Chapter #7 discusses the many details of entrepreneurship, but what does it take to be an entrepreneur?

Identify and discuss new ventures that fit each of the four cells in the entrepreneurial strategy mix (Exhibit 7.5 pg. 199-200).

Entrepreneurship  Chapter 7 199

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struggling against another, or of ‘giving back’ versus ‘taking away.’ That’s old thinking. A
true philanthropist will use every tool he can to make an impact. Today business is a key
part of the equation, and the sectors are learning to work together.”60

Opportunities exist to make substantial positive impact on virtually every societal need
and to make a profit doing so. Profit is likely to make societal value creation more sustain-
able over the long run.

What Does It Take, Personally?
Many people assume that there is an entrepreneurial personality. No single personality type
predicts entrepreneurial success, but you are more likely to succeed as an entrepreneur if
you apply certain perspectives and behaviors:61

1. Commitment and determination: Successful entrepreneurs are decisive, tenacious,
disciplined, willing to sacrifice, and able to immerse themselves in their enterprises.
Entrepreneurial passion62 can play an important role in all of these things.

2. Leadership: They are self-starters, team builders, superior learners, and teachers.
Communicating a vision for the future of the company—an essential component
of leadership that you’ll learn more about in Chapter 12—clearly has an impact on
venture growth.63

3. Opportunity obsession: They have an intimate knowledge of customers’ needs, are
market driven, and are obsessed with value creation and enhancement.

4. Tolerance of risk, ambiguity, and uncertainty: They are calculated risk takers and risk
managers, tolerant of stress, and able to resolve problems.

5. Creativity, self-reliance, and ability to adapt: They are open-minded, restless
with the status quo, able to learn quickly, highly adaptable, creative, skilled at
conceptualizing, and attentive to details.

6. Motivation to excel: They have a strong results orientation, set high but realistic goals,
have a strong drive to achieve, know their own weaknesses and strengths, and focus
on what can be done rather than on the reasons things can’t be done.

Making Good Choices Success is a function not only of personal approaches but
also of making good choices about the business you start. Exhibit 7.5 presents a model for
conceptualizing entrepreneurial ventures and making the best possible choices. It depicts
ventures along two dimensions: innovation and risk. The new venture may involve high or

EXHIBIT 7.5
Entrepreneurial Strategy
Matrix

High innovation
Low risk

Innovation
(creating a unique

and di�erent
product/service)

Low

High

Low High
Risk

(probability of major loss)

Low innovation
Low risk

High innovation
High risk

Low innovation
High risk

SOURCE: Sonfield and Lussier, “Entrepreneurial Strategy Matrix: A Model of New and Ongoing Ventures,” Business
Horizons, May–June 1997.

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200 Part Two  Planning: Delivering Strategic Value

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low levels of innovation or the creation of something new and different. It can also be char-
acterized by low or high risk. Risk refers primarily to the probability of major financial loss.
But it also is more than that; it includes psychological risk as perceived by the entrepreneur,
including risks to reputation and ego.64

The upper-left quadrant, high innovation/low risk, depicts ventures of truly novel ideas
with little risk. As examples, the inventors of LEGO building blocks and Velcro fasteners
could build their products by hand at little expense. A pioneering product idea from Google
might fit here if there are no current competitors and because, for a company of that size,
the financial risks of new product investments can seem relatively small.

In the upper-right quadrant, high innovation/high risk, novel product ideas are accom-
panied by high risk because the financial investments are high and the competition is great.
A new drug or a new automobile would likely fall into this category.

Most small-business ventures are in the low innovation/high risk cell (lower right). They
are fairly conventional entries in well-established fields. New restaurants, retail shops, and
commercial outfits involve high investment for the small-business entrepreneur and face
direct competition from similar businesses. Finally, the low innovation/low risk category
includes ventures that require minimal investment and/or face minimal competition for
strong market demand. Examples are some service businesses having low start-up costs and
those involving entry into small towns if there is no competitor and demand is adequate.

How is this matrix useful? It helps entrepreneurs think about their ventures and decide
whether they suit their particular objectives. It also helps identify effective and ineffective
strategies. You might find one cell more appealing than others. The lower-left cell is likely
to have relatively low payoffs but to provide more security. The higher risk/return trade-offs
are in other cells, especially the upper right. So you might place your new venture idea in
the appropriate cell and determine whether that cell is the one in which you would prefer to
operate. If it is, the venture is one that perhaps should be pursued, pending fuller analysis. If
it is not, you can reject the idea or take steps to move it toward a different cell.

The matrix also can help entrepreneurs remember a useful point: successful companies
do not always require a cutting-edge technology or an exciting new product. Even com-
panies offering the most mundane products—the type that might reside in the lower-left
cell—can gain competitive advantage by doing basic things differently from and better than
competitors.

Success and Failure
Success or failure lies ahead for entrepreneurs starting their own companies as well as for
those starting new businesses within bigger corporations. Entrepreneurs succeed or fail in
private, public, and not-for-profit sectors; in nations at all stages of development; and in all
nations, regardless of their politics.65

Start-ups have at least two major liabilities: newness and smallness.66 New companies
are relatively unknown and need to learn how to be better than established competitors at
something that customers value. Regarding smallness, the odds of surviving improve if the
venture reaches a critical mass of at least 10 or 20 people, has revenues of $2 million or
$3 million, and is pursuing opportunities with growth potential.67

To understand further the factors that influence success and failure, we’ll consider the
economic environment, various management-related hazards, and initial public stock offer-
ings (IPOs).

The Role of the Economic Environment Entrepreneurial activity stems from the
economic environment as well as the behavior of individuals. Money is a critical resource
for all new businesses. Increases in the money supply and the supply of bank loans, real

economic growth, and improved stock market perfor-
mance lead to both improved prospects and increased
sources of capital. In turn, the prospects and the cap-
ital increase the rate of business formation. Under

LO 3

Economic cycles can quickly change favorable

conditions into downturns.

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