Entrepreneurial Process

Individuals who create companies are called entrepreneurs. These people decide to start a business and are either successful or unsuccessful. The Webster dictionary defines an entrepreneur as “one who organizes, manages, and assumes the risks of a business or enterprise.” ¹ Individuals who decide to become entrepreneurs believe that their best career opportunity is starting, managing, and owning all or part of a company rather than working for others.

There are numerous definitions of entrepreneurship. For example, a leading textbook defines entrepreneurship as “the pursuit of opportunity without regard to resources currently controlled.” ² A practicing entrepreneur who has thought a great deal about the subject, Bob Reiss, has expanded this definition to include the recognition of the opportunity and includes certain characteristics of entrepreneurs. His definition of entrepreneurship expands the definition above and is “the recognition and pursuit of opportunity without regard to the resources you currently control, with confidence that you can succeed, with the flexibility to change course as necessary, and the will to rebound from setbacks.”³ The latter definition will be used in this web site and an entrepreneur will be considered a person who pursues entrepreneurship.

The Entrepreneurial Process

The diagram below illustrates the entrepreneurial process. It assumes that an entrepreneur wants to start a new business. An alternative approach to starting a business is to purchase an existing business. The latter approach is discussed later.

Text Box: THE ENTREPRENEURIAL PROCESS
FOR A NEW BUSINESS

Text Box: Economics of New Businesses Text Box: Decide to Start a New Business

Text Box: Define and Analyze New Ventures

Text Box: Attracting Stakeholders and Resources

Text Box: Legal Form of Organization and Taxation Issues Text Box: Business Planning

Text Box: Financing

Text Box: Grow and Operate the Business

Text Box: Become "Cash Cow" Text Box: Go Public Text Box: Sell the Business Text Box: Liquidate

Each of the areas is discussed below.

Opportunity

The first decision an entrepreneur must make is whether to start a new business or purchase an existing one. This portion of the web site assumes the reader wants to initiate a new business but many of the same concepts apply to buying an existing business.

The entrepreneur must have an idea. Initially, the individual may be thinking about several new venture ideas.

There are a variety of sources of ideas for new ventures. They include:

Invitations from friends and business contacts
Prior employment
Hobbies
Social encounters
Observation
Deliberate search
Copy other successful ideas

In the process of identifying the prospects, the entrepreneur must decide whether he/she wants to enter a commodity, proprietary, service or technology business. While it is true that a technology business is a proprietary business, it is separated in this list because so much venture capital is used in technology businesses versus other types of new businesses. After the new venture opportunities are defined, the entrepreneur must analyze them and decide which one to pursue. One such method is the Business Evaluation Scoring Technique.

Launch

Once the entrepreneur has decided what business to start, he/she must next attract stakeholder such as:

Customers
Employees
Investors
Suppliers

The entrepreneur must have customers or else the business will eventually die. Finding and recruiting employees is an important function for the entrepreneur. Sometimes it is difficult to attract talented persons because there is concern whether the organization has the funding. Obtaining funds from investors is always a challenging and continuing activity for entrepreneurs. Suppliers often demand payment before delivering items to new companies thus possibly causing cash flow problems for the new entrepreneurial venture

The entrepreneur must also prepare a business plan. The business plan is useful for operating the company and raising funds for the venture and is such an important part of the entrepreneurial process that entire books have been written about writing a business plan book. (See the Entrepreneurship Bookstore for a listing of popular business plan books).

The entrepreneur must determine the legal form for the company; that is, one must decide whether the company will be a sole proprietorship, partnership, corporation, limited liability company or some other type of legal entity. It is important for the entrepreneur to consult a competent attorney and certified public accountant to determine the best form of legal organization for the entrepreneur. Various taxation issues will have to be considered as part of this decision. Finally, the entrepreneur must decide how to finance the new venture. Some of the options for financing include:

the entrepreneur
friends and family
angel investors
venture capitalists

Entrepreneurs can also seek loans from banks and government organizations like the small business administration.

Growth

Once the entrepreneur has launched the company, then the individual must operate the company. Assuming the new venture is successful, the entrepreneur must develop plans to grow the company. The entrepreneur must balance cash flow and growth appropriately as well as the possible infusion of funds from external sources.

Harvest

At some point in time, the entrepreneur will want to exit the business. There are four harvest options:

Operate the business as a "cash cow"
Sell the business
Take the business public
Liquidate the business

The entrepreneur may decide that the company will continue to operate successfully without much effort and he/she may just keep the company because it is a “cash cow.” At some point, the entrepreneur may decide to exit the business by selling it to another entrepreneur or business. Typicaindividual may decide to take the company public or sell the venture. Although, there is a low probability that it happens, a successful entrepreneur grows the company to the point of taking it public. Hopefully, although it often happens, the entrepreneur will avoid liquidation or bankruptcy as the “harvest” of one’s endeavor.

References

Reiss, B., with Cruikshank, J. L., Low Risk, High Reward: Starting and Growing Your Business with Minimal Risk, New York: The Free Press, 2000, p. 6.

Stevenson, Howard H., Grousbeck, H. Irving, Roberts, Michael J., and Bhide, Amarnath, New Business Ventures and the Entrepreneur, Fifth edition, Boston: Irwin/McGraw-Hill, 1999, p. 5.

Webster’s Third New International Dictionary, Merriam-Webster Inc., Springfield, MA, 1981.

End Notes

1Webster’s Third New International Dictionary, Merriam-Webster Inc., Springfield, MA, 1981.

2Stevenson, Howard H., Grousbeck, H. Irving, Roberts, Michael J., and Bhide, Amarnath, New Business Ventures and the Entrepreneur, Fifth edition, Boston: Irwin/McGraw-Hill, 1999, p. 5.

3Reiss, B., with Cruikshank, J. L., Low Risk, High Reward: Starting and Growing Your Business with Minimal Risk, New York: The Free Press, 2000, p. 6.

Top of Page

New Business Plan Book Now Available

An excellent new book on doing business plans: “Preparing an Entrepreneurial Business Plan” by Ed Williams and Al Napier is now available.

A practical, step-by-step exposition on how to do a business plan.

The book can be purchased through the Rice University Campus Store. The telephone number is:

713-348-4052

Some Case Examples

Below are links to some stories about successful entrepreneurial ventures.

Books for Managers

Hometown Favorites

Knowsys

Rackspace Managed Hosting

The owners of Entrepreneurial Process provide this site to save you time finding information on entrepreneurship as well as to find books on entrepreneurship and business plans. They are able to provide this site through commissions earned from Amazon for purchases made by people who access Amazon through our site. The price you pay for each item is the same. We also receive a commission from Google when an individual clicks one of the Ads by Google.

By using this site, you agree to our terms of use.