entrepreneurship introduction to PART ONE Decision to Become an Entrepreneur CHAPTER Decision to SARAH SCHUPP Best advice I ve received

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1 CHAPTER PART ONE Decision to Decision to Become an Entrepreneur introduction to entrepreneurship SARAH SCHUPP Currently in my ipod Norah Jones Best advice I ve received Be persistent My biggest worry as an entrepreneur Losing a customer

2 BARRMC01_ qxd 1/13/07 3:16 PM Page 3 niversity Parent: The Classic Entrepreneurial Story As a college student at the University of Colorado (CU), in Boulder, Colorado, Sarah Schupp invited her parents to visit her a couple times a year to see where she was living and see the campus and its various attractions. Although she enjoyed her parent s visits, one challenge she always encountered was helping them plan their stay and make it enjoyable. My parents would visit me from Dallas and they wanted to know where to shop, eat, and stay in Boulder, Schupp remembers.1 She always felt hesitant to give her parents too much advice. After all, as a college student she wasn t familiar with the hotels and motels in Boulder, for example, and, as a dormitory resident, didn t know a lot about the restaurants in different parts of town. After muddling through helping her parents plan several visits, it occurred to Schupp that what CU needed was a magazine that would provide parents a directory of hotels, motels, restaurants, and shops to help them plan their trips to Boulder. At the same time that Schupp started thinking about this idea, she was enrolled in the entrepreneurship program at the Leeds School of Business at CU. Fortunately for her, as she was thinking about her idea, she was scheduled to take a business plan course taught by Frank Moyes. Reflecting back on her business idea, Schupp recalls, I knew what I wanted to do, but I didn t know how to do it. 2 Schupp entered the class, which required the students to break up into teams, think of a business idea, and prepare a business plan to describe how the idea would be turned into a commercial reality. Schupp became part of a five-person team and persuaded her teammates to help her flesh out her parent magazine business idea. Schupp remembers that the class taught her to look at each step in the business plan carefully. The class culminated with a business plan competition which Schupp and her teammates won. Reflecting back on the class, Schupp remarked, His class (Frank Moyes) is a lot of SARAH SCHUPP work. We won the competition and we didn t even get an A. Founder, University Parent But he really knows what he s doing. 3 University of Colorado After the class concluded, Schupp became increasingly BS, Leeds School of Business, 2004 convinced that her idea for a parent-focused university magazine was viable. In talking with the staff of the Office of Parent Relations at CU, she learned that because it is a public entity, the university can t put out a guide that endorses specific businesses. However, university personnel told Best part of being a student First entrepreneurial experience What I do when I m not working Support from faculty Published coupon book for college students Play tennis 3

3 4 PART 1 DECISION TO BECOME AN ENTREPRENEUR 1. Explain entrepreneurship and discuss its importance. 2. Describe corporate entrepreneurship and its use in established firms. 3. Discuss three main reasons people decide to become entrepreneurs. 4. Identify four main characteristics of successful entrepreneurs. 5. Explain the five common myths regarding entrepreneurship. 6. Explain how entrepreneurial firms differ from salarysubstitute and lifestyle firms. 7. Discuss the changing demographics of entrepreneurs in the United States. 8. Discuss the impact of entrepreneurial firms on economies and societies. 9. Identify ways in which large firms benefit from the presence of smaller entrepreneurial firms. 10. Explain the entrepreneurial process. Schupp that if she put together a magazine or guide that was helpful to parents, CU would make it available to parents at university events. After kicking around the idea with her professors at CU and other people as well, she started a company, named University Parent, to produce an advertising-supported magazine for CU parents. To sell ads, she literally went door-to-door among the motels, hotels, restaurants, and shops in Boulder. Many businesses responded positively to her sales effort, largely because they knew the ads would be seen by parents who were from out-of-town and would be looking for a place to eat or stay. She was also able to sell some ads to national advertisers (such as Apple Computer and Marriott) who were interested in targeting college students and their parents. University Parent s first issue was published in October of 2003 and was distributed during parents weekend. The issue contained a directory of local motels, hotels, restaurants, and shops, along with a calendar of events and articles of interest to college students and their parents. University Parent s first issue was an immediate success, causing CU to invite Schupp to produce three magazines a year one to be distributed during summer orientation, one during the fall semester, and the other during the spring semester. Through research that Schupp and her teammates conducted during the preparation of University Parent s original business plan, they learned that approximately 95 percent of college parents want more information about both the college their child is attending and the community in which it is located. On most campuses there is no publication addressing this set of needs. 4 As a result, following her initial success at CU, Schupp approached other universities about her business idea and is now publishing customized versions of University Parent at Colorado State University, Southern Methodist University, Miami University of Ohio, University of Denver, and Kansas State University. Arrangements with several other universities are in the works. At all locations other than CU, the universities mail the magazine to the parents rather than distributing them while the parents are on campus. This approach is particularly attractive to advertisers near those universities. As a rule, universities do not share their mailing lists of parents, so to be able to produce an ad that will be distributed to all the parents of incoming students is very attractive to hotels, motels, restaurants and other businesses in a university town. Schupp feels that her business fills a need and that University Parent is a win for everyone involved. As to her future, Schupp is expanding University Parent, and hopes to be established on 25 campuses in the near future. I ve always wanted to be an entrepreneur, she said. I m just trying to grow the business. I d like to see it be a success. As you will see by reading this book, there is something unique about how each entrepreneurial venture is launched. However, there are some common features to all launches, including the fact that each venture is started by one or more entrepreneurs who have recognized an opportunity and who develop a plan for how to shape the opportunity into a viable business. The University Parent example is particularly instructive because Sarah Schupp managed this process very effectively and focused on start-up techniques that are emphasized throughout this book. After she recognized an opportunity, she went about the process of talking to a lot of people and developing a business plan before she won the trust of the people she needed to help her start her firm, started University Parent, launched it with minimal overhead, and executed her idea in an exemplary manner. She also created a business that provides value and benefits for all involved parties. In this first chapter of your book about the successful launching of an entrepreneurial firm, we define entrepreneurship and discuss why some people decide to become entrepreneurs.

