Jack Donnelly is unique. He can’t wait until he graduates to launch his own venture. Literally he cannot wait. He is launching a new Monmouth Nightclub in March that will feature a state of the art sound system, lights, and an entertainment forum for college students under 21 years old. Come today to McMike 308 at 4pm to hear Jack speak about his start-up.

Mike Connell wrote the following:

In the neo-classical economics of macro and micro economics, the market immediately and costless moves to the new equilibrium of supply and demand.  There is no room for risk, cost, delay, and mistakes — it is a world of perfect information and frictionless movement. This is not the real world; this is a model.  In the real world, there are costs to moving goods around and staring new firms and acquiring information.  These costs prevent all the possible voluntary exchanges that could occur from actually occuring — some amount of potential wealth remains uncreated — in business terms you might say that “money is left on the table.” This gap between what is possible and what actually happens creates an opportunity for business. 

 An entrepreneur can step into this gap and offer a service for a price.  The entrepreneur has some special talent or ability (or economy of scale) that allows the entrenpreneur to efficiently produce the good or deliver the service.  If the price is low enough and the value created is large enough, there will be a viable market for the entrepreneur.  One of the frictions that entrepreneurs can often provide efficiently is the services of a middleman. Recently my Midwest Entrepreneur’s class has had two such middlemen speak about their business. 

 John Twomey is a grain dealer/handler in Western Illinois.  The farmer could (and some do) deliver their grain to the ultimate user or the barges at river — that is a costly thing to do and an activity at which the farmer has no particuliar comparative advantage.  Given this real world cost, there is an opportunity for an entrepreneur/middleman.  Someone (John Twomey) can offer the service of collecting the grain and moving it closer to its ultimate use more efficinently than the farmer can because of economies of scale and specialized knowledge.  In the real world, John Twomey is a part of the process that causes the market to jump to the new equilibrium price and quantity. 

 Rod Smith is a Monmouth entrepreneur that buys auto parts and sells them on eBay.  NASCAR teams routinely replace all of the parts on their race cars with new parts even when the old parts are still working — often after only one race.  These slightly used parts are highly valuable.  The NASCAR teams could (and to a limited extent do) resell these parts in the secondary market.  Selling used car parts in the secondary market is a costly process that requires specialized knowledge.  Rod Smith travels to North Carolina and buys such parts wholesale in bulk.  Then he sorts, cleans, advertises, sells and ships these parts to buyers in the US and all over the world.  He can provide this service more efficiently than the NASCAR teams.  He helps the market move goods from lower valued uses to higher valued uses and creates wealth for society and a profit for himself in the process. 

 These men are both good examples of entrepreneurial middlemen that exist in the real world but not in the supply and demand models of microeconomics.  Remember that an entrepreneur is an individual that sees an opportunity and takes personal risk to supply a good or service to society.  Entrepreneurs and middlemen are the grease that help reduce the friction of the market and move society to a better place. 

Below are my summary notes from Rod Smith presentation on Tuesday afternoon while a blizzard raged outside: Rod used his extensive contacts in racing, positive cash flow, increased appetite for risk , buying more in bulk and more expensive parts to fuel growth from just over $100,000 in sales to $240,000 in annual sales. The NASCAR racing teams know Rod will buy practically everything they have to sell.  They keep a big bin for him at the major racing team assembly facilities. Plans to go to $500,000 annually in 2011 or 2012. Wife does all of the shipping and had to quit her day job to support his business. Attended Monmouth College in the early 70’s. Raced his own car three or four times a week and met many people in the racing fraternity over the past 30 years.

Bought 20 Richard Petty racing, Dale Earnhardt Racing, Hendrix Sport, and Childress Racing engine blocks (He is on the super “high trust partnership” with that account) and plans to make profit selling the items at a 100-300% mark-up. Usually buys from about 70 NASCAR teams and even broker new stuff to teams in less. Never hired an attorney or used an accountant. Buys by the pile because he knows what he sees. Made $81,000 in two months during December and January, 2011.  He keeps the parts for two years top (of the line Chevrolet racing engines) when product development restrictions kept Rod from selling it immediately. Five local competitors vie for the same items, but he cooperates with most of them.  What scares him most? Fuel costs. It could ruin his business.

