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About this book

The new edition of this market-leading textbook provides a holistic introduction to the academic study of entrepreneurship and offers practical guidance for prospective entrepreneurs. Adopting a life-cycle view of a business from start-up to maturity, it explores the many stages and forms of entrepreneurship. With an international outlook and expert synthesis of both theoretical foundations and lessons from real-life business practice, the book offers a complete course guide, fostering entrepreneurial talent, thinking and skills. The author’s engaging style and unrivalled expertise drawn from a long-ranging career (as an academic, accountant and entrepreneur) make the book accessible and authoritative.
This is an ideal textbook for those studying Entrepreneurship or Small Business on undergraduate Business or Management degree courses, as well as on MBA programmes. It will also appeal to those looking to launch their own businesses.

Table of Contents

Entrepreneurship

Frontmatter

1. Entrepreneurship: The social and business revolution

Abstract
The old world order has changed and continues to change. Economic power is moving east from the USA and Europe to China and India. If the most startling evidence of this was the financial crisis of 2008 that plunged the mature Western economies into recession, the seeds of change were sown much earlier. So far the 21st century has seen enormous turbulence and disruption. There have been the unpredictable shocks caused by terrorist attacks around the world, followed by the wars in Afghanistan and Iraq. The upheavals caused by the so-called Arab Spring of 2011 continue to affect the Middle East, not least Syria. There have been natural disasters like the Icelandic volcano in 2010, the earthquake and tsunami in Japan in 2011 and the outbreak of Ebola in West Africa in 2014. There have been enormous shocks to the international monetary system precipitated by the banking crisis of 2008, which have particularly affected the Eurozone. There have also been some spectacular corporate failures, from Lehman Brothers in the USA to Royal Bank of Scotland (RBS) in the UK. Corporate integrity has come to be questioned. The unexpected failure of Enron in the USA in 2001, one of the most admired firms of the 1990s, became a benchmark for management greed and lack of integrity. But such scandals were not confined to the USA. Parmalat in Italy became the largest bankruptcy in Europe in 2003. The Olympus scandal of 2012 in Japan led to prosecutions. In addition, banks across the world have been rocked by a series of scandals that have led to fines and government intervention. Alongside this the 21st century has seen unprecedented volatility in just about every market, from commodities to exchange rates, from stock markets to bond markets. And behind this volatility is the uncertainty surrounding climate change and whether we have reached a ‘tipping point’ in global warming.
Paul Burns

2. The economics of entrepreneurship 2 and public policy

Abstract
You might ask whether there are any underlying theories to explain the growth in number and importance of small firms. Marxist theory predicts that capitalism will degenerate into economies dominated by a small number of large firms and society will polarize between those that own them and those that work in them. To a Marxist, the rise of small firms is just another, subtler way for this trend to manifest itself. Small firms are dependent upon larger firms for their custom and well-being; they absorb risk and push down pay and conditions for workers because they are rarely unionized. However, the successful growth of so many small firms since the 1980s, the increasing fragmentation of industries and markets, and the increasing popularity of self-employment by choice would seem to belie this theory.
Paul Burns

3. The entrepreneurial character

Abstract
Never has it been easier to create a new venture. And never have the chances of success on a global basis been higher. But running it can be hard work. It is an all-consuming, 24-hour, seven-day-aweek activity – at least until you have a management team you can rely on. So it helps enormously if you enjoy what you are doing. You need commitment and dedication. You need stamina – ‘90% perspiration, 10% inspiration’. It can break up relationships and split families. It is risky, without guaranteed results. So, you need to be able to bounce back from setbacks, because there will be many. You need determination and persistence in situations where others might give up. You need to be emotionally tough – self-employment can generate a roller coaster of emotions. You need to be emotionally self-sufficient – it can be lonely. You need to be task-orientated – motivated to deliver the best product or service to your customers, all day, every day. You need to be attuned to the opportunities generated by your customers and the market you operate in. Most of all you need to be able to live with a degree of risk and uncertainty – you will always be the last one to get paid and then only if there is enough cash left over. If you crave certainty, routines and a regular pay cheque, entrepreneurship is not for you.
Paul Burns

