Entrepreneurship
The Practice and Mindset
HEIDI M. NECK
Babson College
CHRISTOPHER P. NECK
Arizona State University
EMMA L. MURRAY
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Library of Congress Cataloging-in-Publication Data
Names: Neck, Heidi M., author. | Neck, Christopher P., author. | Murray, Emma L., author.
Title: Entrepreneurship : the practice and mindset / Heidi M. Neck, Christopher P. Neck, Emma L. Murray.
Description: Los Angeles : SAGE, [2018] | Includes bibliographical references and index.
Identifiers: LCCN 2016034255 | ISBN 978-1-4833-8352-1 (pbk. : alk. paper)
Subjects: LCSH: Entrepreneurship.
Classification: LCC HB615 .N43297 2017 | DDC 338/.04 dc23 LC record available at https://lccn.loc.gov/2016034255
This book is printed on acid-free paper.
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Brief Contents
1. Preface
2. Acknowledgments
3. About the Authors
4. Part I. INTRODUCING THE ENTREPRENEURIAL LIFESTYLE
1. Chapter 1. Entrepreneurship: A Global Social Movement
2. Chapter 2. Practicing Entrepreneurship
3. Chapter 3. Developing an Entrepreneurial Mindset
4. Chapter 4. Supporting Social Entrepreneurship
5. Part II. Creating and Finding Opportunities
1. Chapter 5. Generating New Ideas
2. Chapter 6. Using Design Thinking
3. Chapter 7. Testing and Experimenting in Markets
6. Part III. EVALUATING AND ACTING ON OPPORTUNITIES
1. Chapter 8. Building Business Models
2. Chapter 9. Planning for Entrepreneurs
3. Chapter 10. Creating Revenue Models
4. Chapter 11. Learning From Failure
7. Part IV. RESOURCING NEW OPPORTUNITIES
1. Chapter 12. Bootstrapping for Resources
2. Chapter 13. Financing for Startups
3. Appendix A. Financial Statements and Projections for Startups
4. Chapter 14. Developing Networks
5. Chapter 15. Navigating Legal and IP Issues
6. Chapter 16. Marketing and Pitching Your Idea
7. Appendix B. The Pitch Deck
8. Glossary
9. Notes
10. Name Index
11. Subject Index
Detailed Contents
Preface
Acknowledgements About the Authors
An Open Letter to All Students
Part I. INTRODUCING THE ENTREPRENEURIAL LIFESTYLE
Chapter 1. Entrepreneurship: A Global Social Movement
Entrepreneurship Requires Action and Practice
Entrepreneurship May Be Different From What You Think
Media Images of Entrepreneurs
● ENTREPRENEURSHIP IN ACTION: Niari Keverian, CEO and Partner, ZOOS Greek Iced Teas
Debunking the Myths of Entrepreneurship
A Brief History of the Evolution of Entrepreneurship in the United States
Emergence of the Self-Made Man (Colonial America Before 1776)
An Entrepreneurial Nation (First Industrial Revolution 1776–1865)
The Pinnacle of Entrepreneurship (Second Industrial Revolution 1865–1920)
Rise of Institutional America (Interwar and Postwar America 1920–1975)
Confined Re-Emergence (Knowledge Economy 1.0, 1975–Present)
● MINDSHIFT: Tell Me Your Story
Types Of Entrepreneurship
Corporate Entrepreneurship
Entrepreneurs Inside
Buying a Franchise
Buying a Small Business
Social Entrepreneurship
● YOU BE THE ENTREPRENEUR
Family Enterprising
Serial Entrepreneurs
The World Is Participating in Entrepreneurship
Entrepreneurship as a Social Movement
Global Entrepreneurship
Gender and Entrepreneurship
What Makes a Country Entrepreneurial?
