The Portable MBA in Entrepreneurship

1. Entrepreneurship is a process where preparation meets opportunity.

In entrepreneurship, as in any other profession, luck is where preparation and opportunity meet.

The entrepreneurial process. Entrepreneurship involves perceiving opportunities and creating organizations to pursue them. It's not just about revolutionary ideas; most new businesses enter existing markets. Success hinges on evaluating opportunities, understanding personal attributes, and leveraging environmental factors.

Critical factors. Starting a new enterprise is influenced by personal traits like decisiveness, determination, and dedication, as well as environmental factors like role models, social networks, and the economic climate. A triggering event, like job loss or a deliberate career choice, often initiates the process.

Ingredients for success. A successful new business requires a superb entrepreneur, a first-rate management team, an excellent market opportunity, and the necessary resources. Key characteristics of successful entrepreneurial companies include being focused, fast, flexible, forever-innovating, flat, frugal, friendly, and fun.

2. Generate lots of ideas, but creativity requires practice and mindset.

The best way to have a good idea is to have lots of ideas.

Idea generation paths. Ideas can arise spontaneously through alertness or through deliberate search using existing knowledge. While "aha" moments feel sudden, creativity is a chain reaction of tiny sparks built over time. Creativity is inherent in everyone but must be unleashed and cultivated.

Overcoming roadblocks. Fear is a significant roadblock to creativity, preventing ideas from emerging and being shared. Other roadblocks include disliking chaos, preferring judgment over generation, disliking incubation, perceiving a lack of challenge, and inability to distinguish reality from fantasy.

Cultivating creativity. Developing a more creative mind requires using both left-brain (logic, analysis) and right-brain (intuition, synthesis) thinking. Competencies like play, improvisation ("Yes, And"), and observation build a mindset conducive to idea generation, fostering freedom, imagination, and possibilities.

3. An idea is not an opportunity; rigorous market analysis is essential.

The difference between venture success and failure is a function of whether your idea is truly an opportunity.

Evaluating opportunities. Moving from an idea to a viable opportunity requires market tests and analysis across five areas: customers, competitors, suppliers/vendors, government, and the global environment. This process is iterative, combining thought and action.

Customer focus. Understanding your core customer (Primary Target Audience) is paramount. Analyze their demographics, psychographics, and relevant trends. Size the market by segment and geography, projecting future growth based on trends and market penetration estimates.

Competitive landscape. Identify direct competitors, indirect competitors, and substitutes. Analyze their strategies and key success factors. Understand the value chain and where your business fits, considering supplier power and government regulations.

4. Entrepreneurial marketing focuses on value, relationships, and adaptability.

Entrepreneurial marketing is the proactive identification and exploitation of opportunities for acquiring and retaining profitable customers through innovative approaches to risk management, resource leveraging, and value creation.

Marketing fundamentals. Marketing involves identifying and serving customer needs through the four Ps: product, price, place (distribution), and promotion (communications). Entrepreneurs face unique challenges due to limited resources, lack of market share, and low brand awareness.

Strategic approach. Develop a marketing strategy aligned with resources, focusing on segmentation, targeting, and positioning. Product strategy involves defining the core and augmented product, ensuring a clear value proposition, and focusing on quality. Pricing should reflect perceived value and cover costs, aiming for sufficient gross margins (often 40%+ for new ventures).

Reaching the customer. Distribution channels can be difficult for entrepreneurs to access. Understand the value chain and potential partners. Marketing communications involve a mix of advertising, sales promotion, public relations, personal selling, direct marketing, and interactive/Internet marketing. Guerrilla marketing tactics can help break through clutter.

5. Business planning is crucial for deep understanding, not just fundraising.

Although a good business plan assists in raising capital, the primary purpose of the process is to help entrepreneurs gain a deeper understanding of the opportunity they are envisioning.

Purpose of planning. Business planning tells the story of your business, articulating the opportunity and how it will be pursued. It helps entrepreneurs gain deep understanding, shape their vision, and communicate effectively with stakeholders. It's a living document that evolves with the venture.

Plan structure. A typical business plan includes sections on the executive summary (most important), industry/customer/competitor analysis, company/product description, marketing plan, operations plan, development plan, team, critical risks, offering, and financial plan. The plan should be visually appealing with headings, charts, and diagrams.

