Entrepreneurs play a vital role in economic development as key contributors to technological innovation and new job growth. We discovered that many people, just like you, have the urge to create an enterprise; to help themselves and to make a difference in this world. While successful entrepreneurs like Steve Jobs and Bill Gates are well publicized, the harsh reality is that most new businesses are prone to failure because they don't have access to accurate information about the entrepreneurial process. This book is a "word map" for guiding you through that process, from refining your business idea and securing capital to a successful launch into the marketplace. There are many types of business ideas to pursue and you are probably better educated than many historic entrepreneurs - both Thomas Edison and Ray Kroc being high school dropouts and both Steve Jobs and Bill Gates being college dropouts. If you hunger to be your own boss and to make a contribution to society with your ideas, then Business Alchemy: Turning Ideas into Gold has the information for which you have been searching.

BUSINESS ALCHEMY: TURNING IDEAS INTO GOLD

By William R. Cobb M. L. Johnson

AuthorHouse

Copyright © 2012 William R. Cobb and M. L. Johnson, Ed.D, Ph.D.
All right reserved.
ISBN: 978-1-4685-8786-9

Contents

Preface..............................................................viiChapter 1 The Entrepreneur in Hiding.................................1Chapter 2 Unleash Your Creativity....................................34Chapter 3 Testing Your Business Idea.................................77Chapter 4 Business Planning for Success..............................119Chapter 5 Find the Money to Finance Your Project.....................158Chapter 6 Selecting and Retaining Your Team..........................197Chapter 7 Entering the Market........................................234Chapter 8 Growing Your Enterprise....................................271Chapter 9 Managing Financial Success.................................302Chapter 10 Operate or Sell?..........................................341Epilogue.............................................................377Glossary of Financial Terms..........................................378

Chapter One

The Entrepreneur in Hiding

"It is never too late to be what you might have been." George Eliot

There is no evidence that they dreamed of becoming disruptive technology entrepreneurs. Mary Lerner and Len Bosack, a married couple employed in computer services at Stanford University, just thought it might be more convenient to send messages to each other through a computer network rather than using telephone calls and the paper copies prevalent in the early 1980s. William Yeager had previously written multiple-protocol router software, but discovered that its internal problems apparently hindered wider acceptance of his application. Bosack was able to modify Yeager's software, so that it could work, and together, they added Richard Troiano to help form the company that became known as Cisco Systems in 1984. Although they were not the first company to sell routers, Cisco was the first to successfully produce and market routers that supported multiple-network protocols. The company name was derived from shortening the nearby city name of "San Francisco," and a succession of CEOs scaled up the product line to make it into the international computer services firm it is today.

A company with only one product is usually at-risk as technology changes; this happened to Cisco when the introduction of Internet Protocol (IP) made Cisco's multi-protocol routing less important. However, by 1990, Cisco had successfully completed a successful IPO, and was listed on the NASDAQ Stock Exchange. This influx of new capital enabled it to expand its product offerings by means of the acquisition of companies like Stratacom and the Cerent Corporation. At the height of the dot-com boom of 2000, Cisco was ranked as the most valuable company in the world; with a market capitalization estimate of $500 billion. The company continues to develop new products and acquire promising start-ups; many of which are now $ billion in-house enterprises.

Entrepreneurs Lerner and Bosack are credited with: a) perceiving an opportunity to solve a significant real world problem, b) being capable of developing a product solution and c) carrying it through the "proof of concept stage." Wisely, they brought in professional management to help "scale-up" the flagship product and develop a larger product portfolio. By re-investing their profits back into research and development, and by making timely acquisitions, Cisco has continued to play a major role in the proliferation of the World Wide Web. Their story very well illustrates how perceptive and technically competent persons can become part of a successful start-up that benefits innovators, investors, management and society.

What is an entrepreneur?

The term entrepreneur is derived from a combination of the Old French words entree, meaning to enter, and preneur, meaning to take. Thus, there has been a generous transliteration of the combined words into the business world for describing one who moves a product or service from idea to commercialization. Entrepreneurship is as old as the beginnings of commerce, wherein one person (a proprietor) or a group (a cartel) assumes the risk of moving a product or service to commercialization; taking something from an idea to profitability (Pirenne (1937). At some point in civilization's development, someone successfully took a useful product or service from idea to public adoption; benefiting himself/herself and the community.

Three entrepreneur roles are typically needed for a business start-up; a) the idea person(s), b) the financial backer(s) and c) the professional manager(s). Thus, if you are a competent manager and not particularly creative or wealthy, you can still be a significant player in the start-up world. Actually, you can become a player in several contexts: a completely new business, a business re-start, or a start-up within an existing business. This is often referred to as "intropreneurism" and such new entities may be later spun-off as an independent company. Social entrepreneurism, environmental entrepreneurism, or pioneering a new concept in a public agency or government, can all be examples of entrepreneurism. Someone who is starting a community foundation from scratch needs to have similar characteristics of a commercial entrepreneur and she/he will need to follow many of the processes described herein.

