Welcome to Entrepreneurship 1, laying the foundation. I'm delighted to be teaching this course and I'm even more pleased that so many of you have taken or are taking it. If you've watched my introductory video, you should understand why I think it's so important. Everyone at some time in their career is likely to have an idea, an opportunity, or a desire to start something new and to be their own boss. When that time comes, you're going to need to have at least a basic idea of how to tell if your idea is worth pursuing and what you're going to need to do to get it off the ground. That's what I'm going to focus on in this course. If you complete this course and its companion course, Entrepreneurship 2, preparing for launch, I think you'll be better able to ask yourself the right questions when your startup opportunity arises, then you can make better decisions for yourself, your family, your partners, and anyone else who joins you in your startup adventure. I'm going to start by talking with you about what it means to be an entrepreneur. What sort of mindset do you need to have to be successful as an entrepreneur? Many years ago, I taught a traditional classroom-based course in entrepreneurial finance at the University of Illinois at Chicago. I taught two different versions of that course for undergrads and MBA students for about nine years. I used to start each semester off by asking the students why they had signed up for my class. They were typically around 40 or 50 students in the room, and over time, I found out that the breakdown of their responses was pretty consistent. There would usually be about one-third of the students who had specific business ideas in mind and they wanted to get moving on them right away. These included businesses that they'd already started, ones that they plan to start after graduation, and family businesses that they were going to join when they finish their degrees. There would be another third who didn't have any specific business in mind, but they signed up for my class because they thought they might want to start a business at some point in the future and they wanted to be as prepared as possible. Then there was the other third, for these students, the motivating factor was that my class was an elective that fit their schedule. They'd heard it might be an interesting class. They probably also heard that I wasn't all that tough of a grader. I'm sure you all know how that is, but that was just fine. It doesn't matter whether you have a specific startup idea right now. You think you might have one at some point in the future, or you have no idea about whether you'd ever want to be an entrepreneur. As I said before, my goal in this class is to lay a foundation and provide some practical advice, so that should the opportunity arise for you at some point, you'll at the very least have an idea about how to get started. I'm going to kick off every lesson with a word cloud to give you a bit of flavor of what we'll be discussing. As you can see in this first word cloud entrepreneurship is about opportunity, innovation, leadership, value creation, decision-making, and the potential for failure. What do you think of when you hear the word entrepreneur? If we were all together in a classroom, I'd ask you to shout out some of the key concepts that you associate with entrepreneurs. One of the first responses that I get would be that an entrepreneur is a business owner. Then we'd probably start talking about specific types of businesses. It could be a small business or a startup. Some of you would mention high technology. More of you would probably be focused on fast-growth businesses, whether or not they involve new technology. Some of you would talk about how entrepreneurship can involve disrupting industries with new technologies or business models, sweeping away old ways of doing business, and replacing them with new, more efficient, and more profitable approaches. After that, I'd ask you to tell me why you're interested in being an entrepreneur. Many of you would probably say that you'd like to be your own boss. Maybe that's because your current job doesn't allow you to pursue your ideas about doing things better or more profitably. Or perhaps you'd just rather work for yourself instead of somebody else. I know that many of you would say that you see entrepreneurship as a way to create personal wealth for yourself and your family. The kind of wealth that you'll never earn by drawing a salary in a traditional job. Many of you would also say that you want to do something with your life that you truly care about, something that truly matters. You think that starting your own company, whether or not it makes a lot of money, might be a way to solve big problems in a specific industry or in society at large. Some of you would probably say that entrepreneurship might be the best way for you to leave a lasting mark on the world, starting and growing a successful company that will continue long after you've gone. These are all solid motivations and I'm sure that there are more that I haven't mentioned. Let's face it. Without powerful factors like these, it just wouldn't make sense for most people to start new businesses. It's well-known that most small businesses fail. Why would anyone want to take the risk of starting a business if they didn't believe that what they were doing could be truly valuable? The word entrepreneur comes from a French word. Entreprendre, which can be interpreted as meaning undertaker. No, not that kind of undertaker. This would be somebody who undertakes or takes on a major project. In the early 1800s, Jean-Baptiste Say, provided the first commonly understood definition of an entrepreneur. The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield. The focus here is on productivity. Entrepreneurs introduce new ways of doing things that enhance efficiency and productivity. They make things better, at least from an economic standpoint. This definition is somewhat