Key sections.

• Industry/Customer/Competitor: Define the market space, target customer demographics/psychographics, and competitive landscape (direct, indirect, substitutes).
• Company/Product: Describe the offering, competitive advantage, and market entry/growth strategies.
• Marketing: Detail target market, product, pricing, distribution, advertising, sales strategy, and forecasts.
• Operations: Outline production, location, facilities, and ongoing processes.
• Development: Highlight remaining work and timelines.
• Team: Showcase key members, advisors, and their relevant experience.
• Critical Risks: Identify potential threats and contingency plans.
• Offering: Detail funding needs and uses.
• Financial Plan: Provide pro forma statements (income, cash flow, balance sheet) with underlying assumptions.

6. Financing starts with founders and angels, leveraging internal resources first.

In the United States, informal investors provide in the region of $100 billion per year to start-up and young businesses.

Bootstrapping. Most start-ups are initially funded by the founders' savings, credit cards, and personal assets. Entrepreneurs should first explore all possibilities for getting funding from other external sources like reduced services, vendor/customer financing, or government programs.

Informal investors. After personal funds, entrepreneurs turn to informal investors, primarily family, friends, and business angels. Business angels are wealthy individuals, often entrepreneurs themselves, who invest in seed and early-stage companies. They provide significantly more funding than formal venture capital.

Venture capital. Formal venture capital is extremely difficult to obtain for start-ups; it's typically invested in companies already in business with demonstrated star potential. VCs prioritize the management team, market opportunity, product, competitive positioning, and financial returns, often seeking a high IRR (e.g., 60% for start-ups).

7. Legal and tax structures shape control, liability, and financial outcomes.

The material in this chapter is not meant to be used by entrepreneurs as a substitute for consultation with legal and tax professionals.

Choosing a legal form. Entrepreneurs must select a legal structure (sole proprietorship, partnership, corporation, LLC, etc.) impacting control, personal liability, taxation, and administrative costs.

• Sole Proprietorship/Partnership: Simple, but owners face unlimited personal liability.
• Corporation/LLC: Offer limited personal liability for owners, protecting personal assets from business debts (though personal guarantees may be required by lenders).
• Taxation: Pass-through entities (partnerships, S-corps, LLCs) avoid double taxation but may result in phantom income. C-corps face double taxation but offer more flexibility in profit retention and employee benefits.

Key legal issues.

• Leaving employment: Be aware of corporate opportunity, employee recruitment, proprietary information, and noncompetition obligations.
• Agreements: Stockholder/operating agreements define control, equity disposition (transfer, death, termination), and profit distribution.
• Hiring employees: Understand agency law (employees can bind the company), employment discrimination laws, wage/hour laws, and tax obligations (Social Security, unemployment, withholding).
• Equity sharing: Granting stock or options to employees has complex tax implications (e.g., vesting, ISOs).

8. Protecting intellectual property is vital for competitive advantage and value.

Patents are often a necessary, but not a sufficient, condition precedent to business success.

Forms of IP. Intellectual property includes patents, trade secrets, trademarks, and copyrights, each offering different types and durations of protection.

• Patents: Protect inventions (utility, design) that are novel and unobvious, granting exclusive rights for a term (typically 20 years for utility). Claims define the protected property.
• Trade Secrets: Protect confidential business or technical knowledge that provides a competitive advantage, as long as it is kept secret. No formal registration, but requires active efforts to maintain secrecy.
• Trademarks: Protect words, symbols, or combinations used on goods/services to indicate source, granting exclusive use as long as the mark is used. Registration (state or federal) offers significant benefits.
• Copyrights: Protect original works of authorship (writings, software, art), granting exclusive rights to copy, distribute, etc. Registration is inexpensive and provides benefits.

Strategic IP management. IP must be managed strategically, not just acquired. This involves planning, budgeting, monitoring competitors' IP, and deciding how to use your portfolio (offensive, defensive, licensing). Agreements (confidentiality, employment, consultant) are crucial for securing ownership and maintaining secrecy.

9. Consultative selling aligns with the buyer's process to build trust and value.

The ultimate role of the salesperson is to help the buyer make a purchase decision.

