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Michael H. Morris, Susana C. Santos and Xaver Neumeyer

While extensively explored as a solution to poverty at the base of the pyramid, this is the first in-depth examination of entrepreneurship and the poor within advanced economies. The authors explore the underlying nature of poverty and draw implications for new venture creation. Entrepreneurship is presented as a source of empowerment that represents an alternative pathway out of poverty.
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Michael H. Morris, Susana C. Santos and Xaver Neumeyer

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Paul D. Reynolds

Asked about the major problems they confront, entrepreneurs respond as follows: Early on it was hard for Jason to get partners or investors to take his internet business seriously.1 Getting permits and approvals to provide fuel service for Hobart’s River Marina has taken some time. The main supplier is a Caribbean oil company and they operate on different timetables.2 There is a lack of capital to promote wooden pens for deer and moose. A human-interest television news show on Pens and Puzzles had a spot that improved Christmas sales.3 I found a place for a Ralph’s Pretty Good Groceries and got some people to help fix it up but after 3 weeks they never came back; then there were problems with the electricity.4 Martin started by getting a business license for his publishing company. Then he started getting calls before he was ready to deliver the product. Martin is now trying to complete the first project so he can accept new clients.5 Margaret is still working full-time and starting a bee keeping operation was demanding more money and time than she expected; it is hard to grow the business when you are short on resources.6 When asked about their major challenges, almost two-fifths (38%) of the nascent entrepreneurs mention operational issues and a third (33%) mention obtaining financial support, as shown in Table 8.1. Third on the list is attracting customers, which includes dealing effectively with the competition, mentioned by one quarter (26%). Only one in 33 (3%) expect personal or family issues as a major complication at the beginning of the process. None mentions the potential attraction of other career opportunities. The overwhelming focus is on problems related to establishing the nascent venture.

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Paul D. Reynolds

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Paul D. Reynolds

Being a successful entrepreneur is very satisfying—that is the good news. But effective business creation often involves adjustments in the initial business idea. Some change the business plan as the venture is being implemented. More problematic is that most that enter the start-up process never reach initial profitability. When a nascent venture is abandoned, the individuals involved usually find other ways to participate in the economy. Many, to be sure, are still interested in becoming involved as nascent entrepreneurs. About one in 25 (4%) report making an adjustment to the original business plan.1 About half are considered major variations that may involve dramatic shifts in the products or services; the other half are considered minor shifts in activity. As shown in Table 11.1, almost half (47%) make changes in response to new information about customer preferences or as a reaction to the competition. About one in six (16%) mention financial issues, such as lower revenue, higher expenses, or issues with access to capital. About one in ten (10%) are responding to regulations or other contextual factors. A smaller proportion mention the loss of a critical individual (partner, employee, or contact), unexpected time constraints or other issues.

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Paul D. Reynolds

Committed nascent entrepreneurs, those serious about seeing if they can create a new business, are the majority of those pursuing business creation. Exploratory nascent entrepreneurs, who are making tentative steps but are not sure about this career choice, are a substantial minority. In either case, there are ten things to know about the entrepreneurial experience. 1. It can be very satisfying. The sense of satisfaction and self-confidence among those that create successful businesses is obvious at every turn. Further, most that get involved and discover that their initiatives may not be viable find it a rewarding experience and often pursue other start-up efforts. On the other hand, it is not for everybody and in most developed countries the majority do not participate in business creation.

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Paul D. Reynolds

The corporate world has been very restrictive so Barbara wants to develop her own practice as a career and executive coach. She likes helping people achieve their goals on a personal level. She can be more helpful if she can coordinate all her skills and methodologies. Barbara just completed an MA and gets a lot of positive feedback from those she helped. With a network of experienced colleagues there is access to a lot of expertise for difficult issues.1 George says he is too old to start a retirement plan and doesn’t want to be in a dark corner eating cat food and peeing on himself when he is 70. With several patents, including one for processing digital audio tapes that is unique and useful for those replacing VHS tapes, he sees a competitive advantage. George is starting Smith-Rogers Audio Productions to develop and market this hardware and promote musical talent.

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Paul D. Reynolds

Money doesn’t start businesses, people do. But people often need money for two things to complete the start-up process. The first are the living expenses of the start-up team; everybody needs to eat and a place to sleep. The second is for resources to implement the new venture. There is substantial variation in both the amount of funds required and when financial support is needed during the start-up process. There are, of course, a wide range of solutions developed for these challenges. New solutions for acquiring financing are constantly being invented—internet based crowdsourcing being one of the more recent.1 The major strategy for covering living expenses is to continue working while developing the new business. More than four in five nascent entrepreneurs are working or managing another business while they develop the new venture. The importance of attending to their day jobs is reflected by how long it takes to begin devoting full-time to the start-up initiative. As shown in Figure 7.1, for about two-fifths (41%) full-time attention generally occurs about eight months after beginning the business creation process. Others may have working spouses, be living with parents or relatives or, for older nascent entrepreneurs, relying on retirement income.

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Paul D. Reynolds

Entrepreneurial ventures offering new things, such as ride-sharing or cheap online access to movies, get a lot of attention. But the vast majority of start-ups enter established markets with substantial competition. This provides a major dilemma for nascent entrepreneurs. Established firms are not eager to share customers. Knowing how to manage a firm as a successful competitor is one of the critical components for success. There are several ways to develop this expertise. One is to work in the industry in which the new firm will compete. Another is to take classes, seminars, or workshops to develop expertise in how to implement and manage a new firm. A third option is to get help and assistance from the large variety of agencies and services currently available for those creating new businesses. All these strategies for developing entrepreneurial skills have a positive effect. Virtually all, over 99%, of nascent ventures can be assigned to an existing economic sector. This is a strong indicator that they will have competitors, businesses that were the basis for defining these market sectors. The proportion of these start-ups in each sector are compared with existing businesses in Table 6.1. Counts of existing businesses come from two sources. One provides a count of sole proprietorships based on individual federal tax returns. The other a count of firms with employees based on federal social security payments. There are some variations in the proportions in each sector. For example, there are more firms with employees (8% of the total) in food services (restaurants) than sole proprietorships (1%); it is hard to be a one-person restaurant.

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Paul D. Reynolds

Starting a firm requires some personal investments. Start-up teams expect to invest time and money in a nascent venture before it will be profitable. While every start-up reflects a unique business idea and the social and economic context may vary widely, it is useful to consider the range of investments reported by those in the start-up process. The range of contributions of time and money is considered in relation to outcomes, followed by a discussion of factors that may affect the amount of the investments. While the amounts for individual ventures may be modest, the total annual investments for ten million start-ups being initiated by eighteen million nascent entrepreneurs in 2016 is considerable: about three and a half million work years and $200 billion.1 How much work is required to start a new firm? The average time invested in those ventures that reach profitability is about 1,500 person-hours, or 38 person-weeks of full-time work, presented in the top panel of Figure 9.1. But the distribution is very skewed. About half take less than 560 person-hours, the median value. A small proportion take considerable investments. About one in 11 (9%) absorb over 4,000 person-hours and the maximum in this cohort is 22,800 person-hours, over ten years of full-time work.