4 CHAPTER 1 INTRODUCTION TO ENTREPRENEURSHIP 5 We then look at successful entrepreneurs characteristics, the common myths surrounding entrepreneurship, the different types of start-up firms, and the changing demographics of entrepreneurs in the United States and in other nations throughout the world. We then examine entrepreneurship s importance, including the economic and social impact of new firms as well as the importance of entrepreneurial firms to larger businesses. To close this chapter, we introduce you to the entrepreneurial process. This process, which we believe is the foundation for successfully launching a start-up firm, is the framework we use to present the book s materials to you. Introduction to Entrepreneurship There is tremendous interest in entrepreneurship around the world. Although this statement may seem bold, there is evidence supporting it, some of which is provided by the Global Entrepreneurship Monitor (GEM). GEM, which is a joint research effort by Babson College and the London Business School, tracks entrepreneurship in 35 countries, including the United States. According to the results of the GEM 2005 study, about 330 million, or roughly 14 percent, of adults in the countries surveyed are involved in forming new businesses. 5 Although many of these new businesses will be extremely small, approximately 3 percent to 17 percent (depending on the country) of new business owners expect to employ 20 or more people within 5 years. These percentages may seem small to you; however, the economic impact of firms this size is significant. In fact, research evidence shows that firms that grow to over 20 people are responsible for up to 80 percent of all new jobs created by entrepreneurs. 6 The GEM report also identifies whether its respondents are starting new businesses to take advantage of attractive opportunities or out of necessity. In other words, it tracks whether people are becoming entrepreneurs because they have recognized what they believe is an attractive opportunity or because they believe that becoming an entrepreneur is the most attractive work-related option available to them. Overall, the vast majority of the individuals in the 35 countries surveyed reported they are starting a business to pursue an attractive opportunity. Unfortunately, in the United States, roughly one-third of all new firms fail within the first 2 years, while another 20 percent fail within 4 years. 7 These statistics show that while many people are motivated to start new firms, motivation alone is not enough; it must be coupled with good information, a solid business idea, and effective execution to maximize chances for success. In this book, we will discuss many examples of entrepreneurial firms and the factors separating successful ventures from unsuccessful ventures. Many people see entrepreneurship as an attractive career path. Think about your friends and others you know. In all probability, you are acquainted with at least one or two people who want to become an entrepreneur either now or at some point in the future. The number of books dealing with starting one s own business is another indication entrepreneurship is growing in popularity. Amazon.com, for example, currently lists over 1,900 books dealing with entrepreneurship and over 17,000 books focusing on small business. It is also clear that many people are fascinated by entrepreneurship and related topics, as evidence by the success of ABC s American Inventor television show. The purpose of this book is to provide a thorough introduction to the entrepreneurial process as the foundation for successfully launching a new venture. What Is Entrepreneurship? The word entrepreneur derives from the French words entre, meaning between, and prendre, meaning to take. The word was originally used to describe people who take on the risk between buyers and sellers or who undertake a task such as starting a new venture. 8 Inventors and entrepreneurs differ from each other. An inventor creates something new. An entrepreneur assembles and then integrates all the resources needed the money, the people, the business model, the strategy, and the risk-bearing ability to transform the invention into a viable business Explain entrepreneurship and discuss its importance.

5 6 PART 1 DECISION TO BECOME AN ENTREPRENEUR 2. Describe corporate entrepreneurship and its use in established firms. Entrepreneurship is the process by which individuals pursue opportunities without regard to resources they currently control. 10 The essence of entrepreneurial behavior is identifying opportunities and putting useful ideas into practice. 11 The tasks called for by this behavior can be accomplished by either an individual or a group and typically requires creativity, drive, and a willingness to take risks. Sarah Schupp, the founder of University Parent, exemplified all these qualities. Schupp saw an opportunity to create a magazine that would be attractive to parents, universities, and advertisers, she risked her career by passing up alternatives to work on University Parent full-time, and she worked hard to build a profitable company that delivers a creative and useful service to its customers. In this book, we focus on entrepreneurship in the context of an entrepreneur or team of entrepreneurs launching a new business. However, ongoing firms can also behave entrepreneurially. Typically, established firms with an entrepreneurial emphasis are proactive, innovative, and risk-taking. For example, Apple Computer (which celebrated its 30th birthday in 2006) is widely recognized as a firm in which entrepreneurial behaviors are clearly evident. Steve Jobs is at the heart of Apple s entrepreneurial culture. With his ability to persuade and motivate others imaginations, Jobs continues to inspire Apple s employees as they develop innovative product after innovative product. To consider the penetration Apple has with some of its innovations, think of how many of your friends own an ipod! 12 Similarly, studying Cisco Systems ability to grow and succeed reveals a history of entrepreneurial behavior at multiple levels within the firm. 13 In addition, many of the firms traded on the NASDAQ, such as Yahoo!, Intel, Starbucks, and Google, are commonly thought of as entrepreneurial firms. The NASDAQ is the largest U.S. electronic stock market and with over 3,200 companies listed on the exchange. We want to note here that established firms with an orientation to acting entrepreneurially practice corporate entrepreneurship. 14 All firms fall along a conceptual continuum that ranges from highly conservative to highly entrepreneurial. The position of a firm on this continuum is referred to as its entrepreneurial intensity. 15 As we mentioned previously, entrepreneurial firms are typically proactive innovators and are not averse to taking calculated risks. In contrast, conservative firms take a more wait and see posture, are less innovative, and are risk averse. One of the most persuasive indications of entrepreneurship s importance to an individual or to a firm is the degree of effort undertaken to behave in an entrepreneurial manner. Firms with higher entrepreneurial intensity regularly look for ways to cut bureaucracy. For example, Virgin Group, the large British conglomerate, works hard to keep its units small and instill in them an entrepreneurial spirit. Virgin is the third most recognized brand in Britain and is involved in businesses as diverse as airlines and music. In the following quote, Sir Richard Branson, the founder and CEO of Virgin, describes how his company operates in an entrepreneurial manner: Convention... dictates that big is beautiful, but every time one of our ventures gets too big we divide it up into smaller units. I go to the deputy managing director, the deputy sales director, and the deputy marketing director and say, Congratulations. You re now MD [managing director], sales director and marketing director of a new company. Each time we ve done this, the people involved haven t had much more work to do, but necessarily they have a greater incentive to perform and a greater zeal for their work. The results for us have been terrific. By the time we sold Virgin Music, we had as many as 50 subsidiary record companies, and not one of them had more than 60 employees. 16 Other large firms are increasingly looking for ways to jump-start their entrepreneurship and innovation-related initiatives. For example, several firms, including Citigroup, Humana, and Coca-Cola, now have executives with the titles Chief Innovation Officer or Vice President of Innovation. Appointing executives with titles such as these sends a clear message to the organization: Innovation is an urgent priority and someone should be held accountable for it. 17

