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After studying this chapter, students should be able to:
* Understand the logic and mechanics of a business enterprise * Appreciate the role of value in business and economics * Identify roles and responsibilities of business in society * Explain business as a human activity * Evaluate elements of a going concern versus a failed venture * Identify factors essential to a dynamic venture
Mark Zuckerberg is the youthful CEO of the popular social-networking web site, Facebook. As his company grew rapidly, Zuckerberg discovered that his background and skills were increasingly inadequate to the business challenges he faced. Confounded not only by the technical issues that inevitably arise in a rapidly growing venture, he also encountered increasingly complex business and strategic issues. As the opening Technology Venture Insight highlights, after four years of operation, Zuckerberg finally hired a more seasoned and business-savvy executive to help him achieve his business goals.
This is a common path for many technology entrepreneurs. While they are experts in a narrow technology field, they often find their business skills less than adequate to cope with a growing number of employees and the pressures of global competition. This textbook starts with the premise that many technology-oriented students simply are not exposed to the fundamental principles of business operations. To address this problem, we have devoted the first three chapters of this textbook to business and economics topics to familiarize technology students with basic business concepts, as well as the challenges faced by technology ventures in the modern global economy.
Business activity pervades societies and cultures around the globe. The nomadic reindeer herder on the steppes of Mongolia delivers hides to a market in the capital city of Ulan Bator to supplement a family income. The fashion designer in Hong Kong sends out the latest designs to an eager audience in New York. And the dairy farmer in Wisconsin has lunch while listening to up-to-the-minute broadcasts on the price of feed grains and other commodities. Business is all-encompassing and globally connected, yet usually only modestly understood by most people.
In modern times, the pervasive influence of business plays out in entire television networks, such as CNBC, which broadcasts every tick of the major stock markets as they make their daily up and down movements. Newspapers, such as The Wall Street Journal, Financial Times, and Investor's Business Daily, are dedicated entirely to business and economic news. Blogs, such as TechCrunch and Killer Startups, report continuously about new technology ventures being launched, acquired, going public, or closing their doors for the last time.
Despite this increased awareness of business activity, most technology-focused education and training programs do not include lessons on fundamental business principles and practice. Technology students, however, are exposed to compulsory instruction in literature, history, composition, and other of liberal arts subjects, but few are required to enroll in basic business courses. This is a pity since most technology-oriented students will typically end up working in a business. In fact, a recent review of the Standard & Poor's 500 largest companies in the United States revealed that fully 23% are led by individuals with an undergraduate engineering degree. The next closest undergraduate major is business, with a 15% representation.
Of course, it is possible to learn some basic principles of business and management by working within a company and observing how it operates and is managed by others. Unfortunately, this approach has two critical drawbacks. First, it takes a long time to both perform in your technical job and at the same time observe enough business situations, decisions, and consequences so that you may extract meaningful lessons. Second, those who manage and lead the business may not be doing a very good job—and the lessons learned may not be helpful in your career. If your workplace is managed by individuals who have minimal formal management or leadership training, they may be less effective than they could be. Thus, limiting your learning of business and management to observation alone may, in the end, only serve to suboptimize your effectiveness.
The focus of this book is on technology ventures—how they start, operate, and sometimes exit profitably. To understand technology ventures (or any other type of venture), it is critical that you understand fundamental business concepts. Fortunately, you don't necessarily need to enroll in a formal business degree program to learn important basic principles. In fact, a limited number of fundamental business concepts can be learned and absorbed relatively quickly, giving you a leg up on the next step toward higher levels of mastery. It is our hope that you will continue your learning beyond the basics described here, by reading business publications, watching business programming on television, and thinking about the business issues that are described in those media.
Section 1.1 is intended to guide you, the technology-oriented student, through what we have determined to be the fundamentals of business. If you have already taken basic business courses, undoubtedly you will find some familiar material here. In that case, use the chapter as a reminder of the fundamentals, in the same way star athletes need to be reminded from time to time to "go back to the fundamentals." If you are being exposed to these concepts for the first time, your goal will be to learn and then practice the fundamentals until they become habits.
