Managing for Competitive Advantage (part 7)

New Ventures

By

Charles Lamson

Great opportunity is available to those who develop a vitally important skill: entrepreneurship. Entrepreneurship occurs when an enterprising individual pursues a lucrative opportunity. To be an entrepreneur is to initiate and build an organization, rather than being only a passive part of one. It involves creating new systems, resources, or processes to produce new goods or services and/or serve new markets.

Entrepreneurship differs from management generally and from small business management in particular. An entrepreneur is a manager, but engages in additional activities that not all managers do. Whereas managers operate in a more formal management hierarchy, with more clearly defined authority and responsibility, entrepreneurs use networks of contacts more than formal authority. And whereas managers usually prefer to own assets, entrepreneurs often rent or use assets on a temporary basis. Some say that managers often are slower to act and tend to avoid risk, whereas entrepreneurs are quicker to act and actively manage risk.

How does entrepreneurship differ from managing a small business? A small business is often defined as having fewer than 100 employees, being independently owned and operated, and dominant in its field, and not characterized by many innovative practices. Small business owners tend not to manage particularly aggressively, and they expect normal, moderate sales, profits, and growth. In contrast, an entrepreneurial venture has growth and high profitability as 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. 

Simply put, entrepreneurs generate new ideas and turn them into business ventures. But entrepreneurship is not simple, and it is frequently misunderstood. Read Table 1 to start you thinking about the myths and realities of this important career option.

TABLE 1 Some Myths About Entrepreneurs

Myth 1---Anyone can start a business.

Reality---The easiest part is starting up. What is hardest is surviving, sustaining, and building a venture so its founders can realize a harvest. Perhaps only one in 10 to 20 new businesses that survive five years or more results in a capital gain for the founders.

Myth 2---Entrepreneurs are gamblers.

Reality---Successful entrepreneurs take very careful, calculated risks. They try to influence the odds, often by getting others to share risk with them and by avoiding or minimizing risks if they have the choice. They do not deliberately seek to take more risk or to take unnecessary risk, nor do they shy away from unavoidable risk.

Myth 3---Entrepreneurs want the whole show to themselves.

Reality---It is extremely difficult to grow a higher potential venture by working single-handedly. Higher potential entrepreneurs build a team, an organization, and a company. Besides, 100 percent of nothing is nothing, so rather than taking a large piece of the pie, they work to make the pie bigger.

Myth 4---Entrepreneurs are their own bosses and completely independent.

Reality---Entrepreneurs are far from independent and have to serve many masters and constituencies, including partners, investors, customers, suppliers, creditors, employees, families, and those involved in social and community obligations.

Myth 5---Entrepreneurs work longer and harder than man in big companies.

Reality---There is no evidence that all entrepreneurs work more than their corporate counterparts. Some do, some do not. Some actually report that they work less.

Myth 6---Entrepreneurs experience a great deal of stress and pay a high price.

Reality---No doubt about it: Being an entrepreneur is stressful and demanding. But there is no evidence that it is any more stressful than numerous other highly demanding professional roles, and entrepreneurs find their jobs very satisfying. They have a high sense of accomplishment, are healthier, and are much less likely to retire than those who work for others. Three times as many entrepreneurs as corporate managers say they plan to never retire.

Myth 7---Starting a business is risky and often ends in failure.

Reality---Talented and experienced entrepreneurs---because they pursue attractive opportunities and are able to attract the right people and necessary financial and other resources to make the venture work---often head successful ventures.

Myth 8---Entrepreneurs are motivated solely by the quest for the almighty dollar.

Reality---Entrepreneurs seeking high potential ventures are more driven by building enterprises and realizing long-term capital gains than by instant gratification through high salaries and perks. A sense of personal achievement and accomplishment, feeling in control of their own destinies, and realizing their vision and dreams are also powerful motivators. Money is viewed as a tool and a way of keeping score.

Myth 9---Entrepreneurs seek power and control over others.

Reality---Successful entrepreneurs are driven by the quest for responsibility, achievement, and results, rather than for power for its own sake. They thrive on a sense of accomplishment and of outperforming the competition, rather than a personal need for power Express by dominating and controlling others. By virtue of their accomplishments, they may be powerful and influential, but these are more the byproducts of the entrepreneurial process then a driving force behind it.

Myth 10---If an entrepreneur is talented, success will happen in a year or two.

Reality---An old maxim among venture capitalists says it all: The lemons ripen in two and a half years, but the pearls take seven or eight. Rarely is a new business established solidly in less than 3 or 4 years.

Myth 11---Any entrepreneur with a good idea can raise venture capital.

Reality---Of the ventures of entrepreneurs with good ideas who seek out venture-capital, only 1 to 3 out of 100 are funded.

Myth 12---If an entrepreneur has enough startup capital, he or she can't miss.

Reality---The opposite is often true; that is, too much money at the outset often creates euphoria and a spoiled child syndrome. The accompanying lack of discipline and impulsive spending usually lead to serious problems and failure.

Myth 13---Entrepreneurs are lone wolves and cannot work with others.