6 CHAPTER 1 INTRODUCTION TO ENTREPRENEURSHIP 7 Steve Jobs is perhaps America s best-known entrepreneur. He co-founded Apple Computer in 1976, and has since built the company into a premier entrepreneurial firm. Apple s latest innovations include the widely popular Apple itunes Music store and the Apple ipod. Why Become an Entrepreneur? The three primary reasons that people become entrepreneurs and start their own firms are to be their own boss, pursue their own ideas, and realize financial rewards. Be Their Own Boss The first of these reasons being one s own boss is given most commonly. This doesn t mean, however, that entrepreneurs are difficult to work with or that they have trouble accepting authority. Instead, many entrepreneurs want to be their own boss because either they have had a long-time ambition to own their own firm or because they have become frustrated working in traditional jobs. The type of frustration that some entrepreneurs feel working in conventional jobs is exemplified by Wendy DeFeudis, the founder of VeryWendy, a company that makes customized social invitations. Commenting on how her experiences working for herself have been more satisfying than working for a large firm, DeFeudis remarked: 3. Discuss three main reasons that people decide to become entrepreneurs. I always wanted to be my own boss. I felt confined by the corporate structure. I found it frustrating and a complete waste of time a waste to have to sell my ideas to multiple people and attend all kinds of internal meetings before moving forward with a concept. 18 T. J. Rogers, the founder and longtime CEO of Cypress Semiconductor, an international supplier of computer chips, enjoys being his own boss for a similar, yet slightly different reason. Prior to founding Cypress, Rogers was on the fast track for promotion at Advanced Micro Devices (AMD), one of the world s largest semiconductor firms. When asked why he left AMD to start his own company, Rogers replied: Actually, my mother asked me that. Her basic question was rephrasing it negatively from my perspective Now that you re in the rat race and can scramble up the political ladder at Advanced Micro Devices, why give up the sure opportunities and start your own company? I wanted to start a company since I graduated from college. It was one of my life goals, stated at age 21, that I would start a company by the age 35. Why do people start their own companies? The standard entrepreneurial answer is frustration. You see a company running poorly; you see that it could be a lot better. Like the freshman Congressman who s been around for six months, you realize that the other guys really aren t that good. All of a sudden you understand that you could go build something bigger and more important than where you are. That s a big deal. 19

7 8 PART 1 DECISION TO BECOME AN ENTREPRENEUR Pursue Their Own Ideas The second reason people start their own firms is to pursue their own ideas. 20 Some people are naturally alert, and when they recognize ideas for new products or services, they have a desire to see those ideas realized. Corporate entrepreneurs who innovate within the context of an existing firm typically have a mechanism for their ideas to become known. Established firms, however, often resist innovation. When this happens, employees are left with good ideas that go unfulfilled. 21 Because of their passion and commitment, some employees choose to leave the firm employing them in order to start their own business as the means to develop their own ideas. This chain of events can take place in noncorporate settings, too. For example, some people, through a hobby, leisure activity, or just everyday life, recognize the need for a product or service that is not available in the marketplace. If the idea is viable enough to support a business, they commit tremendous time and energy to convert the idea into a part-time or full-time firm. In Chapters 2 and 3, we focus on how entrepreneurs spot ideas and determine if their ideas represent viable business opportunities. Pursue Financial Rewards Finally, people start their own firms to pursue financial rewards. This motivation, however, is typically secondary to the first two and often fails to live up to its hype. The average entrepreneur does not make more money than someone with a similar amount of responsibility in a traditional job. For example, in 1997, only 13.1 percent of the owners of small businesses in the United States made more than $50,000 a year. 22 The financial lure of entrepreneurship is its upside potential. People such as Michael Dell of Dell Inc., Jerry Yang of Yahoo!, and Larry Page and Sergei Brin of Google made hundreds of millions of dollars building their firms. But these people insist that money wasn t their primary motivation. Marc Andreessen, founder of Netscape, said, [Money] is not the motivator or even the measure of my success. 23 Some entrepreneurs even report that the financial rewards associated with entrepreneurship can be bittersweet if they are accompanied by losing control of their firm. For example, Sir Richard Branson, after selling Virgin Records, wrote, I remember walking down the street [after the sale was completed]. I was crying. Tears... [were] streaming down my face. And there I was holding a check for a billion dollars.... If you d have seen me, you would have thought I was loony. A billion dollars. 24 For Branson, it wasn t just the money it was the thrill of building the business and of seeing the success of his initial idea. 4. Identify four main characteristics of successful entrepreneurs. Characteristics of Successful Entrepreneurs Although many behaviors have been ascribed to entrepreneurs, several are common to those who are successful. Those in new ventures and those who are already part of an entrepreneurial firm share these qualities, which are shown in Figure 1.1 and described in the following section. Passion for the Business The number-one characteristic shared by successful entrepreneurs is a passion for their business, whether it is in the context of a new firm or an existing business. This passion typically stems from the entrepreneur s belief that the business will positively influence people s lives. Consider Benjamin Tregoe, cofounder of Kepner-Tregoe, a management consulting firm. In describing the purpose of his new venture, he said: Tremendously important to me was the feeling that we were doing something that had a significance far beyond building a company or what the financial rewards could be. I was convinced we were doing something that had tremendous importance in the world. 25 This passion explains why people leave secure jobs to start their own firms and why billionaires such as Bill Gates of Microsoft, Michael Dell of Dell Inc., and Larry Page and Sergei Brin of Google continue working after they are financially secure. They strongly

8 CHAPTER 1 INTRODUCTION TO ENTREPRENEURSHIP 9 FIGURE 1.1 Passion for the business Product/customer focus Four Primary Characteristics of Successful Entrepreneurs Successful entrepreneur Tenacity despite failure Execution intelligence believe that the product or service they are selling makes a difference in people s lives and makes the world a better place to live in. Passion is particularly important for entrepreneurs because although rewarding, the process of starting and building a new firm is demanding. Entrepreneurship isn t for the person who is only partially committed. Investors watch like hawks to try to determine an entrepreneur s passion for his or her business idea. Michael Rovner, a partner in AV Labs, a venture capital firm in Austin, Texas, expresses this sentiment: Everyone has a different concept of what starting a business is like. We look for people who are highly motivated people who are passionate about providing their solution to customers, people who really want to make a new company fly. 26 Another reason that passion is important is that in many instances it motivates extraordinary behavior. This outcome is the case with Mary Kent Hearon, the founder of Dragonfly Wellness, a heath food and natural remedy start-up. Remarking on how her passion for her business has helped her become a better writer (she writes a regular newsletter on alternative medicines), Hearon said: It gives me so much joy to reach people through my Weekly Beet newsletter, which has about 1,500 subscribers and is growing every day. What I ve realized is I m a good writer. Once you choose the work you love, certain aspects of yourself start to come out that you never knew existed. I didn t do well in English class because I was writing about books that didn t interest me. Now I m able to better express myself through health. 27 What this example illustrates, beyond the fact that passion motivates extraordinary behavior, is that entrepreneurs who are passionate about their venture will often invest huge amounts of effort to ensure its healthy functioning. Additional examples of how entrepreneurs view passion are shown in Table 1.1. In each instance, the presence of passion is depicted as an essential characteristic of successful entrepreneurs.