Imagine that you are watching the first farmer some thousands of years ago as he made a crude device to harness an ox to pull a sharpened stick; forming the first animal-powered agricultural technology. Animal power was a "low tech" innovation – "technology" simply being a tool to help accomplish a significant task – but, it was "disruptive technology" that replaced the pain of human powered farming. That plow made farming a bit less difficult and, although product launch and market penetration are now sophisticated processes, it is highly probable that there was little resistance to this new idea. Looking back with today's business sophistication, most consultants would have advised the innovator to give up the toil of farming and start incrementally improving, producing and distributing farm implements – as well as co-marketing with a breeder of bigger oxen. The new animal-powered plowing concept probably only spread field-by-field, as other farmers saw the mechanical advantage. Similarly, the diffusion of crop domestication technology, from its point of origin in Southwestern Asia, traveled at an average rate of only .07 miles per year – not sufficient market penetration by today's standards, but the adoption rate was fairly rapidly given that most ancient people lived and died within a radius of 20 miles (Diamond (2006).

Over time, the acts of improving things and disseminating such innovations, itself, became the entrepreneurial tool for advancing civilizations. Prototypical entrepreneurism of the ancients has been advanced and refined into high technology – an economic tool capable of dramatically transforming the wellbeing of its practitioners and improving the lives of those using the resultant products and services. The advent of money and banking facilitated and fueled entrepreneurism (See Ferguson, 2008, The ascent of money: A financial history of the world).

Though people had joined together for business ventures from antiquity, the concept of a "company" only emerged in the 1600 AD era; with such risky shipping trade ventures as the Dutch East India Company/West India Company, the British East India Company/Massachusetts Bay Company and the French East India Company all needing investment capital greater than could be found from just one source. Such risk-spreading companies, endorsed by monarchs and supported by a country's military, became the norm for international business ventures in the European Colonial Period.

Entrepreneuring ranges from: a) the creation and marketing of something completely different from the norm, as with Chester F. Carlson's invention of xerography ("dry copies") for making electrostatic pictures (Owen, 2004), to b) the repackaging and successful commercialization of existing business operations – as was done by Ray Kroc when he formed McDonalds. The introduction of a new idea that dramatically improves efficiency by reducing costs, or improves the human condition, or creates a competitive market advantage is called "disruptive technology." The internet's dramatic facilitation of worldwide communication is a prime example of a disruptive technology that has enabled creative commercialization across global markets and a variety of new industries.

The inventor, the project manager and the venture financer are often different persons or groups. Operating in a climate of significant risk, these entrepreneurs are major contributors to industrial dynamics and economic growth, often referred to as the engine for job creation and national economic competitiveness. Business ideas are a necessary starting point, but only about ten percent of innovations are ever successfully commercialized – largely because inexperienced people do not understand the complexity of what is required. Certainly, until well after the Depression Era of the 1930s, there were no resource guides to assist business-start-ups or to help Chester Carlson commercialize his dry copier idea. Advice from Horatio Alger's (1832 – 1879) hundred plus "rags to riches" books, idealizing hard work and moral rectitude," were of little help to Carlson and others as Alger's themes consistently connected a fortunate circumstance with aid from an outside benefactor.

The entrepreneur's objective is to realize a profit in proportion to the risk; a task achieved by creating a business process that can produce and market the new product or service. Initial entrepreneurial motivation may or may not be present prior to beginning the enterprise. For example, Michael Dell was an undergrad at The University of Texas in 1983 and he began upgrading computers for other students in the Dobie Center dorm room 2713. The fact that he had taken his first computer apart at age 15, an Apple II, to see how it worked and to make upgrades to it, had modestly prepared him for a computer career. As a university freshman, even though he had the characteristic entrepreneur's personality profile, he could not have possibly known that his idea of direct marketing from the manufacturer would result in profits measured in the billions of dollars for the Dell Corporation. He was a pre-med major not a business major.

If you look in the mirror do you see an entrepreneur?

The challenge of this next exercise is to show that you may not fully understand the typical entrepreneur's personality characteristics, and that when you look in that mirror you would only see a generally-self confident person staring back at you. A good portion of entrepreneurism does lie in self-perception; just as looking into a mirror and convincing yourself that you actually can be what you think you want to be isn't a really tough sell. The true entrepreneur is the pioneer who ventures beyond the reality of the present into a vision of what could be, typically creating a processes or products that solve someone else's significant problem. Actually, the problem with most new entrepreneurs is that they have no personal frame of reference with which to compare themselves. Despite the fact that no personality profile accurately describes every entrepreneur, certain characteristics are frequently associated with successful entrepreneurs. Also, as we shall see, timing and fortunate circumstances can foil the best of calculated predictions.

