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Chapter 06 - Entrepreneurship and Starting a Small Business
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These revolutionaries fueled the dot-com revolution. They were Web pioneers, translating their
media design talents into Internet start-ups. Many of these failed, but they spun off experienced entrepre-
neurs. Silicon Graphics founder Jim Clark was unemployed in 1994 after failing in another interactive-TV
concept. He approached Marc Andreessen, the codeveloper of the Mosaic Internet browser, to help design
a new interactive system. Instead, Andreessen refocused Clark’s attention to the potential of the Web. The
two collaborated to create Netscape, the first browser to commercialize the Web.
lecture enhancer 6-9
COMPETING AGAINST WALMART
In order to turn a successful business into a successful franchise, an entrepreneur needs a strong
concept along with good people to implement it. That’s exactly what Allen Hager set out to do when he
launched his home health care company, Right at Home, as a franchise nearly 20 years ago. By expanding
the business plan and setting strict hiring policies, Right at Home has grown into a company with nearly
400 locations across the world and $265 million in annual revenue.
According to the U.N., by 2050 more than 2 billion people across the world will be over sixty. In
the more immediate future, America’s baby boomers are reaching an age where more and more of them
require additional care. For many in this willful generation, though, assisted living facilities and nursing
homes are out of the question, which makes in-home care services like Right at Home especially appeal-
ing. The Omaha-based caregiver has experienced such quick growth in part because it doesn’t rely on
government or insurer reimbursement. Clients often pay cash for services not provided by Medicare or
other long-term plans. Increasingly, though, some employers turn to home health care as a cheaper alter-
native to hospital stays and future treatment.
Right at Home also succeeds because of the people it hires. Unlike many home caregivers, Right
at Home employs nurses rather than personal aides and provides two weeks of intensive training for fran-
chisees. Setting up new locations is also inexpensive when compared to other franchising operations. Af-
ter a $45,000 franchise fee, new Right at Home owners can expect to spend an additional $80,000 on of-
fice space, marketing and recruiting. Depending on the services needed for a particular client, employees
can earn as much as $50 an hour. Right at Home has its share of competitors, however, and it will need to
stay committed to high quality service as it continues to expand.vii
lecture enhancer 6-10
MAKING ENTREPRENEURSHIP A COLLEGE MAJOR
Universities have long been dependable incubators of technological innovation. After all, Google,
now one of the world’s most powerful businesses, began as a Master’s project at Stanford. But while all
universities strive to expand human understanding, only a select few have succeeded in transferring their
scholarly triumphs into entrepreneurial ones as well.
Elite schools such as Stanford, MIT, and Berkeley lead the pack in turning university-led innova-
tion into professional ventures. While the prestige and large pool of talent at these schools help turn intel-
lectual experimentation into viable products, these three institutions also benefit from top-flight, on-site
entrepreneurship centers. Places like the Stanford Technology Ventures Program and The Deshpande
Center at MIT educate academics, primarily engineers, in the art of entrepreneurship.
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Unfortunately, the Kauffman Foundation, a philanthropic organization with a focus on education
and entrepreneurship, estimates that there are only 12 successful university entrepreneurship programs
operating in the United States today. Though intellectual talent is certainly not limited to the nation’s elite
schools, other academic institutions lack an in-house program centered on commercializing technology
developed on campus. So as the recession wanes in the coming years and demand for quality R&D arises,
many colleges won’t need to worry about coming up with innovative ideas, but they may have trouble
marketing them.viii
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critical
thinking exercises
Name: ___________________________
Date: ___________________________
critical thinking exercise 6-1
WHAT DOES IT TAKE TO BE AN ENTREPRENEUR?
Entrepreneurship is risky business. Thousands of new businesses are started and thousands of
others fail each year. Why would someone give up the security of working for others to assume the risk of
business ownership? Find out by interviewing two or three small-business owners in your area. Ask them
the questions listed below.
1. Did you ever work for someone else? If so, why did you stop?
2. Why did you want to go into business for yourself?
3. What expectations did you have when you started the business?
4. Which of these expectations were fulfilled?
5. Which of your expectations were not fulfilled?
6. What advice do you have for an entrepreneur thinking of starting a new business today?
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Name: ___________________________
Date: ___________________________
critical thinking exercise 6-2
WHAT IS SMALL?
Small business is defined as an enterprise that “is independently owned and operated; is not dom-
inant in its field of operation; and meets certain standards in terms of employees or annual receipts.”
Those “certain standards” are set by the Small Business Administration Office of Size Standards. In some
industries, a “small” business must have fewer than 500 employees. In others, the limit is a dollar revenue
figure, such as $6.5 million.
Go to the SBA website (www.sba.gov)ix and navigate to the “Size Standards” page. The size
standards are listed by the NAICS U.S. industry title and code (for example, under subsection “113, For-
estry and Logging,” you will see a listing for “113210 Forest Nurseries”). You can find the specific code
for an industry at the U.S. Bureau of the Census website (www.census.gov). Use the “NAICS Search”
box in the upper left-hand corner. (Sometimes the Web address for a location changes. You might need to
search to find the exact location mentioned.) Alternately, you can scroll through the table to locate the
right industry.