9 10 PART 1 DECISION TO BECOME AN ENTREPRENEUR TABLE 1.1 The Importance of Passion in Launching a Successful New Venture Entrepreneur and Company Founded Jared Ross VENA-Fine Italian Takeout Toronto, Canada Judi Sheppard Missett Jazzercise Nationwide Fitness Franchise Carlsbad, California Keith Schacht Creative Inventables Chicago, Illinois Laura Gasparis Vonfrolio Educational Enterprises Richmond, Virginia Ross Levin Accredited Investors Edina, Minnesota View on the Importance of Passion My MBA has been invaluable in so many ways. However, one thing business school doesn t teach is how to prepare for the less glamorous, humbling jobs like scrubbing the bathroom floors and driving around the city making deliveries. But it s worth it because I m passionate about my business. For as long as I can remember, I dreamed of being an entrepreneur. Now my dream is a reality, and the risks are mitigated knowing that I reap all the rewards of my hard work. I love every grueling minute of it and can t wait to go to work tomorrow. First and foremost, you must be passionate about what you re doing whether you re leading a large group of people through a step class or massaging the kinks out of an individual s body. Out of passion develops a strong work ethic, and without it you won t succeed. Some people go into fitness careers thinking, Oh, it will be a nice thing to do and it will keep me fit. These people don t survive because they don t have enough dedication. Do something you re passionate about. There are a lot of people who start companies about stuff that doesn t personally interest them.... It makes all the difference in the world to be doing something you re passionate about. The only entrepreneurial trait that is universal, in my view, is passion. I ve met smart entrepreneurs, stupid entrepreneurs, compulsive entrepreneurs, laid-back entrepreneurs, but they all had passion. Some go into it for the fun, some to make money, some to prove a point, some because they don t want to work for anybody else, but the successful ones all have passion. You could build a business with anything, as long as you can find something that you can be passionate about. I could have been a minister; I bet I would have built a thriving congregation. Sources: BusinessWeek Online (2006), The Recipe for Success, available at (accessed May 18, 2006); Brent Bowers, If at First You Don t Succeed (New York: Doubleday, 2006). A note of caution is in order here: While entrepreneurs should have passion, they should not wear rose-colored glasses. It would be a mistake to believe that all one needs is passion and anything is possible. It is important to be enthusiastic about a business idea, but it is also important to understand its potential flaws and risks. In addition, entrepreneurs should understand that the most effective business ideas take hold when their passion is consistent with their skills and is in an area that represents a legitimate business opportunity. We examine these points in greater detail in Case 1.1 at the end of the chapter. Product/Customer Focus A second defining characteristic of successful entrepreneurs is a product/customer focus. This quality is exemplified by Steven Jobs, the cofounder of Apple Computer, who wrote, The computer is the most remarkable tool we ve ever built... but the most important thing is to get them in the hands of as many people as possible. 28 This sentiment underscores an understanding of the two most important elements in any business products and customers. While it s important to think about management, marketing, finance, and the like, none of those functions makes any difference if a firm does not have good products with the capability to satisfy customers. An entrepreneur s keen focus on products and customers typically stems from the fact that most successful entrepreneurs are, at heart, craftspeople. They are obsessed with making products that can satisfy a customer s need. This is an important point to remember, particularly in an era when it is tempting to envision new businesses resulting from every advance in technology. Michael Dell illustrated this point when he wrote, We introduce

10 technology that meets the needs of our customers, rather than introducing technology for its own sake. 29 Watching entrepreneurs create products that meet unfilled needs is fascinating. The idea for the Apple Macintosh, for example, originated in the early 1980s when Steven Jobs and several other Apple employees took a tour of a Xerox research facility. They were astounded to see computers that displayed graphical icons and pull-down menus. The computers also allowed users to navigate desktops using a small, wheeled device called a mouse. Jobs decided to use these innovations to create the Macintosh, the first userfriendly computer. Throughout the two and a half years the Macintosh team developed this new product, it maintained an intense product/customer focus, creating a high-quality computer that is easy to learn, is fun to use, and meets the needs of a wide audience of potential users. 30 Tenacity Despite Failure Because entrepreneurs are typically trying something new, the failure rate associated with their efforts is naturally high. In addition, the process of developing a new business is somewhat similar to what a scientist experiences in the laboratory. A chemist, for example, typically has to try multiple combinations of chemicals before finding an optimal combination that can accomplish a certain objective. In a similar fashion, developing a new business idea may require a certain degree of experimentation before a success is attained. Setbacks and failures inevitably occur during this process. The litmus test for entrepreneurs is their ability to persevere through setbacks and failures. Ken Nickerson, the cofounder of ibinary, a wireless technology firm and a former Microsoft executive, exemplifies this quality. When asked in an interview What is the best thing you ever did? Nickerson responded by saying, Having high levels of tenacity. For example, bringing Hotmail to Microsoft Network took 18 months, and I just fought that deal through. It was arguably the best Internet thing Microsoft did. 31 In some instances, tenacity is important because it shows a potential customer the degree of commitment that an entrepreneur has to a new product or service. For example, when his company was just getting started, J. Darius Bikoff, the founder of Gluceau, the company that makes vitaminwater, pounded the streets of New York City trying to drum up interest in his product. When he made a sale he would deliver the product himself, thinking that a personal touch would gain him the loyalty of shopkeepers. I ll never forget it, Joe Doria, a grocer in Bikoff s New York City neighborhood, recalls. Darius comes in and says, Hey Joe, will you sell this for me? He was just a customer of the store, but it impressed me that he was delivering the product himself and pushing it. You ve got to respect that. Today, Doria s grocery store devotes 12 linear feet of cooler space to vitaminwater, as well as fruitwater and smartwater, two other Gluceau brands. Mr. Doria says he won t sell any other brand of enhanced health water even Pepsi s Propel, the nation s top seller. Darius was the first, and I have an allegiance to him. Bikoff s tenacity didn t wane as his company grew, and he continues to make personal deliveries of Gluceau products in select areas. Today, Gluceau bottled water is available in 50,000 outlets, including Albertson s, Safeway, Publix, and a large number of independent stores. 32 Execution Intelligence The ability to fashion a solid idea into a viable business is a key characteristic of successful entrepreneurs. Rob Adams, a senior partner in AV Labs, calls this ability execution intelligence. 33 In many cases, execution intelligence is the factor that determines whether a start-up is successful or fails. An ancient Chinese saying warns, To open a business is very easy; to keep it open is very difficult. The ability to effectively execute a business idea means developing a business model, putting together a new venture team, raising money, establishing partnerships, managing finances, leading and motivating employees, and so on. It also demands the ability to translate thought, creativity, and imagination into action and measurable results. As Jeff Bezos, the founder of Amazon.com, once said, Ideas are easy. It s execution that s hard. 34 For many entrepreneurs, the hardest time is shortly after they launch their firm. This reality was expressed by Jodi Gallaer, the founder of a lingerie company, who said, The most challenging part of my job is doing everything for the first time. 35 CHAPTER 1 INTRODUCTION TO ENTREPRENEURSHIP 11