4. Discovering a business idea

Abstract
We explained in previous chapters that innovation is the prime tool entrepreneurs use to create opportunity. It is underpinned by creativity. But, if creativity underpins innovation, entrepreneurship and opportunity perception is the context in which it will flourish:
Paul Burns

5. Researching and evaluating the business idea

Abstract
Market research is essential before you launch a business. Just imagine being a football manager and not knowing anything about your team (your customers), who you are about to play against and how many players they are allowed to have (your competitors) or even the size of the pitch and duration of the game you are about to play (the nature of the market and industry). And then there is the little matter of the rules of the game (the laws affecting the industry). In such circumstances your chances of success would be slim. The President of Harvard Business School once said that if you thought knowledge was expensive, you should try ignorance.
Paul Burns

Start-up

Frontmatter

6. Start-up: Developing the business model

Abstract
So you have a business idea that looks viable. And by now you should have knowledge of how your industry and market operates. The challenge is to bring this idea to life – how to make it happen. And here we can learn some lessons from other successful entrepreneurs. Sarasvathy (2001) undertook a study of how 27 successful US entrepreneurs approached business decisions. The subjects all had at least 15 years of entrepreneurial experience, including successes and failures, and had taken at least one company public. They were presented with a case study about a hypothetical start-up with the founder facing 10 decisions. The rationale for these decisions was then explored in more detail. Some years later the same research was conducted on a group of successful professional managers in large organizations, allowing contrasts and comparisons to be made between entrepreneurs and managers.
Paul Burns

7. Adding values to the business model

Abstract
Just as it is important that you understand why you want to start a business and what you want from it, it is also important that your business reflects your vision and values. After all, you will be spending much of your time developing it and, in many ways, it is an extension of you and your personality. Most people find it very difficult to live their lives within organizations that do not share their values and beliefs. Indeed, this is often a reason for starting up your own business. This chapter will start to formalize the reasons you want to set up a business, which we first considered in Chapter 3. It will develop the vision you have for the business and the values upon which it is based. It will also show you how strong, ethical and social values can also enhance your business model, creating a clear brand identity. In doing this you may be able to charge a higher price for your product and create commercial as well as social value.
Paul Burns

8. Launching your business

Abstract
Every business is primarily about people – as customers and as employees. This chapter is about both finding and attracting people to work with as partners or staff and customers. Many start-ups do not employ anybody to start with, but the only way you will grow is by recruiting appropriate staff, including managers, to deliver your product/service to more and more customers. Selecting, developing and managing staff will become a key activity – something many entrepreneurs have a problem with. When there is more than one founder, the issue of working with the other partners so as to become an effective management team can be just as challenging. And as a business grows it will face challenges and problems that mean the founder needs to adapt and change the way they manage the business. There are a number of ‘stage models of growth’ that seek to describe the challenges that they face as the business grows. These are covered in Chapter 12. The more rapid the growth, the more difficult this will be. And all of these changes need to be properly managed alongside the day-to-day delivery of customer service. It is little wonder that so few firms grow to any size. Some entrepreneurs even decide not to grow their business because they realize they cannot manage these changes or because they prefer to move on to another start-up.
Paul Burns

9. Legal foundations

Abstract
One of the important things you need to think about is whether you can safeguard the ‘intellectual property’ (IP) of your business idea. There are a number of ways you can do this: patents, trademarks, copyrights, industrial design rights and, in some countries, trade secrets. The justification of these rights is that they encourage the creation of IP and pay for associated research and development. It is claimed that there are substantial benefits in terms of economic growth for countries that encourage IP protection, whether or not it is a form of monopoly. A report by Shapiro and Pham (2007) observes that, while economists trace 30 to 40% of all US gains in productivity and growth over the course of the 20th century to economic innovation in its various forms, today, some two-thirds of the value of America’s large businesses can be traced to the intangible assets that embody ideas, especially the IP of patents and trademarks. They claim that ‘IP-intensive industries produce 72% more value added per employee than non-IP-intensive industries and create jobs at a rate 140% higher than non-IP intensive industries, excluding computers/electronics’. The authors go on to say that ‘promoting and protecting new IP should be a high priority for US policymakers’.
Paul Burns