● RESEARCH AT WORK: The Diana Project
How This Book Will Help You Practice Entrepreneurship
● ENTREPRENEURSHIP MEETS ETHICS: Business Practices in Developing Countries
Chapter 2. Practicing Entrepreneurship
Two Main Perspectives on Entrepreneurship
● ENTREPRENEURSHIP IN ACTION: Rob Hunter, Founder and CEO, HigherMe
Prediction and Creation in Action
● RESEARCH AT WORK: The Creation Approach
The Five Skills Most Important to The Practice of Entrepreneurship
The Skill of Play
The Skill of Experimentation
The Skill of Empathy
The Skill of Creativity
The Skill of Reflection
Entrepreneurship Is More a Method than a Process
● ENTREPRENEURSHIP MEETS ETHICS: Practicing Entrepreneurship
The Practice of Entrepreneurship: An Introduction
Eight Components of The Practice of Entrepreneurship
Using the Practice to Achieve Ongoing Success
● MINDSHIFT: The 3-Hour Challenge
● YOU BE THE ENTREPRENEUR
The Concept of Deliberate Practice
Chapter 3. Developing an Entrepreneurial Mindset
The Power of Mindset
● ENTREPRENEURSHIP IN ACTION: Robert Donat, Founder and CEO, GPS Insight
What Is Mindset?
● RESEARCH AT WORK: Study on Luck
The Mindset for Entrepreneurship
● MINDSHIFT: What Does Your Mindset Say About You?
Passion and Entrepreneurship
Entrepreneurship as a Habit
The Self-Leadership Habit
The Creativity Habit
The Fear Factor A Creative Mind
The Improvisation Habit
● YOU BE THE ENTREPRENEUR
The Mindset as the Pathway to Action
Self-Efficacy and Entrepreneurial Intentions
The Role of Mindset in Opportunity Recognition
● ENTREPRENEURSHIP MEETS ETHICS: Stakeholder Relationships and Trust
Chapter 4: Supporting Social Entrepreneurship
The Role of Social Entrepreneurship
● ENTREPRENEURSHIP IN ACTION: Arthur Steingart, Founder of Symp1e
● RESEARCH AT WORK: Defining Social Entrepreneurship
Social Entrepreneurship and Wicked Problems
Types of Social Entrepreneurship
Social Purpose Ventures
Social Consequence Entrepreneurship
Enterprising Nonprofits
Hybrid Models of Social Entrepreneurship
Capital Markets for Social Entrepreneurs
● ENTREPRENEURSHIP MEETS ETHICS: The Unintended Consequences of Social Entrepreneurship
Microfinance as a Source of Social Financing
● YOU BE THE ENTREPRENEUR
Social Entrepreneurs and Their Stakeholders
Types of Stakeholders
● MINDSHIFT: Practice Being “Other-Centered”
Differences Between Social Entrepreneurship And Corporate
Social Responsibility
Social Entrepreneurship and Global Inclusion
Part II. Creating and Finding Opportunities
Chapter 5. Generating New Ideas
The Entrepreneurial Mindset and Opportunity Recognition
● ENTREPRENEURSHIP IN ACTION: Jack McCarthy, Founder, UltimateUglyChristmas.com What Is an Opportunity?
Innovation, Invention, Improvement, or Irrelevant?
Opportunities Start with Thousands of Ideas
The Myth of the Isolated Inventor
Seven Strategies for Idea Generation
● ENTREPRENEURSHIP MEETS ETHICS: Improving on Someone Else’s Idea
● MINDSHIFT: In Love With Your Idea?
Two Pathways to Opportunity Identification
Opportunities Through Active Search and Alertness
Active Search Alertness
Building Opportunities: Prior Knowledge and Pattern
Recognition
● YOU BE THE ENTREPRENEUR
From Idea Generation to Opportunity Recognition
● RESEARCH AT WORK: SEEC Study
Chapter 6. Using Design Thinking What Is Design Thinking?
● ENTREPRENEURSHIP IN ACTION: Anna Haupt and Terese Alstin, Founders, Hövding
Design Thinking as a Human-Centered Process
● RESEARCH AT WORK: Helping You Find Your Inner Adult
● YOU BE THE ENTREPRENEUR Design Thinking Requires Empathy
The Design-Thinking Process: Inspiration, Ideation, Implementation
● ENTREPRENEURSHIP MEETS ETHICS: Empathy
as an Ethical Challenge
Inspiration
Ideation
Implementation
The Three Phases of Design Thinking in Action
Pathways Toward Observation and Insights
Observation Techniques
Interviewing as a Useful Technique for Identify Needs
Preparing for an Interview
● MINDSHIFT: Observations to Insights
Conducting the Interview
After the Interview
Variations of the Design-Thinking Process
Chapter 7. Testing and Experimenting in Markets What Are Experiments?