Smith said “It is fun to see big gains that usually happen when things sell on Sunday”. Why? Evidently the real eBay buyers come out to buy on Sunday.

In Japan we have a saying for someone who takes a big risk. “He is jumping off the Kiyomizu-dera!” In eastern Kyoto, there is a beautiful view high above the city from Kiyomizu Temple. It was build in the 1500’s and the street leading up to the temple is one of the most famous in all of Japan. Jumping off the Kiyomizu-dera is both dangerous (drops 200 feet below) and could make you famous since there are thousands of people there touring the site at any one time. Thousands would see the jump that would be a spectacular stunt if you could survive. Most die trying or simply commit suicide in a spectacular fashion.

Who has the courage to leave a stable, comfortable job to venture out on there own? Rod Smith did exactly that two years ago when he started his e-bay store for NASCAR gear heads.  You can hear why Rod did it tomorrow at 4pm in McMike Academic room 308.

I was self motivated and goal oriented. I left a good position as an Account Executive at a Madison Avenue Ad Agency in 1987 to start my own agency in sleepy San Diego, CA. San Diego was a military town in the 1980’s. With the exception of some bio-tech companies around Scripps Hospital and The Salk Institute, the San Diego economy depended on military contractors and service companies. My previous experience was in advertising consumer packaged goods.  Few San Diego companies were involved in consumer marketing outside of regional or branch programs since few companies were headquartered there.

I had opportunities to be promoted and grow in my AE position at  FCB-New York, but I  was willing to risk my career to be adventurous and successful on my own. I launched a new ad agency with only two clients. Two years later, my partner and I acquired another San Diego agency focused on Public Relations. After seven years of continuous operations, we were the third largest agency in the market with 11 clients, and 38 full-time employees. Every month I sweated a $60,000 payroll and loved the craziness of the ride I was on. Being an entrepreneur was scary and fun at the same time.

As a Midwest Entrepreneur, you might be wondering why some start-ups succeed while others fail. One big reason is those that succeed manage their venture with a passion for continuous improvement. Building a better mousetrap isn’t enough. You have to continually improve or become marginalized by your competition. Edward Deming is credited by most academics as the genius behind the concept of continuous improvement. Some successful implementations use the approach known as Kaizen (the translation of kai  or“change” and zen /“good” which together form the concept of “improvement”). This method was made famous by the book from Masaaki Imai: “Kaizen: The Key to Japan’s Competitive Success.”

What are you are doing or not doing that could add value to your product, or bring more customer satisfaction?

If you don’t know where to start, ask your customers, suppliers, and friends. What have they heard is good about your competition and what can you do to work on that particular area? What will be important as markets shift? What external factors are driving the need to change?

Another strategy is improve the areas you are already strong, and create distance between you and the next best solution.

Tomorrow, we will host Rod Smith who has created a successful small company selling NASCAR parts on eBay. 

Rod is a local Monmouth man.  For many years he worked at Monmouth College as the head of the Green Army (mantainance staff) .  His passion on the weekends was racing cars all over the Midwest.  His hobby grew into a business – he buys used car parts from NASCAR teams in North Carolina and re-sells them on eBay all over America and the world. 

His eBay business grew so large that his wife quit her job to handle shipping and then later he quit his mamnagement job at the college.  He now makes a good living as a fulltime eBay seller.  He knows many NASCAR drivers and owners as personal friends. The discussion with Rod will begin at 4pm Tuesday in McMike 308.