11 12 PART 1 DECISION TO BECOME AN ENTREPRENEUR You might describe an entrepreneur as an independent thinker, an innovator, or perhaps a risk taker. These entrepreneurial employees are passionate enough to work out of their garage if that s what it takes to get the company up and running. Consider Bill Gates, who was so enthusiastic about computers that he dropped out of Harvard University to pursue his vision. To illustrate solid execution, let s look at Starbucks. Although huge today and still profitably growing, Starbucks story is that of a successfully launched and managed entrepreneurial venture. The business idea of Howard Schultz, the entrepreneur who purchased Starbucks in 1987, was his recognition of the fact that most Americans didn t have a place to enjoy coffee in a comfortable, quiet setting. Seeing a great opportunity to satisfy customers needs, Schultz attacked the marketplace aggressively to make Starbucks the industry leader and to establish a national brand. First, he hired a seasoned management team, constructed a world-class roasting facility to supply his outlets with premium coffee beans, and focused on building an effective organizational infrastructure. Then Schultz recruited a management information systems expert from McDonald s to design a point-of-sale system capable of tracking consumer purchases across 300 outlets. This decision was crucial to the firm s ability to sustain rapid growth over the next several years. Starbucks succeeded because Howard Schultz knew how to execute a business idea. 36 He built a seasoned management team, implemented an effective strategy, and used information technology wisely to make his business thrive. 37 In contrast to what Schultz has accomplished at Starbucks, the cost of ignoring execution is high, as explained by Bob Young, the founder of several entrepreneurial firms. When asked What was your hardest lesson or biggest mistake? Young replied, In my first two businesses, my interest was always in the new thing, so I wasn t paying attention to details. As a result of my lack of interest in getting the repetitive stuff right, we never achieved the profitability we should have. 38 To illustrate the importance of execution intelligence, as well as other factors that are critical in determining a firm s success or failure, we include a boxed feature titled What Went Wrong? in each chapter. The feature for this chapter shows how Segway, a maker of light-mode transportation devices, has never reached its desired potential, leaving the firm s survivability in question. 5. Explain the five common myths regarding entrepreneurship. Common Myths About Entrepreneurs There are many misconceptions about who entrepreneurs are and what motivates them to launch firms to develop their ideas. Some misconceptions are due to the media covering atypical entrepreneurs, such as a couple of college students who obtain venture capital to fund a small business that they grow into a multimillion-dollar company. Such articles rarely state that these entrepreneurs are the exception rather than the norm and that their success is a result of carefully executing an appropriate plan to commercialize what inherently is

12 CHAPTER 1 INTRODUCTION TO ENTREPRENEURSHIP 13 a solid business idea. Indeed, the success of many of the entrepreneurs we study in each chapter s Opening Profile is a result of carefully executing the different aspects of the entrepreneurial process. Let s look at the most common myths and the realities about entrepreneurs. Myth 1: Entrepreneurs are born, not made. This myth is based on the mistaken belief that some people are genetically predisposed to be entrepreneurs. The consensus of many hundreds of studies on the psychological and sociological makeup of entrepreneurs is that entrepreneurs are not genetically different from other people. This evidence can be interpreted as meaning that no one is born to be an entrepreneur and that everyone has the potential to become one. Whether someone does or doesn t is a function of environment, life experiences, and personal choices. 39 However, there are personality traits and characteristics commonly associated with entrepreneurs; these are listed in Table 1.2. These traits are developed over time and evolve from an individual s social context. For example, studies show that people with parents who were self-employed are more likely to become entrepreneurs. 40 After witnessing a father s or mother s independence in the workplace, an individual is more likely to find independence appealing. 41 Similarly, people who personally know an entrepreneur are more than twice as likely to be involved in starting a new firm as those with no entrepreneur acquaintances or role models. 42 Sarah Schupp, the former University of Colorado student featured at the beginning of the chapter, had a great-grandmother who was an entrepreneur and was a role model for her. The positive impact of knowing an entrepreneur is explained by the fact that direct observation of other entrepreneurs reduces the ambiguity and uncertainty associated with the entrepreneurial process. Myth 2: Entrepreneurs are gamblers. A second myth about entrepreneurs is that they are gamblers and take big risks. The truth is, entrepreneurs are usually moderate risk takers, as are most people. 43 The idea that entrepreneurs are gamblers originates from two sources. First, entrepreneurs typically have jobs that are less structured, and so they face a more uncertain set of possibilities than managers or rank-and-file employees. 44 For example, an entrepreneur who starts an e-business consulting service has a less stable job than one working for a state governmental agency. Second, many entrepreneurs have a strong need to achieve and often set challenging goals, a behavior that is sometimes equated with risk taking. Myth 3: Entrepreneurs are motivated primarily by money. It is naive to think that entrepreneurs don t seek financial rewards. As discussed previously, however, money is rarely the primary reason entrepreneurs start new firms. Considering what motivated him to start Siebel Systems, a successful Silicon Valley firm, Tom Siebel wrote: TABLE 1.2 Common Traits and Characteristics of Entrepreneurs Achievement motivated Alert to opportunities Creative Decisive Energetic Has a strong work ethic Is a moderate risk taker Is a networker Lengthy attention span Optimistic disposition Persuasive Promoter Resource assembler/leverager Self-confident Self-starter Tenacious Tolerant of ambiguity Visionary

