Entrepreneurship

624 Pages·2009·109.635 MB·English

by  Robert Hisrich, Michael Peters, Dean Shepherd

ENTREPRENEURSHIP
EIGHTH EDITION
ROBERT D. HISRICH, PhD
Garvin Professor of Global Entrepreneurship
Director, Walker Center for Global Entrepreneurship
Thunderbird School of Global Management
MICHAEL P. PETERS, PhD
Professor Emeritus
Carroll School of Management
Boston College
DEAN A. SHEPHERD, PhD
Randall L. Tobias Chair in Entrepreneurial Leadership and
Professor of Entrepreneurship
Kelley School of Business
Indiana University
ENTREPRENEURSHIP
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Library of Congress Cataloging-in-Publication Data
Hisrich, Robert D.
Entrepreneurship / Robert D. Hisrich, Michael P. Peters, Dean A. Shepherd.—8th ed.
p. cm.
Includes index.
ISBN-13: 978-0-07-353032-1 (alk. paper)
ISBN-10: 0-07-353032-8 (alk. paper)
1. New business enterprises. 2. Entrepreneurship. 3. Business planning. 4. Business
enterprises—Finance. 5. Success in business. I. Peters, Michael P. II. Shepherd, Dean A.
III. Title.
HD62.5.H577 2010
658.4'21—dc22
2009037490
www.mhhe.com
To our wives,
Tina, Debbie, and Suzie,
and children,
Kary, Katy, Kelly, Christa, Kimberly, Jack, and Meg,
and grandchildren,
Rachel, Andrew, and Jack,
for their supportive entrepreneurial spirit
A B O U T T H E A U T H O R S
ROBERT D. HISRICH
Robert D. Hisrichis the Garvin Professor of Global Entrepreneurship and Director for the
Walker Center for Global Entrepreneurship at Thunderbird School of Global Management.
He holds an MBA and a doctorate from the University of Cincinnati.
Professor Hisrich’s research pursuits are focused on entrepreneurship and venture cre-
ation: entrepreneurial ethics, intrapreneurship, women and minority entrepreneurs, venture
financing, and global venture creation. He teaches courses and seminars in these areas, as
well as in marketing management and product planning and development. His interest in
global management and entrepreneurship resulted in two Fulbright Fellowships in Budapest,
Hungary; honorary degrees from Chuvash State University (Russia) and University of
Miskolc (Hungary); and being a visiting faculty member in universities in Austria, Australia,
Ireland, and Slovenia. Professor Hisrich serves on the editorial boards of several prominent
journals in entrepreneurial scholarship, is on several boards of directors, and is author or
coauthor of over 300 research articles appearing in such journals as Journal of Marketing,
Journal of Marketing Research, Journal of Business Venturing, Journal of Small Business
Finance, Small Business Economics, Journal of Developmental Entrepreneurship,and En-
trepreneurship Theory and Practice.Professor Hisrich has authored or coauthored 25 books
or editions, including: Marketing: A Practical Management Approach, How to Fix and
Prevent the 13 Biggest Problems That Derail Business,and two recently published books,
International Entrepreneurship: Starting, Developing, and Managing a Global Venture,and
Technology Entrepreneurship: Value Creation, Protection, and Capture.
MICHAEL P. PETERS
Michael P. Petersis Professor Emeritus of the Marketing Department at the Carroll School
of Management, Boston College. He has his PhD from the University of Massachusetts,
Amherst, and his MBA and BS from Northeastern University. Recently retired from full-
time teaching, Professor Peters has been a visiting professor at the American College of
Greece in Athens, Greece, where he has been developing an entrepreneurship and business
planning component in its new MBA program. In addition, he continues to write, lecture,
serve on numerous boards, and assist in the management of a family business. Besides his
passion for assisting entrepreneurs in new ventures, he has consulted and conducted semi-
nars and workshops worldwide related to entrepreneurship, international and domestic
decision making for new product development, market planning, and marketing strategy.
He has published over 30 articles in such journals as the Journal of Business Research,
Journal of Marketing, Journal of Marketing Research, Journal of International Business
Studies, Columbia Journal of World Business, Journal of Business Venturing,and the Sloan
Management Review.Professor Peters has coauthored three texts: Marketing a New Product:
Its Planning, Development, and Control; Marketing Decisions for New and Mature Products;
and Entrepreneurship,now in its eighth edition. He was Department Chair and Director of
the Small Business Institute at Boston College for more than 16 years. He loves photography,
tennis, golf, and kayaking on Cape Cod Bay.
iv
ABOUT THE AUTHORS v
DEAN A. SHEPHERD
Dean A. Shepherdis the Randall L. Tobias Chair in Entrepreneurial Leadership and Pro-
fessor of Entrepreneurship at the Kelley School of Business, Indiana University. Dean
received his doctorate and MBA from Bond University (Australia) and a Bachelor of Ap-
plied Science from the Royal Melbourne Institute of Technology. His research on entrepre-
neurial leadership includes the decision making of entrepreneurs, new venture strategy,
learning from failure, and pursuit of opportunity. Dean is also an Associate Editor for the
Journal of Business Venturingand on the review board for numerous entrepreneurship and
management journals.