Corporate entrepreneurship is a very broad concept that includes the generation, business development, and implementation of new ideas or behaviors. A corporate entrepreneur style innovation could be a new product or service, a new administrative system, or a strategic plan or program pertaining to organizational members. In this context, entrepreneurship centers on reenergizing and enhancing the firm’s innate ability to acquire innovative skills and capabilities (Damanpour, 1991). Creating viable new products or new strategic business entities are two of the most common end goals of corporate entrepreneurship.
In Japan, corporate entrepreneurism is the engine that generates innovation and technological breakthroughs. According to Helms, Japan’s yearly venture capital investment is equivalent to 0.02% of GDP compared with 0.29% for the US (Helms). Japanese start-ups are at a low of 4.1% which is the lowest start-up rate among industrialized nations. Thus the burden of bring new products and services falls under the charge of corporate entrepreneurism. The 2006 introduction of Nintendo Wii was an example of the results intensive corporate entrepreneurship can have in turning a company around.
In the battle for market share in the home entertainment business, Nintendo was a distant third to Microsoft’s X-Box and Sony’s Playstation II in 2005. Nintendo’s corporate entrepreneurs took competitive data from the product announcement for Sony’s Playstation III as a clarion call to arms. Two key engineers and a group of Nintendo marketers planned to introduce an unproven technology that was seen as risky by top management. This disruptive technology became the Wii remote system that monitors the players hand and arm movements (in addition, users push the buttons, which is the only actions required by X-Box or Playstation) as the key determinant in manipulating the various games.
In addition to the product innovation, Nintendo targeted the price of $250 retail for the new Wii. With product delays from Sony on the Playstation III and its $600 price tag, Nintendo exploited their advantage over both key competitors during holiday promotions. The result was a monstrously successful holiday sales period for Nintendo Wii for 2007-2009 and “drafting” momentum as a company in the handheld segment featuring Nintendo’s DS hand held players. Corporate entrepreneurism was a key element in the success of Nintendo’s Wii since the introduction was handled as a start-up within the corporate enviornment.
What can entrepreneurs learn from this case in Japan? When start-up investment capital is not readily available or venture activity is under-valued by the market or private investors, corporate enterpreneurism becomes the key engine to drive innovation and new product development.

Theodore Levitt is credited with the complete answer as to why international markets are important to entrepreneurs. In his classic Harvard Business Review article from 2005, Levitt said “Ancient differences in national tastes or modes of doing business [are] disappear[ing]. The commonality of preference leads inescapably to the standardization of products, manufacturing, and the institutions of trade and commerce.
Commercially, nothing confirms this as much as the success of McDonald’s from the Champs Elysees in Paris to the Harajuku in Tokyo, of Coca-Cola in Bahrain and Pepsi-Cola in Moscow, and of rock music, Greek salad, Hollywood movies, Fossil Watches, Sony television, and Levi’s jeans everywhere.” Globalization has certainly played a huge role in the needs and wants of consumers. Entrepreneurs believe they can understand and adapt to preferences and trends even if those influences come from thousands of miles away. The world is getting smaller in meaningful ways. Air travel is more safe and convenient. International distribution is more dependable. There are less obvious trade barriers. More people are exposed to other cultures through satellite television and the internet.

Michael Porter of the Harvard Business School is credited with the insight that successful multi-national corporations were pioneers in value added activities from multiple locations around the globe (Porter, 1986). These companies capitalized on the competitive advantages and unique capabilities and expanded into each region of the world in different ways. But today most of the true innovations are made by entrepreneurs.

Yes, it is entrepreneurs who are finding new markets and opportunities abroad. That is why any new business (small or large) must constantly focus abroad for both ideas and new competition. The recent surge in Japanese “soul food” (not sushi) was driven by small ramen and katsu houses inside and outside of Japan.

Qualitative research I conducted via interviews with international business experts in Japan indicates a major difference between the average Japanese and the average American consumer. Both countries boast per capita incomes above $30,000+, but consumption or spending patterns vary significantly. Based on these experts’ opinions, the influence of regional marketing themes is already pervasive in Asia today, and will grow.
One example is women’s handbags where the average Japanese women spends 5-10 times the amount of her American counterpart. It is commonplace to see a an entry level employee or college stuudent sporting a $1,500 handbag. Another example is the convini or 24 hour neighborhood store. You can buy essentials, do your banking, ship packages, buy concert tickets, pay bills, and get assistance with your cell phone all at the same place. These stores are unique to Asia and started in Japan.
Japan is now competing with other Asian nations down a uniquely Asian marketing path that the average American may not understand. Who will design and build the cars, trains, and planes of the future? Even China is following a similar path creating its own unique version of capitalism under communist rule.