Mindset for selling. Effective selling is consultative or value selling, acting as a buying consultant to help the customer make the right decision, even if it's not to buy your product. This builds trust, which is crucial for entrepreneurs lacking a track record.

Sales process. Selling involves finding, assessing, and pursuing opportunities by aligning the selling process with the buyer's buying process. This requires understanding the customer's environment, industry, and strategy.

Key activities.

• Prospecting: Identifying potential customers with needs matching your offering.
• Precall Planning: Researching the company and individual, setting objectives, preparing questions and materials.
• Initiating Contact: Preferring warm calls over cold calls, treating gatekeepers professionally.
• Establishing Common Ground: Building rapport through open questions and active listening.
• Needs Analysis: Engaging the customer to understand their specific needs and objectives.
• Developing Value Proposition: Customizing the offering to create specific, measurable value for the customer.
• Handling Objections: Viewing concerns as opportunities to understand and resolve issues, not rejection.
• Closing: Asking trial closes throughout the process and the final closing question when ready.
• Follow-Through: Providing excellent customer service to build long-term relationships and secure repeat business.

10. Managing growth requires balancing organization, leadership, strategy, and resources.

While entrepreneurial skills are critical during the venture’s early stages, these skills will soon need to be balanced with managerial skills to prepare the firm for growth.

Growth challenge. Growth is rare and complex, increasing organizational complexity and risk. While external factors like industry and economic conditions influence potential, internal factors and personal choices determine if and how a firm grows.

Growth stages. Ventures typically move from start-up to early growth, later growth, and potentially maturity or decline. Each stage presents different challenges and requires adapting the organization.

Four domains of growth. Successfully managing growth requires attention to:

• Organization: Developing controls, performance measures, and formal systems to manage cash, inventory, receivables, and payables, balancing efficiency with entrepreneurial capability.
• Leadership: Transitioning from founder-led to delegated management, hiring specialists and professional managers, and building a functional board of directors.
• Strategy: Moving from a focused core strategy to leveraging capabilities in peripheral markets and exploring new arenas for future growth.
• Resources: Managing cash flow for internal growth, securing appropriate external financing (debt, equity) for different stages, and developing human resources with specialized skills.

11. Franchising offers a proven system but requires careful due diligence.

Franchising is a business opportunity by which the owner, producer, or distributor (franchisor) of a service or trademarked product grants exclusive rights to an individual (franchisee) for the local distribution of the product or service, and in return receives a payment or royalty and conformance to quality standards.

Franchise model. Business format franchising is a contractual relationship where a franchisor grants a franchisee the right to operate a business using a proven system, brand, and support, in exchange for fees and royalties. It's a dominant retail form, offering reduced risk compared to stand-alone start-ups.

Due diligence. Evaluating a franchise requires analyzing the license agreement, which details the rights and obligations of both parties. Key areas include services provided by the franchisor (real estate, training, support, marketing), territorial rights, term of agreement, sale of business, and termination clauses.

Financial considerations. Analyze start-up costs, ongoing royalties, and marketing fees. Review pro forma financials based on actual franchisee experience, adjusting for local market realities. Understand financing requirements and how the franchise model might facilitate securing debt.

12. Social entrepreneurship uses business principles to solve wicked problems.

Social entrepreneurship seeks creative and valuable solutions to such issues as education, poverty, health care, environment, waste, water, and energy—just to name a few.

Defining social entrepreneurship. Social entrepreneurship applies entrepreneurial thinking and action to solve social problems, regardless of profit orientation. It encompasses social purpose ventures (for-profit with social mission), enterprising nonprofits (nonprofits using earned income), and hybrid models (equally emphasizing social and economic goals).

Wicked problems. Social entrepreneurs tackle complex, ill-defined "wicked problems" like poverty, aging populations, and environmental issues, which lack simple solutions and require innovative approaches. These problems represent vast opportunity spaces.

Capital for social ventures. Social entrepreneurs access capital through various sources. For-profit social ventures may seek social venture capital (SVC) that targets a double bottom line (financial and social return). Enterprising nonprofits may seek venture philanthropy, which provides value-added funding beyond traditional grants.

Last updated: May 10, 2025