limited in my view because it doesn't address who benefits from the wealth that's created in the process. In 1942, the economist Joseph Schumpeter provided a new definition of entrepreneurship. He wrote that entrepreneurs reform or revolutionize the pattern of production by exploiting an invention or an untried technological possibility. He also introduced the concept of creative destruction. Both of these concepts involved sweeping away old and inefficient business models, or even industries, and replacing them with innovative new products and processes. Like the previous one, this definition doesn't focus on new venture creation. That new technologies and business models might just as easily be launched by existing industry players. In 1983, Howard Stevenson provided a new definition, one that's much more focused on starting a company from scratch. Stevenson said that entrepreneurship is the pursuit of opportunity without regard to resources currently controlled. This definition is short and sweet, and it points us in the direction of what we think of as the entrepreneurial process. Entrepreneurs start with an idea or a concept, and then they have to build an organization to pursue it. They develop a strategy, they raise money, they hire a team, and they build a business. In 2000, Scott Shane from the Dingman Center for Entrepreneurship at the University of Maryland and S. Venkataraman from the Batten Center for Entrepreneurial Leadership at the University of Virginia, co-wrote the definition of entrepreneurship that I prefer. Entrepreneurship is the discovery, evaluation and exploitation of opportunities. This is a simple but powerful definition and it's consistent with a three-step, discover, test, launch approach to entrepreneurship, and entrepreneurship education. It's also consistent with the build, measure, learn feedback loop that's been popularized as part of the lean startup approach to entrepreneurship. I'll talk more about these later in the course. If you look at all of these definitions, you'll see some key concepts that are included and some that are left out. They all focus on identifying or exploiting opportunities to do new things or to do things in a new way. Innovation is essential theme, new venture development is implicit in Stevenson's definition, and value creation through implied productivity is part of Say's original definition. What they don't say very much about, is the original concept of the undertaker, the person who takes on the project to create something new. This is typically the founder and initial owner of the new venture. The person who has the most to gain if it succeeds and the most to lose if it fails. I really don't think you can separate the concept of entrepreneurship from the concept of risk and reward. Entrepreneurs put their money, their talent, and their reputation into starting a new venture. If they're successful, they can become wealthy, perhaps even famous. If they fail, which they very often do, they have to find a way to pick themselves up, dust themselves off, and start all over. Now, I want to change direction a little bit and link what we're talking about with some of the other courses in this sequence. Some, if not most of you may have previously taken Jeffrey Loewenstein and Jack Goncalo's creativity toolkit course, or Jeffrey Lowe's strategic innovation course. Here's my view of why this makes sense as a three-course sequence and how this provides a better understanding of how entrepreneurs think. Creativity is defined as the ability to transcend traditional ideas or traditional thinking to create something new. Creativity is a necessary skill for artists, designers, inventors, and yes, entrepreneurs. Innovation is something more. For a creative work to be thought of as an innovation, it must be something that's shared with others who embrace it as something that creates value. Innovation involves creating a solution to a problem or a need and introducing that solution to a broader community so that it can be adopted. Now, let's come back to our definition of entrepreneurship. Entrepreneurship involves discovering, evaluating, and exploiting an opportunity. I'll go on to suggest that this can be done by launching a new enterprise to market and innovation, creating value for the enterprise and its stakeholders in the process. It's about more than sharing an innovation with the world. It's about developing a viable business model, building a company, finding customers, assembling resources, and delivering a product or a service. Here is how I like to look at it. There's a common thread leading from creativity to innovation and to entrepreneurship, that thread is leadership. You can be creative without being a leader, but you can't be an innovator or an entrepreneur without leadership skills. It takes leadership to turn a creative work into an innovation by demonstrating its value to a market or a community and encouraging its adoption. It takes a different leadership to build a business around an innovation and bring it to the market, capturing value in the process. While it's possible for someone to be successful as an entrepreneur without being particularly creative or innovative, it's rare for an entrepreneur to be successful without real leadership skills. In the last part of this lesson, I'd like to focus on what I consider to be the most important elements of an entrepreneurial mindset. What personality or character traits do successful entrepreneurs have in common? Here are several. Entrepreneurs must be creative problem solvers who are able to use out of the box thinking to develop new ways to solve customer problems and meet their needs. They have to be market aware, which means being able to spot trends, problems and opportunities, sometimes even before their customers. This is what people are talking about when they use Wayne Gretzky's famous quote, "I skate to where the puck is going to be, not where it's been." They need to be focused