P R E FA C E
Starting and operating a new business involves considerable risk and effort to overcome the
inertia against creating something new. In creating and growing a new venture, the entre-
preneur assumes the responsibility and risks for its development and survival and enjoys the
corresponding rewards. The fact that consumers, businesspeople, and government officials
are interested in entrepreneurship is evident from the increasing research on the subject, the
large number of college courses and seminars on the topic, the more than two million new
enterprises started each year (despite a 70 percent failure rate), the significant coverage and
focus by the media, and the realization that this is an important topic for industrialized,
developing, and once-controlled economies.
Who is the focus of all this attention—who is willing to accept all the risks and put forth
the effort necessary to create a new venture? It may be a man or a woman, someone from
an upper-class or lower-class background, a technologist or someone lacking technologic
sophistication, a college graduate or a high school dropout. The person may be an inventor,
manager, nurse, salesperson, engineer, student, teacher, homemaker, or retiree. It is some-
one able to juggle work, family, and civic responsibilities while meeting payroll.
To provide an understanding of this person and the process of creating and growing a
new venture, this eighth edition of Entrepreneurshipis divided into five major sections.
Part 1—The Entrepreneurial Perspectiveintroduces the entrepreneur and the entre-
preneurial process from both a historical and a research perspective. The role and nature of
entrepreneurship as a mechanism for creating new ventures and affecting economic devel-
opment are presented, along with career aspects and the future direction of entrepreneur-
ship. The characteristics and background of entrepreneurs are discussed, as well as some
methods for individual self-assessment. Following the presentation of corporate entrepre-
neurship, this part concludes with a discussion of strategies for generating and exploiting
new entries.
Part 2—From Idea to the Opportunityfocuses on the aspects of creativity and inno-
vation and all the elements in the entrepreneurial process that are a part of creating the new
venture. The various sources of ideas as well as trends occurring through this decade are
discussed. Specific attention is also paid to various creative problem-solving technologies,
identifying domestic and international opportunities, and creating an opportunity assessment
plan. The chapter concludes with a discussion of protecting the idea developed as well as
other legal concerns in forming and launching the venture.
Part 3—From the Opportunity to the Business Plan focuses on the all-important
business plan. First, the overall business plan and its various aspects are presented. Then, a
chapter is devoted to each of the major components of the business plan: the marketing
plan, the financial plan, and the organizational plan.
Part 4—From the Business Plan to Funding the Venture focuses on one of the
most difficult aspects of creating and establishing a new venture—raising capital. First
the aspects of debt versus equity and internal versus external funding are discussed. Af-
ter a discussion of the alternative sources of capital (self, family and friends, suppliers
and trade credit, government grants and programs, private placements, and commercial
banks), specific attention is given to three financing mechanisms: informal risk capital,
venture capital, and going public.
vi
PREFACE vii
Part 5—From Funding the Venture to Launching, Growing, and Ending the New
Venturepresents material related to establishing, developing, and ending the venture. Par-
ticular attention is paid to developing an entrepreneurial strategy, establishing strategies for
growth, managing the new venture during growth, early operations, expansion, and access-
ing external resources for growth. Managerial skills that are important to the successful per-
formance and growth of a new venture are included in this section. This part also addresses
methods for ending the venture. Specific topics examined include mergers and acquisitions,
franchising, joint ventures, and human and financial resources needed for growth.
To make Entrepreneurshipas meaningful as possible, each chapter begins with chapter
objectives and a profile of an entrepreneur whose career is especially relevant to the chap-
ter material. Numerous examples occur throughout each chapter along with important Web
sites to assist the reader in getting started. Articles and ethics boxes are also included in this
eighth edition. Each chapter concludes with research tasks, class discussion questions, and
selected readings for further information. Cases are now grouped together after the last
chapter in the book, as Part 6.
Many people—students, business executives, entrepreneurs, professors, and publishing
staff—have made this book possible. Of great assistance were the detailed and thoughtful
comments of our reviewers: Melissa Baucus, University of Louisville;Alan Flury, Georgia
Institute of Technology;Lee Grubb, East Carolina University;Brian Hanlon, North Central
College;Matt Rutherford, Virginia Commonwealth University;Richard Smith, Iowa State
University;and Gregory Stoller, Boston College.
Special thanks are given to Carol Pacelli for preparing the manuscript so competently
and to Stephanie Arthur, Falyne Chave, Anetta Hunek, and Sarah Liggett for providing
research material, editorial assistance, and case development for this edition. Also thanks
to our editors Laura Hurst Spell, sponsoring editor, and Jane Beck, editorial assistant.
We are deeply indebted to our spouses, Tina, Debbie, and Suzie, whose support and un-
derstanding helped bring this effort to fruition. It is to future entrepreneurs—our children
Kary, Katy, Kelly, Christa, Kimberly, Jack, and Meg, and grandchildren Rachel, Andrew
and Jack—and the generation they represent—that this book is particularly dedicated. May
you always beg forgiveness rather than ask permission.