10. Operations and risk

Abstract
Managing a business is concerned with handling complexity in processes and the execution of work. It is linked to the authority required to manage, somehow given to managers, within a form of hierarchy. The founder of a business assumes this authority, whether or not they are capable of exercising it. In fact, as we have noted, the style of management they initially adopt is likely to be informal, relying on strong personal relationships with employees rather than formal structures which might impede flexibility. Often they manage by example.
Paul Burns

11. Financial management

Abstract
For any venture to survive and grow it needs to be financially viable and it needs to have good financial control. This can mean a number of different things. For it to be attractive to an equity investor – and the founder – it needs to be profitable and efficient. For it to survive it needs to be sufficiently liquid to enable it to pay its bills. And all of these things mean that stakeholders are interested in the risk that a new venture faces. Therefore, SMEs need to be able to produce information that allows these things to be measured and controlled. This involves looking at a range of different concepts and measures.
Paul Burns

Growth

Frontmatter

12. Growth: Building the foundations

Abstract
Given the high failure rate for start-ups, survival can be a real badge of success. Lifestyle and salary substitute businesses may be able to survive on a day-to-day basis with an informal, tactical orientation; but as a business grows and more staff are recruited, systems and process are likely to become more formalized. For some businesses – the gazelles we looked at in Chapters 1 and 2 – the real challenge is dealing with growth. And the skills and capabilities of the entrepreneurs leading them need to change.
Paul Burns

13. Strategies for growth

Abstract
Initially start-ups grow by increasing sales of their product or service in the target market(s) they have identified. This is called penetrating the market(s). Businesses start by penetrating their existing market with their existing product or service as quickly as possible. They will probably have started to move from a selective distribution network to a more intensive network that gets them to more of their target market and probably a broader geographic base. At the same time, they may already be adopting a more aggressive promotion and pricing strategy that encourages further market penetration ahead of the emerging competition. Alongside this, they will be building the brand as a vital part of their promotional message. The question that arises is how to achieve further growth once the original market has been successfully penetrated and its limits reached. Investors are always looking at the scalability potential of a business. Once the initial idea has been proved in the market, where will future growth come from? Unless we are talking about a lifestyle business with limited growth potential, some consideration must be given to this in the business plan, even for a start-up. The extent of planning depends on the time scale and degree of certainty for this growth.
Paul Burns

14. Financing the business

Abstract
Many new ventures require finance to get started. The more fixed assets you need, the higher your stock-holding, and the longer debtors take to pay, the greater your need for finance. And while a cash flow forecast will tell you how much you require and for how long (we deal with this in the next chapter), it will not tell you what sort of finance you require.
Paul Burns

15. From business model to business plan

Abstract
Your business model underpins your business plan. Chapters 6 and 12 showed you how to develop your business model and then modify it to reflect the changing circumstances you will inevitably face after launch. You need to develop a business model before you can draw up a business plan. Some start-ups need a business plan prior to launch, probably because they need external finance to enable this; others may be able to wait until after launch when the business idea has been proved and the model modified to reflect the realities of the market. Developing your business model and writing a business plan allows you to crystallize your business idea and to think systematically through the challenges you will face before you have to deal with them. The process allows you to develop strategies and strategic options that should improve your chances of success. It allows you to set key milestones against which to monitor your performance. And the greater detail involved in writing a business plan often ensures that the document faces greater scrutiny and things are not overlooked. But perhaps of more immediate importance, it can also act as a vehicle to attract external finance. All of these things can mean that the development of a sound business plan can improve your confidence in launching into what is an uncertain venture.
Paul Burns