The first chapter aims to initiate a personal interest in the business side of the technical field that you have been studying. Whether you are an engineer, scientist, or studying other technical disciplines, there is a business aspect that generates the capital to pay for lab equipment, computers, salaries, etc. Getting to know this side of your technical field of study will enable you to become more valuable to your employers, and it will prepare you someday to make the entrepreneurial leap into your own technology venture. In this chapter, we will examine business from various perspectives: logical, ethical, and societal. These perspectives overlap in a number of ways, but together form a fundamental understanding that can be applied to nearly any type of technology venture that you may dream up. Let's begin by examining the basic question: What is a business?
1.1 WHAT IS A BUSINESS?
The term "business" generates different reactions among different people. Some of the leading practitioners of business and venture creation regard business as "fun," "exciting," and even "playful." They are successful in part because business is a passion for them, and they don't make a distinction between their "work" and their "play." To others, business is an activity that they would prefer to avoidmdash;and some, such as the founders of socialist economics, even regard business and businesspeople as a temporary stage in the development of economies. Although not as prevalent as they were a few decades ago, communist and socialist countries and economies tended to view business leaders and businesspeople as a passing stage in the history of cultural and social development (for more on this perspective, see, for example, Ref.).
Business, in fact, has become a global phenomenon over the past decade, and modern national and international policies promote the flow of goods, services, and capital with relative freedom around the world. Today, even the formerly communist countries, such as Russia and China, have adopted decidedly pro-business policies. In other words, business is global in scope and is here to stay. As such, it is useful to begin with a definition. Webster's dictionary defines business as "a usually commercial or mercantile activity engaged in as a means of livelihood." For our purposes, a business is defined as:
An organized and purposeful human activity designed to create value for others and to exchange that value for something else of equal or greater value (usually, money), and that is intended to continue to provide such value over time as a going concern.
1.1.1 Business as an Organized Activity
Notice that we define business as an organized activity , where an individual or a group combine and deploy resources, such as land, labor, and capital, to use toward a productive activity. It is often easy to overlook the importance of the ability to organize and deploy resources for economic or social gains. After all, we are all born into a world of large organizations—schools, automobile manufacturers, banks, grocery stores, and many others. These large organizations may appear as if they have always existed to serve the purposes that they do. Remarkably, nearly every single one of the large organizations that provide basic personal belongings and needs did not exist a mere 150 years ago. They all were founded by an individual entrepreneur or a group of partners who gathered the necessary resources and launched a venture. Ford Motor Company was launched by Henry Ford in 1901. 8 The H.J. Heinz Company was launched in 1869 by Mr. Henry Heinz when he was 25 years old. 9 General Electric was established by Thomas Edison and others in 1892. 10 And the list goes on. Remember, every large organization that today provides you with the staples and fashionable items that you need and want was, at one point in time, a brand-new venture with only limited prospects for success.
1.1.2 Business as a Purposeful Activity
We also define business as a purposeful activity, which implies that businesses are founded on the belief that an innovation can be converted to value that is wanted or needed by a market or markets. The innovations that underlie a new business idea can be widely varied. Some innovations are centered on new products, or extensions of existing products. Take, for instance, the original Apple computer introduced by Steve Jobs and Steve Wozniak to the U.S. market in March 1977. That product was truly revolutionary, and was the first to make the power of the computer available to the average American. Its graphical user interface (GUI) was just one of many features that differentiated the Apple computer from all other efforts, putting computing power into the hands of millions of average users. Since then, the company and its computers have undergone myriad transformations, each of which was an extension of the original founding act and product. Jobs and Wozniak launched Apple in 1976. Today, Apple, Inc. is a global enterprise that continues to build value according to the purposes on which the company was founded more than 30 years ago.
1.1.3 Business as a "Going Concern"
A third aspect of our definition of business is that it is a going concern, distinct from a project or hobby. A going concern means that the business will continue into the indefinite future, with no clear end date or precise definition of "success." A business is usually said to be successful if it continues to make profits over time—usually increasing profits relative to industry averages. The manner in which a business makes profit is deemed its business model. Business models vary across and within industries. This concept will appear again and again throughout the textbook. For now, it is sufficient to know that we define the term "business model" as the way the business makes money. (Continues...)
Excerpted from Technology Entrepreneurship by Thomas N. Duening Robert D. Hisrich Michael A. Lechter Copyright © 2010 by Thomas N. Duening, Robert D. Hisrich, and Michael A. Lechter. Excerpted by permission.
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