● ENTREPRENEURSHIP IN ACTION: Mark Wallace, Pete Endres, and Jason Epstein, Cofounders, Parlor Skis
The Six Steps of Scientific Experimentation
Hypotheses and Customer Identification
Limited, Low-Cost Experimentation
Testing Hypotheses With Potential Customers
● ENTREPRENEURSHIP MEETS ETHICS: The Rights of Research Participants
Generating Data and the Rules of Experimentation
● YOU BE THE ENTREPRENEUR
● RESEARCH AT WORK
Types of Experiments
Trying Out New Experiences
Taking Things Apart
Testing Ideas Through Pilots and Prototypes
The Power of Storyboarding
● MINDSHIFT: Create a Storyboard and One Simple Experiment
Part III. EVALUATING AND ACTING ON OPPORTUNITIES
Chapter 8. Building Business Models
What Is a Business Model?
● ENTREPRENEURSHIP IN ACTION: Tanzeel
urRehman, Cofounder and CEO, Virtual Force (VF)
The Four Parts of a Business Model
The Offering Customers
Infrastructure
Financial Viability
The Customer Value Proposition (CVP)
● ENTREPRENEURSHIP MEETS ETHICS: Attack of the Clones
Getting the Job Done
Four Problems Experienced by Customers
● YOU BE THE ENTREPRENEUR
Different Types of CVPs and Customer Segments
Types of Value Propositions
Defining Your Target Customer
Types of Customer Segments
The Business Model Canvas (BMC)
The BMC in Action
● MINDSHIFT: Create Your Own BMC
● RESEARCH AT WORK: Peer-to-Peer Business Models
Chapter 9. Planning for Entrepreneurs
The Importance of Planning to Entrepreneurs
● ENTREPRENEURSHIP IN ACTION: Michele Pytko, Bark ‘N Leash
The Trim Framework Plans Take Many Forms
Back of a Napkin
● ENTREPRENEURSHIP MEETS ETHICS: Ethical
Business Planning
Sketches on a Page
● MINDSHIFT: The Vivid Vision Checklist
Business Model Canvas
The Business Brief
Feasibility Study
The Pitch Deck
The Business Plan
Summary of Different Types of Plans
The Business Plan Debate
● YOU BE THE ENTREPRENEUR
Tips for Writing Business Plans
Remove Any of the Fluff
● RESEARCH AT WORK: How Valuable Are Business Plans?
Be Realistic
Avoid the Exaggerated Hockey Stick
Avoid Typos, Grammatical Mistakes, and Inconsistencies
Use Visuals
Chapter 10. Creating Revenue Models
What Is a Revenue Model?
● ENTREPRENEURSHIP IN ACTION: Shane Kost, Founder, Chicago Food Planet Food Tours and Food
Tour Pros
Different Types of Revenue Models
Unit Sales Revenue Model
Advertising Revenue Model
Data Revenue Model
Intermediation Revenue Model
Licensing Revenue Model
Franchising Revenue Model
Subscription Revenue Model
Professional Revenue Model
Utility and Usage Revenue Model
Freemium Revenue Model
Generating Revenue From “Free”
● ENTREPRENEURSHIP MEETS ETHICS: Creating Revenue Models
Direct Cross-Subsidies
Multiparty Markets
Revenue and Cost Drivers
● YOU BE THE ENTREPRENEUR
Revenue Drivers
Cost Drivers
Income Statement
Pricing Strategies
● RESEARCH AT WORK: From Freemium to Premium
Pricing Products and Services
Different Types of Pricing Strategies
Calculating Prices
● MINDSHIFT: Is Value the Same Thing as Price?
Cost-Led Pricing
Target-Return Pricing
Value-Based Pricing
Chapter 11. Learning from Failure
Failure and Entrepreneurship
● ENTREPRENEURSHIP IN ACTION: Tom Hatten, Founder and CEO, Mountainside Fitness
The Failure Spectrum
Fear of Failure
● ENTREPRENEURSHIP MEETS ETHICS: Learning
From Failure
● RESEARCH AT WORK: Grief and Business Failure
Global Fear of Failure
● YOU BE THE ENTREPRENEUR
Learning From Failure
Lessons Learned by Successful Entrepreneurs
Building a Blame-Free Environment
● MINDSHIFT: Your Failure Résumé
Getting Gritty: Building a Tolerance for Failure
Building Grit
Removing the Stigma of Failure
Part IV. RESOURCING NEW OPPORTUNITIES
Chapter 12. Bootstrapping for Resources
What Is Bootstrapping?