on creating value for their customers and on capturing part of that value for themselves in order to build a profitable and sustainable business. They have to have a tolerance for ambiguity, which means they're able to make decisions about strategy and take action in the face of uncertainty, especially when they have a lot riding on it. Entrepreneurs almost never have as much information about their customers, their competitors, or external market forces as they'd like to have. The consequences of being wrong can be severe, both personally and professionally. This can cause a great deal of stress that can have negative consequences of its own. They need to have leadership skills. As one of our definition stated, entrepreneurship is about pursuing opportunities without regard to the venture's current resources. This means that an entrepreneur has to go out and get those resources, partners, investors, team members, customers, and so on. You have to be a leader if you want others to follow. Here are a few more, or maybe these are just different ways of thinking about some of the personality traits I've already listed. Successful entrepreneurs need to be good listeners. They need to hear what their markets and their customers are telling them, and use that information to achieve what's called product-market fit. They need to understand that failure is a real possibility so that if it happens, they can learn from it and move on. Finally, they need to be able to focus on what's really important, the key drivers of growth and profitability that will lead to the creation of real value and a viable and sustainable business model. Some of you have probably already read The Lean Startup by Eric Ries. If so, you'll recognize these key concepts from that book. A startup is not a business, not yet. It's a group of people who are searching for a viable business model. Only after they found that model does it truly become a business. If your business model is not viable, you need to find a new one as fast as you can. That's what failing fast is all about. If your startup is heading down a dead end street with a product that the market doesn't really want or a strategy that isn't going to work, you need to recognize that that's what's happening and you need to recognize it as soon as possible so that you can stop, pivot and head in a different direction before you run into a brick wall. That's also what the build measure learn feedback loop is all about. Startups must be engaged in continuous experimentation. You can never know if your assumptions about prices, distribution channels, product features, and so on are correct without experimenting. If your assumptions are proven to be correct, that's great, move on to your next assumption and check that out too. If it turns out that your assumptions were wrong, make the changes you need to make as quickly as possible, and go through the process again. This isn't easy, but it's very important. In a recent Crunchbase study of a 101 business failures, the number one reason why startups failed was because there was no real market need for their products or services. No real market need. It would've been better for a lot of these startups to understand that before they ever got started. Being your own boss and starting your own business can sound like a great idea, but it's certainly no bed of roses. It's hard work. Entrepreneur's work long hours, an average of 12 hours a day according to a survey of more than 80 founders or co-founders of healthcare, technology, social media, retail and financial services firms. They often have to work for less money than they could make in a traditional job, at least in the beginning. I've said before that most startups fail, but it's important for me to point out that failure is much more personal for entrepreneurs. When a big company fails, the managers have to look for new jobs. That can be tough. When a startup fails, the founders have to look for new jobs too, but they may also have a good chunk of their personal net worth tied up in a business that no longer has any value. They may have had to take out home equity loans or other debts that they are now unable to repay. Even worse, they may also have a profound sense of guilt that by failing they let their employees, their customers, their investors and their families down. That's why entrepreneurs can sometimes become so paralyzed by the fear of failure, that they can't find a way to succeed. When the consequences of failure are so personal, decisions become much harder to make and there aren't a lot of co-workers or colleagues to discuss them with, like there are in a larger business. Why would anyone want to go through with this? As you're going to hear me say throughout this course, there are three very basic reasons. People choose to become entrepreneurs in order to make money, more money than they could make by working for someone else. They do it because they want to make the world a better place in some way, by introducing new technologies or new business processes that will solve real problems for their customers or for society at large. They do it because they think it'll be fun. They can pursue their own dreams and work with people who share their vision. If you have an idea for a new venture and it looks like you have a good chance of doing all three of these things: making money, making the world a better place, and making something that people will enjoy being a part of, you're in a very good place. You should be able to find supporters who will want to be part of this with you. But if you can only do one of these things, then it'll be a lot tougher. If it's all about money, then you better be able to make a lot of it. Businesses that make the world a better place, but can't make money, either fail or they have to find their way as a non-profit that relies on donations. One final thing for you to keep in mind before you go too much further, no money is almost always no fun.