One example of how international business effects entreprenuerism is an understanding of discretionary spending. In my marketing career, the conept of discretionary money was made clear by the “open to buy” concept I learned working for Visa. If the average person earns $40,000 annually, you may have only $5,000 left (or about $400+ per month) after you pay your taxes, rent, utilities, and transportation expenses. Marketers in non-essential categories make up the vast majority of entrpreneurs. Therefore an understanding of the consumer requires and understanding of how your audience might spend its discretionary money. In the example of the person who earns $40,000 annually, their open to buy is only $400 per month. Another concept I found helpful is share of wallet. The more cross-selling I can do do, the greater my share-of-wallet.
Every nation has a unique set of demographics. But demographics alone do not tell the story of open to buy. For example, sales of $2,000 handbags from Gucci or Louis Vuitton are brisk in Tokyo’s swanky Aoyama or Ginza shopping districts, but rarer in the US with the possible exception of elite or rich urban centers like Rodeo Drive in Los Angeles or 5th Avenue in New York. As an entrepreneur you must analyze the risk and rewards of these opportunities. Who would know that the average Japanese woman had $2,000 to spend on a luxury handbag? Without knowledge of the culture and recent shifts in consumer behavior you could be blindsided by a competitor or miss out on a profitable opportunity.
A good example is the Chinese domestic market.
Many entrepreneurs ignored China in the 1980’s because of the lack of intellectual property protection and poor infrastructure. However, in the 1990’s billions were invested in the hope of selling Colgate toothpaste or Toyota cars to the 1.4 billion “buyers” in that market. During the late 1960’s and 1970‘s the average Chinese experienced the cultural revolution. This experience shaped their cultural view of an acceptable lifestyle and what constitutes an appealing product. But that older Chinese consumer is in their 70’s and they are still price sensitive. They responded negatively to new Japanese products or aggressive promotional tactics because they remember their parents and WWII.
Without an understanding of how older people are respected and followed in China, we would not understand why this influential generation in China continues to drive market behavior in many important segments. If your product or service targets those non-essential segments or your main competition conducts business in China, knowledge of that market will become a competitive advantage.
Businesses not aware of international events and market disruptions will find out the hard way that everything is interconnected. The political instability in Egypt sent a negative shock to markets all around the globe.

Apple Computer is a company that has been successful in developing new products internationally in a corporate environment (Clayton Christensen, 149). However, many people do not realize how many initiatives Apple has funded that never made it to market. Steve Jobs and others promote the Apple spirit of finding new market opportunities from these exercises, and they are willing to fund these new initiatives like the i-Pad from profitable products such as i-Phone, i-Pod, i-Tunes, and the Mac. This corporate culture fosters entrepreneurial behavior, and sends a loud message to employees about the value of innovation at Apple.
But the greatest success at Apple is its marketing saavy and success getting a major share or percentage of most teenagers discretionary spending. If a kid has $50 to spend, Apple is likely to get $15-20 of that spend. It is as true in international markets such as China, South Korea, and Japan as it is in the US.

I spoke recently to a successful alum of Monmouth College who told me his entrepreneur friends seek Midwesterners when looking for a diligent, hard-working, and dependable (all other things being equal) team player. There are great workers from every region of our country, but I hear this from employers often. Many of the qualities that these employers seek are embodied in John Twomey, who spoke yesterday in our Entrepreneurism class. John identified himself as a workaholic with an inferiority complex. He was  a small, country boy who grew up on a farm, but excelled in track and field and won the national championship for the University of Illinois.