13 14 PART 1 DECISION TO BECOME AN ENTREPRENEUR What Segway Has Learned the Hard Way The Segway HT is a two-wheeled, self-balancing transportation device that consists primarily of a set of tall handlebars on top of two disc-like wheels. There are no chains or visible mechanical workings. Riders lean forward to move forward and back to move backward. Turning is done mechanically via hand controls. The devices are driven by quiet, nonpolluting electric motors and can travel up to 10 miles per hour. The name Segway HT stands for Segway Human Transporter. The Segway was introduced to the marketplace in December 2001 by Dean Kaman, the entrepreneur who invented the product. There was considerable secrecy and hype leading up to the introduction. The initial reaction to the device was enthusiastic. Venture capitalist John Doerr predicted that sales of the Segway would reach $1 billion sooner than any other product in U.S. history. Apple s CEO Steve Jobs forecast that cities would be built around this new form of transportation. To cope with the expected demand for the product, Segway s factory in Bedford, New Hampshire, was designed to build up to 40,000 units per month. Initially sales were targeted at between 10,000 and 50,000 units during the first 12 months. But, after 21 months, only 6,000 units had sold. What went wrong? As it turned out, several things went wrong when it came to selling the Segway. First, the initial price of the product was $9,000, which put it out of reach for many consumers. Second, despite its technological prowess, it wasn t clear what need the Segway was filling. It was best suited for densely populated areas where people could ride their Segway s to work. But other than places like San Francisco and Manhattan, most affluent people live in suburban areas, making riding a Segway to work impractical. In addition, it was unclear how riding a Segway to work, school, or shop would work. It takes both hands to operate a Segway safely. So, how would a businessperson carry a briefcase or a student carry books? Finally, Segways are sold on Amazon.com and through other direct channels. There are a few Segway dealers scattered across the United States, but not many. As a result, very few people can see or test-drive a Segway. The lack of a local dealer network also made people wonder where they would get their Segways serviced if they had trouble. Segway is still in business, but the company is only a shadow of what it hoped to become. Its price has come down to around $5,000, and there are now over 200 Segway dealers. There is a group of Segway enthusiasts that love the product, and Segways are used in some factories, tourist areas, and theme parks. The United States Postal Service, a large potential market for Segway, tested the device for use by mail carriers who still deliver mail by foot. The postal service abandoned the idea after mail carriers complained that they couldn t sort mail or hold an umbrella while operating a Segway. Questions for Critical Thinking 1. As we ve said in this chapter, execution intelligence is critical to entrepreneurial success. How did execution fall short for Segway? What reasons, other than those already mentioned, led to poor sales of the Segway? 2. Why do you think that Dean Kamen and his team didn t do a better job of anticipating the problems that beset the Segway? What would you have done differently to anticipate, in advance, the public s reaction to the Segway? 3. Discuss Segway s value proposition. Did Segway deliver sufficient value to justify its $9,000 sticker price? 4. Do you think the Segway will ever sell to mainstream markets? What niche markets, if any, do you think are the most promising for Segway? Source: Segway home page, (accessed May 16, 2006); Wikipedia, Segway HT, (accessed May 16, 2006). [It] was never about making money. It was never about going public; it was never about the creation of wealth. This was about an attempt to build an incredibly high-quality company. I suppose if I was a great musician that maybe I would play the guitar, if I was a great golfer maybe I would go out on tour, but I can t play the guitar and my golf game is pretty horrible. So what I think, frequently under those circumstances, what you do is do what you do best. And I think that maybe what I do best is start and operate information technology companies. 45

14 Some entrepreneurs warn that the pursuit of money can be distracting. Media mogul Ted Turner said, If you think money is a real big deal... you ll be too scared of losing it to get it. 46 Similarly, Debbie Fields, the founder of Mrs. Fields Cookies, said that if you chase money, you ll never get it. 47 And Sam Walton, commenting on all the media attention that surrounded him after he was named the richest man in America by Forbes magazine in 1985, said: Here s the thing: money never has meant that much to me, not even in the sense of keeping score.... We re not ashamed of having money, but I just don t believe a big showy lifestyle is appropriate for anywhere, least of all here in Bentonville where folks work hard for their money. We all know that everyone puts on their trousers one leg at a time.... I still can t believe it was news that I get my hair cut at the barbershop. Where else would I get it cut? Why do I drive a pickup truck? What am I supposed to haul my dogs around in, a Rolls-Royce? 48 Myth 4: Entrepreneurs should be young and energetic. The most active age range for early stage entrepreneurial activity is 25 to 34 years old; established business ownership peaks among those 45 to 54 years old. Later in this chapter, we ll discuss the reality that today, an increasing number of both younger and older individuals are being attracted to the entrepreneurial process. Although it is important to be energetic, investors often cite the strength of the entrepreneur (or team of entrepreneurs) as their most important criterion in the decision to fund new ventures. 49 In fact, a sentiment that venture capitalists often express is that they would rather fund a strong entrepreneur with a mediocre business idea than fund a strong business idea and a mediocre entrepreneur. What makes an entrepreneur strong in the eyes of an investor is experience in the area of the proposed business, skills and abilities that will help the business, a solid reputation, a track record of success, and passion about the business idea. The first four of these five qualities favor older rather than younger entrepreneurs. In addition, many people turn to entrepreneurship in lieu of retirement, as suggested by a researcher s findings that 32 percent of early retirees who return to work start their own business. 50 Before closing this chapter, we ll consider the essence of this finding by discussing the fact that a CHAPTER 1 INTRODUCTION TO ENTREPRENEURSHIP 15 It s moments like these that drive the entrepreneurial spirit. When things go right, all the hardwork, sacrifice, and risk seem suddenly worth it.

15 16 PART 1 DECISION TO BECOME AN ENTREPRENEUR growing number of seniors (people 55 years of age and older) are choosing to become entrepreneurs. Myth 5: Entrepreneurs love the spotlight. Indeed, some entrepreneurs are flamboyant; however, the vast majority of them do not attract public attention. In fact, many entrepreneurs, because they are working on proprietary products or services, avoid public notice. Consider that entrepreneurs are the source of the launch of many of the 3,200 companies listed on the NASDAQ; and, many of these entrepreneurs are still actively involved with their firms. But how many of these entrepreneurs can you name? Maybe a half dozen? Most of us could come up with Bill Gates of Microsoft, Steven Jobs of Apple, Michael Dell of Dell, Inc., and maybe Larry Page and Sergei Brin of Google. Whether or not they sought attention, these are the entrepreneurs who are often in the news. But few of us could name the founders of Nokia or GAP even though we frequently use these firms products and services. These entrepreneurs, like most, have either avoided attention or been passed over by the popular press. They defy the myth that entrepreneurs, more so than other groups in our society, love the spotlight. 6. Explain how entrepreneurial firms differ from salarysubstitute and lifestyle firms. Types of Start-Up Firms As shown in Figure 1.2, there are three types of start-up firms: salary-substitute firms, lifestyle firms, and entrepreneurial firms. Salary-substitute firms are small firms that yield a level of income for their owner or owners that is similar to what they would earn when working for an employer. Dry cleaners, convenience stores, restaurants, accounting firms, retail stores, and hairstyling salons are examples of salary-substitute firms. The vast majority of small businesses fit into this category. Salary-substitute firms offer common, easily available products or services to customers that are not particularly innovative. Lifestyle firms provide their owner or owners the opportunity to pursue a particular lifestyle and earn a living while doing so. Lifestyle firms include ski instructors, golf pros, and tour guides. These firms are not innovative, nor do they grow quickly. Commonly, lifestyle companies promote a particular sport, hobby, or pastime and may employ only the owner or just a handful of people. Rocky Mountain River Tours, owned by Dave and Shelia Mills, is an example of a lifestyle firm. The company leads 17 raft trips annually on the Middle Fork tributary to the main Salmon River in Idaho. Buying and owning a raft company was always a dream of the Mills, because it would provide them the lifestyle they desired. 51 Entrepreneurial firms bring new products and services to market. As we noted earlier in this chapter, the essence of entrepreneurship is creating value and then disseminating that value to customers. In this context, value refers to worth, importance, or utility. Entrepreneurial firms bring new products and services to market by creating and then seizing opportunities. Google, ebay, and Starbucks are well-known, highly successful examples of entrepreneurial firms. Having recognized an opportunity, companies of this type create products and services that have worth, that are important to their customers, and that provide a measure of usefulness to their customers that they wouldn t have otherwise. Next, we describe the newly emerging characteristics of today s entrepreneurs. You may be surprised to learn about the types of individuals who are choosing to become entrepreneurs! FIGURE 1.2 Types of Start-Up Firms Salary-Substitute Firms Lifestyle Firms Entrepreneurial Firms Firms that basically provide their owner or owners a similar level of income to what they would be able to earn in a conventional job Firms that provide their owner or owners the opportunity to pursue a particular lifestyle, and make a living at it Firms that bring new products and services to the market by creating and seizing opportunities regardless of the resources they currently control

