Entrepreneurship Flashcards
What does entrepreneurship concern?
- The identification of opportunities
- The evaluation of opportunities
- The exploitation of opportunities
Describe Entrepreneurial Opportunities
- They exist when (a) new products or services can satisfy unmet needs and/or (b) extant products and services can be offered in new markets and/or in new ways.
- Can occur in for-profit or nonprofit sectors; also can occur in startups, established firms, small firms, or large firms.
- Often involve using underpriced resources and /or using resources in different, unanticipated, and novel ways.
- Can be discovered, created, or some combination thereof.
Describe the value of entrepreneurship at a micro-economic level
- Can be a source of new firms, as well as new competitive advantages for existing firms
- Can position individuals and firms to succeed in future endeavors.
Describe the value of entrepreneurship at a macro-economic level
- Fuels economic growth
- Creates wealth for employees and investors
- Creates employment
- Generates prosperity for citizens
- Generates government revenue
Describe Incremental Innovation
- Most innovations are incremental
- Provides small changes in current product lines and service offerings
- May change an industry without altering its basic foundation
- Improves existing process and knowledge
- Can create valuee
Describe Radical Innovation
- Rare because of difficulty and risk
- Represents significant technological breakthroughs
- May transform an industry or create a new one
- May change the knowledge and processes others must have
- Can create value
What are the 3 “I’s” of the Entrepreneurial Process?
- Invention
- Innovation
- Imitation
Describe “Innovation”
- Creating commercial viability from an invention
- Brings something new into use
- Commercial criteria are used to evaluate success
- A fundamental goal of entrepreneurship
Describe “Invention”
- Creating or developing a new product, process, or service
- Brings something new into being
- Technical criteria are used to evaluate success
- Alone, invention does not produce competitive advantage
Describe “Imitation”
- Adoption of an innovation by other firms, perhaps with slight changes; might be inevitable at some point
- Can happen quickly (e.g., soon after a product launches)
- Moves industries toward product or process standardization
- Though unlikely to generate competitive advantage, imitation might be necessary sometimes
What are Business Angels
Individuals who invest their own money in exchange for equity
Describe how Angel Investment works
- Generally invest in firms owned and managed by people they know and trust
- Investment usually occurs in amounts that are a small fraction of the angels’ net worth
- Often allow the entrepreneur to maintain more ownership, perhaps enhancing the entrepreneur’s return.
Describe Government sources of funding
- Because governments have an interest in facilitating entrepreneurship, they sometimes provide seed money
- Can be direct grants, loans, or government contracts
- Examples include initiatives to facilitate entrepreneurship by women, minorities, and nonprofits
What are venture capital firms?
Individuals or firms investing on behalf of other entities in exchange for equity
How do VC’s work?
- Tend to seek high returns on their investments
- May take an active role in firm management
- Often invest in stages
What do VC’s usually pay attention to?
- Human capital, particularly that of leaders (e.g. founders, top managers)
- Anticipated competitive rivalry and market instability
- Are usually highly selective
What are VC returns?
- Increasing firm value and selling firms (e.g., via acquisitions)
- Maintaining ownership in firms that go public
What are initial public offerings
A firm offers tradable shares of stock to external market investors for the first time
How do IPOs work?
- Firms transition from private to public
- Provides capital, legitimacy, and liquidity
- Entrepreneurs often relinquish much of their control of the firm
Underwriters and institutional investors are influential
true
How do IPOs provide capital to fund past liabilities or future activities?
- Capital Raised = (offer price x shares sold) - Underwriters’ fees
- The amount of capital raised often reflects the firm’s potential but can also reflect other factors
- Due to uncertainty, signaling is important