Reality---The most successful entrepreneurs are leaders who build great teams and effective relationships working with peers, directors, investors, key customers, key suppliers, and the like.

Myth 14---Unless you attained 600+ on your SATs or GMATs you’ll never be a successful entrepreneur.

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

Here is another myth, not in the table: 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. You must have incredible mental toughness to survive---let alone thrive. During the start-up, you're likely to have a lot of bad days. It is exhausting. Even if you do not have employees, you should expect communication breakdowns and other people problems with agents, vendors, distributors, family, subcontractors, lenders, whomever. Dan brackland, the founder of VisiCale, advises that the most important thing to remember 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 successes don't make you a genius or superhuman."

As you read the next couple posts, you will learn about two primary sources of new venture creation: independent entrepreneurship and intrapreneurship. Independent entrepreneurship occurs when an individual establishes a new organization without the benefit of corporate support. Intrapreneurs are new venture creators working in big corporations; they are corporate entrepreneurs. 

*SOURCE: MANAGEMENT: THE NEW COMPETITIVE LANDSCAPE, 6TH ED., 2004, THOMAS S. BATEMAN & SCOTT A. SNELL, PGS. 212-214*

end

Myth 1---Anyone can start a business.

Reality---The easiest part is starting up. What is hardest is surviving, sustaining, and building a venture so its founders can realize a harvest. Perhaps only one in 10 to 20 new businesses that survive five years or more results in a capital gain for the founders.

Myth 2---Entrepreneurs are gamblers.

Reality---Successful entrepreneurs take very careful, calculated risks. They try to influence the odds, often by getting others to share risk with them and by avoiding or minimizing risks if they have the choice. They do not deliberately seek to take more risk or to take unnecessary risk, nor do they shy away from unavoidable risk.

Myth 3---Entrepreneurs want the whole show to themselves.

Reality---It is extremely difficult to grow a higher potential venture by working single-handedly. Higher potential entrepreneurs build a team, an organization, and a company. Besides, 100 percent of nothing is nothing, so rather than taking a large piece of the pie, they work to make the pie bigger.

Myth 4---Entrepreneurs are their own bosses and completely independent.

Reality---Entrepreneurs are far from independent and have to serve many masters and constituencies, including partners, investors, customers, suppliers, creditors, employees, families, and those involved in social and community obligations.

Myth 5---Entrepreneurs work longer and harder than man in big companies.

Reality---There is no evidence that all entrepreneurs work more than their corporate counterparts. Some do, some do not. Some actually report that they work less.

Myth 6---Entrepreneurs experience a great deal of stress and pay a high price.

Reality---No doubt about it: Being an entrepreneur is stressful and demanding. But there is no evidence that it is any more stressful than numerous other highly demanding professional roles, and entrepreneurs find their jobs very satisfying. They have a high sense of accomplishment, are healthier, and are much less likely to retire than those who work for others. Three times as many entrepreneurs as corporate managers say they plan to never retire.

Myth 7---Starting a business is risky and often ends in failure. 

Reality---Talented and experienced entrepreneurs---because they pursue attractive opportunities and are able to attract the right people and necessary financial and other resources to make the venture work---often head successful ventures.

Myth 8---Entrepreneurs are motivated solely by the quest for the almighty dollar.

Reality---Entrepreneurs seeking high potential ventures are more driven by building enterprises and realizing long-term capital gains than by instant gratification through high salaries and perks. A sense of personal achievement and accomplishment, feeling in control of their own destinies, and realizing their vision and dreams are also powerful motivators. Money is viewed as a tool and a way of keeping score.

Myth 9---Entrepreneurs seek power and control over others.

Reality---Successful entrepreneurs are driven by the quest for responsibility, achievement, and results, rather than for power for its own sake. They thrive on a sense of accomplishment and of outperforming the competition, rather than a personal need for power Express by dominating and controlling others. By virtue of their accomplishments, they may be powerful and influential, but these are more the byproducts of the entrepreneurial process then a driving force behind it.

Myth 10---If an entrepreneur is talented, success will happen in a year or two.

Reality---An old maxim among venture capitalists says it all: The lemons ripen in two and a half years, but the pearls take seven or eight. Rarely is a new business established solidly in less than 3 or 4 years. 

Myth 11---Any entrepreneur with a good idea can raise venture capital.

Reality---Of the ventures of entrepreneurs with good ideas who seek out venture-capital, only 1 to 3 out of 100 are funded.

Myth 12---If an entrepreneur has enough startup capital, he or she can't miss.

Reality---The opposite is often true; that is, too much money at the outset often creates euphoria and a spoiled child syndrome. The accompanying lack of discipline and impulsive spending usually lead to serious problems and failure.

Myth 13---Entrepreneurs are lone wolves and cannot work with others.

Reality---The most successful entrepreneurs are leaders who build great teams and effective relationships working with peers, directors, investors, key customers, key suppliers, and the like. 

Myth 14---Unless you attained 600+ on your SATs or GMATs you’ll never be a successful entrepreneur.

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