16 CHAPTER 1 INTRODUCTION TO ENTREPRENEURSHIP 17 Changing Demographics of Entrepreneurs Over the past 10 years, the demographic makeup of entrepreneurial firms has changed in the United States and around the world. Of the 23 million businesses in the United States, a growing number are owned by women, minorities, seniors, and young people. Although there are no solid numbers on how many of the 23 million businesses are entrepreneurial firms rather than salary-substitute or lifestyle firms, there is growing anecdotal evidence that an increasing number of women, minorities, seniors, and young people are becoming actively involved in the entrepreneurial process. This is an exciting development for the entrepreneurial sector of the U.S. economy. 7. Discuss the changing demographics of entrepreneurs in the United States. Women Entrepreneurs There were 6.5 million women-owned businesses in 2002, the most recent year the U.S. Census Bureau collected business ownership data. That number is up 20 percent from Although historically women-owned firms have primarily been in health care and professional services, that emphasis is changing. Between 1997 and 2002, the fastest-growing areas of women-owned firms were construction (30 percent increase), agricultural services (24 percent increase), transportation (20 percent increase), communications (20 percent increase), and public utilities (20 percent increase). In addition, there were 117,069 women-owned firms in 2002 with total sales of $1 million or more. These statistics reflect the growing breadth and economic prowess of women-owned businesses in the United States. 52 Minority Entrepreneurs There were 1.2 million African-American owned firms in 2002, up 45 percent from Similarly, there were 1.6 million Hispanic-owned businesses in 2002, up 31 percent from There were 1.1 million Asian-owned businesses in 2002, up 24 percent from There were 206,125 Native-American owned businesses in While the majority of minority-owned businesses are in service industries, there are many examples of minority-owned firms in all sectors of the U.S. economy. Senior Entrepreneurs Although the Census Bureau does not collect data on senior entrepreneurs (people 55 years old and older), there is strong evidence to suggest that the number of older people choosing entrepreneurial careers is increasing rapidly. Unpublished government data obtained by Challenger, Gray & Christmas, an outplacement consulting firm, indicates that 2.1 million Americans 55 years of age and older owned their own businesses in 2005, an increase of 22 percent from The dramatic increase in the number of senior entrepreneurs is attributed to a number of factors, including corporate downsizing, an increasing desire among older workers for more personal fulfillment in their lives, and growing worries among seniors that they need to earn additional income to pay for future health care services and other expenses. 54 A growing number of seniors may also see themselves as ideal candidates to start their own businesses. Many people in the 55+ age range have substantial business experience, financial resources that they can draw upon, and excellent vigor and health. Young Entrepreneurs Although the total number of young entrepreneurs is far less than women, minority, or senior entrepreneurs, interest among young people (ages 21 years and younger) in entrepreneurship is growing. At the high school level, a Gallup study revealed that 7 out of 10 high school students want to start their own companies. More specifically, 6 in 10 females, 7 in 10 Hispanics, and 8 in 10 African-American high school students are interested in starting a business. 55 According to the same study, 27 percent of high school students take an entrepreneurial business course and 35 percent take an economics course while in school. Interestingly, an emphasis on entrepreneurship education is starting to appear in some areas as early as grade school. Harper Arrington Publishing and Media now publishes a series of books titled The Little Entrepreneur Takes Flight. The series is designed to teach kids how to turn their hobbies into businesses and is suitable for children as young as 8. Interest in entrepreneurship is picking up at all levels in K 12 public schools. As evidence

17 18 PART 1 DECISION TO BECOME AN ENTREPRENEUR of this, the New York City Council recently awarded a $550,000 grant to the National Foundation for Teaching Entrepreneurship to expand youth entrepreneurship education in New York City. The rationale the council gave for making the grant provides insight into the value that policymakers see in entrepreneurship education at an early age: The Council s goal is to give young people the skills and confidence to unlock their true potential so they can improve their lives and their communities, said Council Member Robert Jackson. Many of our neighborhoods are filled with creative and inspired young people who just needed help finding their talents. By exposing these students to entrepreneurship, we expand their capacity, unleash their creativity, increase their school and community leadership and encourage their individual growth. 56 On college campuses, interest in entrepreneurship education is at an all time high, as will be described throughout this book. According to a survey by the Ewing Marion Kauffman Foundation, as of Spring 2006, 1,992 two- and four-year colleges and universities were offering at least one course in entrepreneurship, up from 300 in the school years. Although the bulk of entrepreneurship education takes place within business schools, many other colleges and departments are offering entrepreneurship courses as well including engineering, agriculture, theater, dance, education, law, and nursing. The tide is also turning in regard to the attractiveness of an entrepreneurial career in almost every major. Commenting on this issue, Jerome Katz, a professor of management at St. Louis University who has studied this trend, said, Twenty years ago students who dared to say they wanted to start their own companies would be sent for counseling. Today, entrepreneurship is the fastest-growing course of study on campuses nationwide. 57 Entrepreneurship is a particularly attractive option for college students for a number of reasons, including their understanding of the attractiveness of the youth market, their ability to find low-cost labor in the form of other students, their access to resources that are available to them at their colleges or universities, and their intuitive recognition of the reality that if they fail they can pick up where they left off and pursue another venture or a conventional career. In addition, if a student s business was developed through an entrepreneurship program or was competitive in a business plan competition, the business may be seen as less risky than other start-ups. Sarah Schupp, the founder of University Parent featured at the beginning of the chapter, says she feels that the businesses she first approached about advertising in University Parent liked the idea that her business was developed through a college-sponsored entrepreneurship program. The fact that other people, including her professors, had looked at her business and had helped her fine-tune it gave the advertisers an extra measure of assurance that University Parent did indeed have potential. 8. Discuss the impact of entrepreneurial firms on economics and societies. Entrepreneurship s Importance Entrepreneurship has a tremendously positive impact on the economy and on society. In 2005, a report by the Global Entrepreneurship Monitor stated that Entrepreneurs are alert individuals who perceive and exploit profit opportunities. In addition to contributing toward market efficiency, entrepreneurs introduce innovations by offering new and unique products or services. As a result, innovative entrepreneurs are also one of the main links between entrepreneurship and economic growth. 58 Consistent with this set of sentiments, one scholar, commenting on the importance of entrepreneurship at the local level, noted that entrepreneurship is still the best private vehicle we have to turn around and improve the economic health of a community. 59 Entrepreneurship s importance to an economy and the society in which it resides was first articulated in 1934 by Joseph Schumpeter, an Austrian economist who did the majority of his work at Harvard University. In his book The Theory of Economic Development, Schumpeter argued that entrepreneurs develop new products and technologies that over time make current products and technologies obsolete. Schumpeter called this process creative destruction. Because new products and technologies are typically better than