John owns one of the largest grain elevator (storage) businesses in the State of Illinois with a multi-million dollar revenue stream. But he is an unassuming gentleman who claims he “just wanted to do what is right and help his neighbors”. His business philosophy was similar.  “I make sure my customer is satisfied and my employees are treated fairly. I never want to be accused of gauging a customer or mistreating my workers. We charge what is fair and hustle to deliver more than what is customary”.

If you want to hire or do business with someone ethical, John Twomey is the picture that comes to mind for farmers in Western Illinois. John had that x-factor that made him a millionaire. The diligence, stick-to-it-tive-ness and tenacity came in part from his Midwestern roots. It is something very tangible, so you know it when you see it. My 20 students and a few guests saw it last night in the classroom in McMichael 308.

Mike Connell wrote the following: 

 John Twomey is a grain dealer/handler in Western Illinois.  The farmer could (and some do) deliver their grain to the ultimate user or the barges at river — that is a costly thing to do and an activity at which the farmer has no particuliar comparative advantage.  Given this real world cost, there is an opportunity for an entrepreneur/middleman.  Someone (John Twomey) can offer the service of collecting the grain and moving it closer to its ultimate use more efficinently than the farmer can because of economies of scale and specialized knowledge.  In the real world, John Twomey is a part of the process that causes the market to jump to the new equilibrium price and quantity.

What makes entrepreneurs so important? They take risks, spend investment capital, and hire new employees that stimulate the economy. President Obama made clear the importance small companies play in job creation in his recent State of the Union address. What proof do I offer that entrepreneurs drive job creation? Israel Kirzner (1973, 1999 http://www.nyu.edu/econ/dept/vitae/kirzner.htm) along with Grebel, Pyka, and Hanusch (1987) focused a lifetime of research on entrepreneurs as catalysts for market change. Many believe their work demonstrated that entrepreneurs are the essential ingredient in any successful economy; that entrepreneurs are the first to adapt to changing circumstances and keep economic activity at its highest level when it would otherwise suffer huge market gyrations and downturns.

These modern researchers built upon the Schumpeter foundation and provided data to demonstrate how entrepreneurs add value to products and services and most importantly buoy the financial markets. Entrepreneurs are important because they are willing to risk their capital training and paying for new workers who are not immediately productive. If you want to put your finger on a leading indicator for job growth, take a look at the start rate for small companies who added more than five employees to their payroll in a calendar year.

International entreprenuerism involves the added complexity of adapting a product or service to a new market or culture. International entrepreneurs face numerous challenges and barriers that add complexity to any venture such as trade barriers, legal constraints, distribution limitations, and human resource issues not found in their home country.

Yesterday, I wrote about intrapreneurs (see earlier post). Today, Entrepreneurs and Intrapreneurs recognize international opportunities and are willing to take significant risks to achieve results. Both gather or assemble resources from all over the globe and are accountable to the customer, whether they are in India or Brazil.

Based on my experience at three start-ups ventures, Netcentives (1997-2000), Capener Advertising-San Diego (1987-1992), and Above the Rim (1988-1993), we spent a significant amount of time finding, interviewing, and training new employees. Those new employees that could deal with ambiquity and change thrived. Those that were willing to change and adapt as we uncovered market opportunities found working in a start-up a thrilling ride. Many hesitated or became scared watching the changing landscape. The speed required to seize these opportunities seemed to be similar to the metaphor of the train pulling into an intermediate stop and the passenger chooses to get aboard or watch the train leave the station as fast as it pulled in. Successful entrepreneurs know when to jump on to (the train) something and when to get off in a hurry.

Block and MacMillan wrote, “The entrepreneurial drive to pursue [opportunities] is a combination of many factors, chief among them motivation and attitude. These attributes in turn, affected by childhood influences, role models, and later workplace environments. Providing they work hard, those with more talent will clearly do better than those with less; entrepreneurial ability can be directly influenced by education, training, and experience. In other words, entrepreneurs are made, not born” (Block). 