Robert D. Hisrich
Michael P. Peters
Dean A. Shepherd
C O N T E N T S I N B R I E F
PART 1 THE ENTREPRENEURIAL PERSPECTIVE 1
1 Entrepreneurship and the Entrepreneurial Mind-Set 2
2 Entrepreneurial Intentions and Corporate
Entrepreneurship 34
3 Entrepreneurial Strategy: Generating and Exploiting
New Entries 64
PART 2 FROM IDEA TO THE OPPORTUNITY 91
4 Creativity and the Business Idea 92
5 Identifying and Analyzing Domestic and International
Opportunities 124
6 Protecting the Idea and Other Legal Issues for the
Entrepreneur 158
PART 3 FROM THE OPPORTUNITY TO THE
BUSINESS PLAN 185
7 The Business Plan: Creating and Starting the Venture 186
8 The Marketing Plan 222
9 The Organizational Plan 254
10 The Financial Plan 280
PART 4 FROM THE BUSINESS PLAN TO
FUNDING THE VENTURE 303
11 Sources of Capital 304
12 Informal Risk Capital, Venture Capital, and
Going Public 332
PART 5 FROM FUNDING THE VENTURE TO
LAUNCHING, GROWING, AND ENDING
THE NEW VENTURE 377
13 Strategies for Growth and Managing the Implications
of Growth 378
14 Accessing Resources for Growth from External Sources 410
15 Succession Planning and Strategies for Harvesting and
Ending the Venture 438
PART 6 CASES 463
viii
C O N T E N T S
PREFACE vi
PART 1 THE ENTREPRENEURIAL
PERSPECTIVE 1
1 ENTREPRENEURSHIP AND THE
ENTREPRENEURIAL MIND-SET
2
Opening Profile: Ewing Marion Kauffman 3
Nature and Development of Entrepreneurship 6
The Entrepreneurial Process 7
Identify and Evaluate the Opportunity 7
Develop a Business Plan 9
Determine the Resources Required 9
Manage the Enterprise 10
How Entrepreneurs Think 10
Effectuation 10
Cognitive Adaptability 13
As Seen in EntrepreneurMagazine: What Me Worry?
How Smart Entrepreneurs Harness the Power
of Paranoia 14
Learning from Business Failure 18
Recovery and Learning Process 20
A Dual Process for Learning from Failure 21
Ethics and Social Responsibility of Entrepreneurs 21
Ethics: Company’s Code of Ethics 23
Role of Entrepreneurship in Economic Development 23
2 ENTREPRENEURIAL INTENTIONS AND
CORPORATE ENTREPRENEURSHIP
34
Opening Profile: Robert Mondavi 35
The Intention to Act Entrepreneurially 38
Entrepreneur Background and Characteristics 38
Education 38
Ethics: Ethical Conduct of Entrepreneurs versus
Managers 39
Age 40
Work History 40
Role Models and Support Systems 40
Moral-Support Network 41
Professional-Support Network 41
ix
x CONTENTS
As Seen in EntrepreneurMagazine: Hot or Not? 42
Minority Entrepreneurs 43
As Seen in EntrepreneurMagazine: Provide Advice
toanEntrepreneur about Improving a Business
through Certification as a Woman-Owned
Business 44
Entrepreneurial Intentions within Existing
Organizations 45
Managerial versus Entrepreneurial Decision
Making 45
Strategic Orientation and Commitment to
Opportunity 46
Commitment of Resources and Control of
Resources 46
Management Structure and Reward Philosophy 47
Growth Orientation and Entrepreneurial Culture 48
Causes for Interest in Corporate Entrepreneurship 48
Establishing a Culture for Corporate Entrepreneurship 51
Leadership Characteristics of Corporate Entrepreneurs 53
Establishing Corporate Entrepreneurship in the
Organization 54
Problems and Successful Efforts 56
3 ENTREPRENEURIAL STRATEGY: GENERATING
AND EXPLOITING NEW ENTRIES
64
Opening Profile: Justin Parer 65
New Entry 66
Generation of a New Entry Opportunity 67
Resources as a Source of Competitive Advantage 67
Creating a Resource Bundle That Is Valuable, Rare,
and Inimitable 68
Assessing the Attractiveness of a New Entry
Opportunity 70
Information on a New Entry 70
As Seen in EntrepreneurMagazine: Elevator Pitch
for Project Alabama 71
Comfort with Making a Decision under
Uncertainty 72
Decision to Exploit or Not to Exploit the
New Entry 72
Entry Strategy for New Entry Exploitation 73
Environmental Instability and First-Mover
(Dis)Advantages 74
Customers’Uncertainty and First-Mover
(Dis)Advantages 76
Ethics: Do the Right Thing 78
Lead Time and First-Mover (Dis)Advantages 78
As Seen in EntrepreneurMagazine: Provide Advice to
anEntrepreneur about Being More Innovative 80