18 CHAPTER 1 INTRODUCTION TO ENTREPRENEURSHIP 19 those they replace and the availability of improved products and technologies increases consumer demand, creative destruction stimulates economic activity. The new products and technologies may also increase the productivity of all elements of a society. 60 The creative destruction process is initiated most effectively by start-up ventures that improve on what is currently available. Small firms that practice this art are often called innovators or agents of change. The process of creative destruction is not limited to new products and technologies; it can include new pricing strategies (e.g., discount brokers such as E*Trade), new distribution channels (such as FedEx or Amazon.com), or new retail formats (such as IKEA in furniture). Now let s look more closely at entrepreneurship s importance. Economic Impact of Entrepreneurial Firms For three reasons, entrepreneurial behavior has a strong impact on an economy s strength and stability. Innovation Innovation is the process of creating something new, which is central to the entrepreneurial process. 61 Small entrepreneurial firms are responsible for 55 percent of all innovation in the United States. 62 The most impactful innovations either solve a problem or satisfy a need in a new and cost-effective way. Commenting on this aspect of innovation, Marlo Mazzola, Cisco Systems senior vice president and chief development offier, said, Innovation is more than just a new idea it is about taking a new idea and developing it into customer value and positive business impact. 63 Many innovations help individuals and businesses work more smoothly and efficiently. An example of how one innovative firm, uship, is helping people cut the cost of shipping large or awkwardly shaped items from one point to another is provided in the boxed feature titled Savvy Entrepreneurial Firm. In each chapter, this feature will provide an illustration of the exemplary behavior of one or more entrepreneurial firms or will provide an example of a tool or technique that well-managed entrepreneurial firms use to improve their performance. Job Creation In the past two decades, economic activity has moved increasingly in the direction of smaller entrepreneurial firms, possibly because of their unique ability to innovate and focus on specialized tasks. In fact, over 550,000 new businesses are started in the United States every month. 64 According to the 1997 report of the U.S. Census Bureau (which is the most recent data available), the nation s 17 million small, nonfarm businesses constitute 99.7 percent of all employers, employ 52 percent of the workforce, and generate 51 percent of all sales revenue. A total of 67 percent of young people obtain their first job with a small firm. And between 1994 and 1998, fast-growth young companies, known as gazelles, created about two-thirds of all new jobs in the United States. 65 Large firms are increasingly focusing on what they do best, which is usually manufacturing, sales, and service, and are outsourcing the majority of their other tasks to smaller firms. Globalization Today, 97 percent of all U.S. exporters are small- and medium-sized businesses with fewer than 500 employees. Over two-thirds have fewer than 20 employees. Between 1992 and 2003, the number of small- and medium-sized exporters grew more than twice as fast as the number of large company exporters. Export markets are vital to the U.S. economy and provide outlets for the sale of U.S.-produced products and services. 66 Entrepreneurial Firms Impact on Society The innovations of entrepreneurial firms have a dramatic impact on a society. Think of all the new products and services that make our lives easier, enhance our productivity at work, improve our health, and entertain us. For example, Amgen, an entrepreneurial firm

19 20 PART 1 DECISION TO BECOME AN ENTREPRENEUR uship: Helping Individuals and Shippers Move Items More Effectively It s easy to ship an envelope or a package, via the United States Postal Service, UPS, or FedEx. But what if you want to ship a larger item, like a piece of furniture, a car, or a boat? There are freight carriers available, but because they are designed to carry heavy and large loads, they are expensive. To ship an individual piece of furniture from North Carolina to California could easily cost as much as the furniture itself, making the idea impractical. Until now. uship, which was launched in 2003 in Austin, Texas, is an online marketplace for shipping. It uses a reverse auction system where users can list large or awkward items, like furniture or cars, and shippers can bid on the shipping job. The company claims to have 10,000 registered service providers, most of whom are small movers, freight carriers, van lines, auto and boat haulers, and independent drivers. uship was founded by Matt Chasen, who as a student developed the idea as part of a school project while enrolled at the University of Texas. Chasen likes to compare uship to ebay We re just like ebay, he said. uship is a venue where people get together. We give customers the tools they need to find the right mover for their stuff. We give them feedback ratings. On any given day, there are thousands of shipments listed on uship representing millions of dollars in shipping jobs. Here is how the service works. An individual logs onto the uship Web site and lists a shipping job that needs to be completed. For example, say that a person bought an antique table while vacationing in Virginia, and wants to have it shipped home to Indiana. Shippers would then bid on the job. The shippers are all rated, similar to the way sellers are rated on ebay, and individuals can post positive or negative feedback about a shipper. The shippers that bid typically anticipate having an empty load or excess capacity on a route that passes near the pickup and the delivery locations. The seller will normally accept the lowest bid, assuming that the shipper is satisfactorily rated. uship makes money by collecting a 7.9 percent commission from the shipper who carries the load. uship is building momentum as more people become aware of the service. Its patent-pending search technology connects users and shippers efficiently, and users are typically able to arrange a job for about 50 percent of what it would cost to have a traditional freight company carry the load. The company s feedback system holds drivers accountable for their service and rewards those that perform well. uship s service is particularly popular among those selling large items on ebay and other auction sites. Questions for Critical Thinking 1. To what extent do you think uship s service will make it easier for Internet retailers to sell large, costly items, such as appliances, big-screen televisions, and treadmills? In what ways, if any, does uship s service have the potential to make a positive impact on the economy, a positive impact on society, and a positive impact on larger firms? 2. Why do you think that a traditional shipping company, like UPS or Yellow Transportation, didn t launch a service similar to uship s service some time ago? Is it too late for these established firms to launch a service such as this? 3. What steps has uship taken to excel in the area of execution intelligence? 4. Think of another service that could help make the buying and selling of products more effective. Describe how the service adds value for both buyers and sellers. Sources: uship, (accessed May 18, 2006); Matt Nauman, Web Facilitator Brings Together Movers, Shippers, San Jose Mercury News, April 21, that helped launch the biotech industry, has produced a number of drugs that have dramatically improved people s lives. An example is NEUPOGEN, a drug that decreases the incidence of infection in cancer patients who are undergoing chemotherapy treatment. Sensipar is another one of Amgen s important products. Patients with chronic kidney disease and who are on dialysis take this drug as a secondary treatment of hyperparathyroidism. 67 In addition to improved health care, consider cellular phones, personal