As I mentioned yesterday, Intrapreneurs must be able to influence others to succeed. In a company environment, many rules or cultural norms become large barriers to change or even [continuous] improvement. These barriers prevent intrapreneurs from succeeding unless they can persuade their colleagues to follow them or provide them with resources, so they tend to be skilled at negotiation, diplomacy and mediation. From my experience in both corporations and start-ups, entrepreneurs are more like “Bulls in a China Closet” when it comes to corporate politics and they can run ruff shod over people who do not have thick skin. One example is a successful entrepreneurial relative of mine who  said, “I have no patience or time for these corporate bozos”. If you set corporate policy or work in government, make sure you don’t put up barriers in front of the intrapreneurs or small businessman that are adding employees. They are the engine for economic prosperity. Its all about the jobs, right?

Many of you interested in starting a new venture are saying: “I like what I am doing now or who I am working for”. My recommendation: Learn everything you can and practice “intrapreneur” skills while you have less risk of losing your own capital. Intrapreneurs make things happen with small and large companies and are often the champions of key projects and strategic intiatives.

They drive the adoption and implementation of new ideas. Because your timing in starting a small business should be based on market conditions, competitive intensity, the availability of capital (financial and human), and lastly your own personal preference, it is not always the best time to quit the day job and begin your start-up. Knowing when to launch a new venture is a combination of experience, smarts, and luck.

What is the difference between an intrapreneur and a entrepreneur? Entrepreneurs are skilled at listening carefully to their customers and readily take suggestions from any level employee. However, the entrepreneur thinks he can be part of the solution of practically any problem. Plus entrepreneurs are known to bring their idiosyncrasies into the workplace and be impossible to satisfy.

Conversely, when the intrapreneur is constantly aware he/she needs assistance, or lacks the necessary capital (financial or otherwise– under the control of others) to achieve his/her goal, they know how to reach out and engender confidence and trust with their colleagues. One title often heard associated with intrapreneurs is the word “champion.”

To champion something denotes an emotional attachment to a cause that the intrapreneur believes in and takes risks to achieve the goals laid out [to bring that product or service to market]. This trust operates both laterally and with top executives in the firm. Often the peer relationships are the most important resource the intrapreneur can depend on. To succeed, he/she must win over their peers and influence people to bend the rules. Empathy is also a critical skill entrepreneurs often lack with their internal staff thinking that “if I need to work 14 hours today, then my staff should too”.

Clayton Christensen of the Harvard Business School wrote the following about the challenge for Intrapreneurs in  his book The Innovator’s Dilemma, “My primary thesis is that management practices that allow companies to be leaders in mainstream markets are the same practices that cause them to miss the opportunities offered by disruptive technologies.” In other words, most people who can drive the creation of a “better mousetrap” may not be the best person to take a good company to excellence.

Summarizing, good intrapreneurs may not be great entrepreneurs and the opposite is likely to be true. However, if you find yourself in a good situation working for someone else, you have the time and resources to practice your intrapreneur skills. You are likely to need these skills as an entrepreneur and the more you can do the less likely you will need to go out and buy that talent.

It allows you to soften the hard edges that make most entrepreneurs hard to work for.

Most people think that top management makes all of the tough calls on which new ideas or markets should be funded. Christensen makes the point that in “enlightened” organizations like Scandinavian Airlines or In and Out Burger the real power lies with the people deeper in the organization who decide what problems can be solved directly with the customer at the time/level of the break-down. .These same “foot-soldiers” drive creation of new processes and products to respond to customer needs and requests. The genesis of new ideas is often found in the process of continuous improvement, made famous by Edward Deming and his Japanese followers. The Japanese intrapreneur used the Kaizen or continuous improvement model to drive new product development and change within the organization.

“In order to be successful in venturing today, new corporate models and management practices are needed that nurture initiatives that do not show immediate profitability” (Christensen, 268-269). When the market shifts, those small companies practicing kaizen will be prepared to refine and improve profitability at a rapid pace. My hats off to the entrepreneur biding her time playing the role of intrapreneur in any organization. She wants to run her own show but has the patience to learn how to persuade others and get results without the “hammer”.