraging
teamwork, encouraging open discussion, building a coalition of supporters, and being persistent.

 An entrepreneur needs to understand all aspects of the environment.

To establish a successful corporate venture, the individual must be creative and have a
broad understanding of the internal and external environments of the corporation.
 The corporate entrepreneur must be flexible and create management options. A corporate
entrepreneur does not “mind the store,” but rather is open to and even encourages change.
By challenging the beliefs and assumptions of the corporation, a corporate entrepreneur
has the opportunity to create something new in the organizational structure.
 The corporate entrepreneur must have the ability to encourage teamwork and use a multi-
disciplined approach.
 Open discussion must be encouraged to develop a good team for creating something new.
It is worth noting that there are two types of conflicts that occur in team interactions:
 There is conflict over the nature of the task and this conflict reveals information for
enhancing performance on the task and (2) there is relationship conflict where the
discussion becomes personal and this obstructs performance on the task.
 Openness leads also to the establishment of a strong coalition of supporters and
encouragers.
 The corporate entrepreneur must encourage and affirm each team member, particularly
during difficult times. This encouragement is very important, as the usual motivators of
career paths and job security are not operational in establishing a new corporate venture.
 A good corporate entrepreneur makes everyone a hero.
 Last, but not least, is persistence. Throughout the establishment of any new venture,
frustration and obstacles will occur. Only through the corporate entrepreneur’s
persistence will a new venture be created and successful commercialization result.

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ESTABLISHING CORPORATE ENTREPRENEURSHIP IN THE ORGANIZATION
Over and above the creation of an organizational culture and the leadership characteristics
discussed so far, an organization wanting to establish a more entrepreneurial firm must
implement a procedure for its creation. Although this can be done internally, frequently it is
easier to use someone outside to facilitate the process. This is particularly true when the
organization’s environment is very traditional and has a record of little change and few new
products being introduced.
 The first step in this process is to secure a commitment to corporate entrepreneurship in
the organization by top, upper, and middle management levels. Without top management
commitment, the organization will never be able to go through all the cultural changes
necessary for implementation.
 Ideas and general areas that top management is interested in supporting should be
identified, along with the amount of risk and money that is available to develop the
concept further. Overall program expectations and the target results of each corporate
venture should be established. As much as possible, these should specify the time frame,
volume, and profitability requirements for the new venture, as well as the impact of the
organization. Along with entrepreneurial training, a mentor/sponsor system needs to be
established.
 A company needs to use technology to make itself more flexible. Technology has been
used successfully for the past decade by small companies that behave like big ones
 The organization should be a group of interested managers who will train employees as
well as share their experiences. The training sessions should be conducted more regularly
to keep employees up to date.
 The organization needs to develop ways to get closer to its customers. This can be done
by tapping the database, hiring from smaller rivals, and helping the retailer.
 An organization that wants to become more entrepreneurial must learn to be more
productive with fewer resources, this has already occurred in many companies that have
downsized.
 The organization needs to establish a strong support structure for corporate
entrepreneurship. This is particularly important since corporate entrepreneurship is
usually a secondary activity in the organization.
 Support must involve tying the rewards to the performance of the entrepreneurial unit.
This encourages team members to work harder and compete more effectively since they
will benefit directly from their efforts.
 Finally, the organization needs to implement an evaluation system that allows successful
entrepreneurial units to expand and unsuccessful ones to be eliminated. The organization
can establish constraints to ensure that this expansion does not run contrary to the
corporate mission statement. Similarly, corporate ventures that fail to show sufficient
viability should not be allowed to exist just because of vested interests.

End