● ENTREPRENEURSHIP IN ACTION: Gregor Lawson, AFG Media/MorphCostumes (formerly Morphsuits)
Bootstrapping or External Financing?
The Bootstrapped Startup
Bootstrapping Strategies
Crowdfunding Versus Crowdsourcing
● ENTREPRENEURSHIP MEETS ETHICS:
Bootstrapping for Resources
Crowdsourcing to Improve Medical Treatment
Crowdsourcing to Reduce Labor Costs
Crowdsourcing Through Technology
Crowdfunding Startups and Entrepreneurships
Types of Crowdfunding Sites
Equity Crowdfunding
The Four Contexts for Crowdfunding
Patronage Model
● RESEARCH AT WORK: Crowdfunding: A Revolutionary Change in Funding New Ventures
Lending Model
Reward-Based Crowdfunding
The Investor Model
● YOU BE THE ENTREPRENEUR
The Advantages of Crowdfunding
A Quick Guide to Successful Crowdfunding
● MINDSHIFT: Kickstarter Assessment
Make Sure Your Product or Service Solves a Real Problem
Test and Refine Your Idea
Be Prepared
Seek and Accept Advice
Get your Campaign Started Now!
Money Matters
Focus on the Pitch
Make the Most of Crowdfunding Opportunities
Commit to Your Campaign
Avoid the Crowdfunding Curse!
Chapter 13. Financing for Startups
What Is Equity Financing?
● ENTREPRENEURSHIP IN ACTION: Jason Craparo,
Cofounder, Contap, Inc.
Splitting the Ownership Pie
Stages of Equity Financing
Forms of Equity Financing
The Basics Of Valuation
How Can Entrepreneurs Value Their Companies?
How Do Investors Value Startups?
Convertible Debt
Angel Investors
Finding an Angel Investor
Types of Angel Investors
Angel Groups
● YOU BE THE ENTREPRENEUR
Venture Capitalists (VCs)
A Brief History of Venture Capital
● RESEARCH AT WORK: Talk About the Losses
How Venture Capital Works
● MINDSHIFT: Find an Investor–Entrepreneur Pair
Due Diligence
Exits/Harvesting
The Entrepreneur’s Dilemma
Rich or King/Queen? The Trade-off Entrepreneurs Make
● ENTREPRENEURSHIP MEETS ETHICS:
Approaching Investors
A View From the Top
Appendix A. Financial Statements and Projections for Startups
Financial Projections for Startups
Three Essential Financial Statements
The Income Statement
The Balance Sheet
The Cash Flow Statement
Linkages between the Three Financial Statements
The Journey of Cash: The Cash Conversion Cycle
Building Pro Forma Financial Statements
The Mechanics and Research
Research
Building Assumptions: Forecasting Sales
Building Assumptions: Cost of Goods and Operating Expenses
Labor Estimates
Building Assumptions: Operating Policies and Other Key Assumptions
Building Integrated Pro Forma Financial Statements
Sensitivity Analysis
Reasonableness Test
Chapter 14. Developing Networks
The Power of Networks
● ENTREPRENEURSHIP IN ACTION: John Hite and Franklin Yancey, Cofounders of College Comfort
The Value of Networks
Advantages to Networks
Impression Management and Self-confidence
● RESEARCH AT WORK: The “Dirtiness” of Professional Networking
Self-Selected Stakeholders
Building Networks
● MINDSHIFT: Analyzing My Network
Learning How to Network
Networking to Find Mentors
Virtual Networking
Maintaining Your Network
● ENTREPRENEURSHIP MEETS ETHICS: Ethics and Social Media in the Workplace
Networking to Build the Founding Team
Characteristics of a Great Founding Team
● YOU BE THE ENTREPRENEUR
The Value of Team Diversity
Chapter 15. Navigating Legal and IP Issues
Legal Considerations
● ENTREPRENEURSHIP IN ACTION: Corey Hague, FlexGround
Types of Legal Structures
Sole Proprietorship
General Partnership
C Corporation
S Corporation
Limited Liability Company (LLC)
Limited Partnership and Limited Liability Partnership (LP and LLP)
Benefit Corporation
Not-for-Profit Entities
Legal Mistakes Made by Startups
Intellectual Property (IP)
The Four Types of Intellectual Property
● MINDSHIFT: Patent Search
Global IP Theft
● RESEARCH AT WORK: Patent Trolls
● YOU BE THE ENTREPRENEUR
Common IP Traps
Publicly Disclosing Your Innovation
Failure to Protect Product and Processes
Inability to Determine Originality
Failure to Assign Ownership
Failure to Protect IP in Global Markets
Hiring Employees
Equal Employment Opportunity
Employer Identification Number (EIN)
● ENTREPRENEURSHIP MEETS ETHICS: Navigating
Legal and Intellectual Property Issues
Unemployment and Workers’ Compensation
Withholding Taxes
Employee Forms
Benefits
Workplace Posters
Safety Measures
The Employee Handbook
Hiring a Contractor or an Employee?