Characteristics of the entrepreneur/entrepreneurism – How about basic intelligence as the prime factor required for success? From the rock star adulation given to successful entrepreneurs, you might think that this is a set of exceptionally intelligent and gifted individuals – intelligence being the single trait predictor. Interestingly, Terman (Minton, 1988) certainly believed that intelligence, as measured by his test battery, was the determinant for success in a person's chosen field. His passion for the idea of identifying the super intelligent to lead society secured funding for a longitudinal study. Staff members in the longitudinal project administered Terman's version of intelligence tests to thousands of youths and selected a cohort of some 1,528 scoring between 140 and 200 to carefully study over their lifespans. Though some individuals were recognized for awards, the cohort group did not achieve anything internationally spectacular over the decades that his team tracked them. Terman's very high expectations of career achievements were not met. The fact that his cohort achieved above average socioeconomic status is as much explained by their family background as their gifted intelligence; as most of the cohort was from upper middle class West Coast families. If Terman's thesis of intelligence being the primary factor in life achievement was correct, all of his Termites should have been internationally renowned leaders in their respective fields. And, while it would seem totally unnecessary to aid the super-intelligent, Terman intervened on behalf of many of his gifted "Termites" to get them into Stanford University and to get them jobs. Yet, at least two rejects from Terman's selection program achieved remarkable success; with William Shockley (physicist and co-inventor of the transistor) and Luis Alvarez (one of the most brilliant and productive physicists in the 21st Century) earning Nobel Laureates. These Nobel Prize winners scored above average on Terman's tests, but not in the genius range. Thus, take heart, being intelligent does help, but there is far more to successful entrepreneuring than performing well on tests. One of the best analyses of success-related variables is found in Gladwell's (2008) Outliers: The story of success. He clearly established that multiple personal and context factors must interact to produce high level success.

Can ordinary people become successful entrepreneurs? Ray Kroc (1902-1984) is a classic example of a rather ordinary person optimizing his unique personality traits. If he was super intelligent, neither he nor his family was aware of it. Born of Czech immigrants and growing up in the Chicago area, his only advanced training was for ambulance driving. His various jobs included paper cup salesman, pianist, jazz musician and radio station employee. He was traveling from town to town selling multi-milkshake mixers to restaurants, and eventually partnered with the McDonald brothers in southern California to open and franchise restaurants. With some investors, he bought the brother's restaurants for only $2.7 million in 1961 and went national with a new kind of fast food chain; one built on Henry Ford's concept of assembly line standardization. He built McDonald's restaurant chain by standardizing production and pioneering the concept of franchising; in some 20 years Kroc went from an iterant salesman to amassing a $500 million fortune by his death in 1984. He was an ordinary man who did extraordinary things – providing hope for others who would like to develop the requisite attributes for entrepreneurial success. Kroc simply adapted the automobile assembly line concept, for product standardization and delivery speed, to the hamburger business. While McDonald's is not gourmet food, you can be confident that it is the same amount and quality in any site worldwide. Kroc also showed that age is not a limiting factor for entrepreneurs.

Characteristics – Traits are just identifiable behavior and thought patterns; the formation of which is derived from informal and formal childhood and school experiences. The term "attribute" has a similar meaning as the concept of "trait;" but it also carries the connotation of being able to "causally attribute" an outcome to a personality characteristic; such as "running speed is a necessary `attribute' for playing point guard in professional basketball." Fortunately, the entrepreneur's psychological profile contains many attributes that you can learn – though the acquisition process may require a great deal of effort.

While trait-based theories of both leadership and entrepreneur personality are of suspect because of low predictive validity, certain traits do seem to be associated with entrepreneurs. Age is not a factor, as high school and college students have successfully launched highly successful internet-based businesses and Ray Kroc (1998) launched McDonalds Restaurants at age 52; at an age that most people begin to anticipate retirement. Wadhwa, et al. (2009) identified family and personal motivational factors associated with successful entrepreneurs. From interviews of 549 company founders in industries from electronics to health care, they found that a) 74 percent had graduated in the top 30 percent of high school classes, b) 95 percent had earned a bachelor's degree, c) most were married with children, d) 92 percent had come from lower class or middle class families and e) 74 percent had worked approximately a decade in other companies to gain experience. Motivations for business founding included a) desire to build wealth – 74 percent, b) opportunity to capitalize on a idea – 68 percent and c) a desire not to work for someone else – 60 percent. Michael Dell has many of Wadhwa's characteristics. He is the son of an achievement oriented parents; an orthodontist and stockbroker who were financially able to purchase a new computer for him to disassemble. Though he did not work for a computer company before launching his enterprise, he had disassembled and upgraded numerous computers from age 15 to 21 years of age in the era when the computer industry was just emerging.

(Continues...)

Excerpted from BUSINESS ALCHEMY: TURNING IDEAS INTO GOLDby William R. Cobb M. L. Johnson Copyright © 2012 by William R. Cobb and M. L. Johnson, Ed.D, Ph.D.. Excerpted by permission of AuthorHouse. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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