Maturity

Frontmatter

16. Maturity – The exit

Abstract
Most small firms are born to stagnate or die. As we saw in Chapter 1, in the UK most do not grow to any size – almost two-thirds of businesses comprise only one or two people, and often the second person is the spouse. Some 95% of firms employ fewer than 10 employees and 99% fewer than 50 employees. From the VAT statistics we see that half of businesses cease trading within three years of being set up, although, as pointed out, this does not necessarily mean that the closure has left creditors unpaid, and it can be viewed in a positive light as part of the dynamism of the sector as it responds to changing opportunities in the marketplace. What is more, when the number of start-ups increases, the number of businesses ceasing to trade tends to do so as well. The pattern is broadly similar internationally. The younger and smaller the business, the more likely it is to cease trading – a conclusion supported by a review of 34 business closure studies from around the world (Storey and Greene, 2010). A cynical observer might conclude that, in such a turbulent environment, mere survival is a badge of success.
Paul Burns

17. Family business

Abstract
Defined – at this stage – simply as an organization in which decision-making is infl uenced by multiple generations of a family, family businesses are the oldest and most common form of any business organization. Rather than starting a business from scratch, many entrepreneurs will join a family business and eventually take over the leadership of it. In the UK it is estimated that family fi rms account for two in three private sector enterprises (some three million fi rms), almost half of all mid-sized businesses ($20–50 million turnover), provide two jobs in fi ve in the private sector (employing 9.2 million people) and generate almost a quarter of UK GDP ($1.1 trillion) (Institute for Family Business, 2011). Th eir importance is estimated to be even greater across the EU and the USA. What is more, the stereotypical image of the family living above the shop does not do the sector credit. Th ey are not all small, lifestyle fi rms. Family-owned companies account for a substantial proportion of the value of the stock market. In the USA, family fi rms – where family members own more than a quarter of the shares – represent more than a third of the Fortune 500 (Clark, 2014). In Europe the pattern is similar. But most family fi rms – of any size – are privately owned or family controlled and the family have a strong hand in infl uencing management decision-making.
Paul Burns

18. From entrepreneur to entrepreneurial leader

Abstract
Studies on the personality traits of entrepreneurs have focused on their propensity to start and maintain a business successfully. Increasingly, however, the debate on entrepreneurship is moving to consider not only what the entrepreneur ‘is’ but what they actually ‘do’. And successful entrepreneurs have a number of characteristic approaches to management, particularly as the business grows and becomes more complex. They face a constant struggle if they wish their business to continue to be entrepreneurial and they need to constantly adapt and change – not an easy task. But whilst they need to develop their managerial skills as the business grows, ultimately they need to metamorphose from an entrepreneur into an entrepreneurial leader. At the same time the business needs to operate in certain ways, adapting its structures and cultures as it grows to become more formalized but without becoming more bureaucratic. This chapter will highlight how entrepreneurs can become entrepreneurial leaders – extending the longevity of their organization. Chapter 19 will highlight how they might then ignite the spark of entrepreneurship within the organizations that they lead.
Paul Burns

19. Corporate entrepreneurship

Abstract
Corporate entrepreneurship is the term used to describe entrepreneurial behaviour in an established, larger organization. The objective of this is to gain competitive advantage by encouraging innovation at all levels in the organization – corporation, division, business unit, functional and project team. Morris and Kuratko (2002) use innovation and entrepreneurship interchangeably to demonstrate the concept of entrepreneurial and/or innovative intensity, shown in Figure 19.1 (and first introduced in Figure 2.1, on page 36). The scale of an entrepreneurial or innovative endeavour can range from incremental to radical and from infrequent to continuous. Entrepreneurial firms are constantly trying to push out the envelope of entrepreneurial intensity, increasing both the degree or scale of entrepreneurship and/or innovation and its frequency. Corporate entrepreneurship is the overarching term used to describe the mechanisms and processes they use to achieve this.
Paul Burns
Additional information