Compensating Employees
Chapter 16. Marketing and Pitching Your Idea
The Role of Marketing and Pitching in Entrepreneurship
● ENTREPRENEURSHIP IN ACTION: Andrew Loos,
Managing Partner and Cofounder, Attack! Marketing
The Basic Principles of Marketing
Branding
Reframing the 4 Ps
Entrepreneurial Marketing
Traditional Marketing Versus Entrepreneurial Marketing
Features of Entrepreneurial Marketing
Guerrilla Marketing
Marketing Through Social Media
Getting the Most From Social Media
Creating Content That Drives Sales
Your Website
Marketing Yourself
How to Make a Good First Impression
The Art of Pitching
● RESEARCH AT WORK: Pitching Trustworthiness
Pitch Approaches
● YOU BE THE ENTREPRENEUR
● ENTREPRENEURSHIP MEETS ETHICS: Social
Media and Marketing
● MINDSHIFT: Pitch Practice
Appendix B. The Pitch Deck
Overview of the Pitch Deck
Pitch Deck Slides
Slide #1: Title
Slide #2: Company Purpose/Description
Slide #3: The Problem/Need
Slide #4: The Solution
Slide #5: Why Now?
Slide #6: Market Opportunity
Slide #7: Getting Customers
Slide #8: Competitor Analysis & Differentiation
Slide #9: Traction
Slide #10: Financials
Slide #11: Team
Slide #12: Call to Action
The Question and Answer Period
Team Questions
Product/Customer Questions
Competition Questions
Financial Questions
Growth Questions
Glossary Notes
Name Index
Subject Index
Preface
Entrepreneurship to date has been too narrowly defined as starting a new business, with little attention given to the individuals the entrepreneurs of all types who have the mindset, skills, and tools to create change, improve the world, and make a difference in their lives as well as the lives of others. However, there is no single type of entrepreneur, and practicing entrepreneurship is not reserved for only those starting a new venture. The world will benefit not only from those who start new ventures but also from those who act entrepreneurially in all that they do. We are living in the entrepreneurial generation, and all students must get comfortable with creating and testing new ideas, navigating uncertain environments, and acting in order to learn rather than learning in order to act.
Entrepreneurship: The Practice & Mindset is a practice-based, realistic, and inclusive approach to entrepreneurship. It is a core textbook for college-level undergraduate and graduate students seeking methods for starting and running something new: a new business or initiative, profit or nonprofit, inside a large corporation, or within a small business. Three points guide the philosophy of this book. First, entrepreneurship education is incredibly important, but current mainstream approaches are dated. Too many still rely on writing a business plan before the customer or market is well understood. Other approaches encourage starting a business before testing assumptions and experimenting with concepts. Second, real-world experience contributes significantly to learning, but sometimes the cost of failing in the real world is too high. Finally, because of points 1 and 2, entrepreneurship within a formal education structure requires a new approach based on action and practice. Therefore, this textbook approaches teaching entrepreneurship as a method that goes beyond understanding, knowing, and talking; it requires using, applying, and acting. It is a method that requires practice.