Use the table on the SBA website to find the size limitations for the following industries:
1. Scheduled passenger air transport ______________________________
2. Internet service providers ______________________________
3. Credit unions ______________________________
4. Breakfast cereal manufacturing ______________________________
5. Cheese manufacturing ______________________________
6. Florists ______________________________
7. Aircraft manufacturing ______________________________
8. Motorcycle and bicycle manufacturing ______________________________
9. Mobile telecommunications ______________________________
10. Radio stations ______________________________
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Name: ___________________________
Date: ___________________________
critical thinking exercise 6-3
WRITING A BUSINESS PLAN
One of Mike McNeely’s favorite pastimes as a teenager was taking his old car apart and putting it
back together again. After graduation, Mike started working as a mechanic for his Uncle Larry’s auto re-
pair shop. Many of the customers have specifically asked for Mike to work on their cars because they
know that he knows what he’s doing and that he’s honest.
It’s been 10 years since Mike started his job. Now he is considering opening his own auto repair
shop. He saved up some money and he thinks his rich Uncle Buck will lend him the rest. He has started
writing a business plan and so far has (1) a description and appraisal of the market area, (2) an analysis of
the competition, (3) a list of potential suppliers, (4) a list of purchasing and pricing procedures, and (5) a
list of personnel needed and their job descriptions.
1. What important items are missing from Mike’s plans?
2. What steps can Mike take to ensure success if he starts his own business?
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notes on critical thinking exercise 6-3
1. What important items are missing from Mike’s plans?
The business plan should start with a brief overview stating the goals and objectives of the firm.
How big does Mike want to get? How many employees? In what locations? Using what kind of financ-
ing?
It is nice to think that a “rich uncle” will provide financing, but even rich uncles need to know
how much money will be needed, how it will be spent, and what risks are involved. He may also have
whether the goals of the firm are being met right from the start.
In short, a business plan cannot be some casual thrown-together proposal. It takes time and effort.
But the time is well spent because the business can then get off on the right foot.
2. What steps can Mike take to ensure success if he starts his own business?
No one can be sure of success with a small business. That is why so many of them fail within five
years. The best way to protect against failure is to have a very complete business plan at the start, to hire
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bonus
cases
bonus case 6-1
DRIVING AWAY BUSINESSES WITH THE AMAZON TAX
Amazon’s online retail empire has been a contentious issue for state governments almost since
the company’s founding. Amazon makes billions of dollars selling everything from books to auto parts,
often without ever collecting one cent of sales tax. This is all perfectly legal thanks to a 1992 Supreme
Court ruling that exempts companies without a “substantial nexus” in a state from collecting the tax. But
the rules are changing in states like Illinois where money is tight and government debt soars. The Land of
Lincoln’s so-called Amazon tax requires the site and other online retailers to collect the state’s sales tax.
Illinois government officials hope the increased tax revenue will help close the state’s crippling
debt gap. However, the Amazon tax may end up having the opposite effect. For instance, the website
FatWallet.com directs shoppers to various deals at online retailers across the Web. The company earns an
affiliate commission for each sale it directs to these sites. Until the passage of the Amazon tax, FatWallet
was located in Rockton, Illinois. When the site began to sever connections with many of its Illinois affili-
ates, FatWallet founder Tim Storm responded by moving his company and its 54 employees five miles up
the road to Beloit, Wisconsin.
This same backlash has occurred in other states as well, sometimes to even more devastating ef-
fect. When Texas claimed Amazon’s Dallas warehouse counted as a “nexus” and demanded $269 million
in back sales taxes, the company simply shut down the warehouse. Although the Amazon tax has many
opponents, supporters include brick-and-mortar retailers like Walmart and Target who have lobbied ex-
tensively for a federal law imposing a sales tax on online businesses. But their efforts may ultimately be
in vain. In the end online retailers would still retain their advantage of convenience while physical stores
would keep their local loyalties and the appeal of handling a product in person. With no clear-cut solution
in sight, expect this to be an issue for years to come.x
discussion questions for bonus case 6-1
1. Is it fair that online retailers like Amazon do not collect sales taxes?
2. Should the U.S. Congress act to force online retailers to collect sales taxes?
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notes on discussion questions for bonus case 6-1
1. Is it fair that online retailers like Amazon do not collect sales taxes?
Companies like Walmart and Target argue it’s not fair that Amazon does not collect sales taxes.
Amazon says it is following the law. While the idea of closing budget gaps through new taxes may be
2. Should the U.S. Congress act to force online retailers to collect sales taxes?
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bonus case 6-2
3M COMPANY, INTRAPRENEURIAL LEADER
Each year the 3M Company produces about 60,000 different products from more than 40 separate
divisions employing more than 5,000 engineers and scientists making $21.2 billion in sales. A multibil-
lion-dollar company hardly sounds like an entrepreneurial hideout, but it is.
Employees are encouraged to some 15% of their work time researching new ideas without having
to account for that time in any short-term way. A fifth of the R&D budget goes to basic research that has
no immediate practicality. In the long term, of course, the company expects results, and results are what it
gets. That’s where the 60,000 products come from. Not all the discoveries are planned, however.
Patsy Sherman, for example, accidentally spilled a test chemical on her tennis shoe (people dress
informally at 3M). She discovered that chemicals and dirt could not remove or stain the spot. This discov-
ery led to the profitable Scotchgard fabric protector.
Remember those yellow Post-it notes that Art Fry developed for marking his Sunday hymnal? Art
started as an intern at 3M and worked his way up to chemical engineer. A colleague, Dr. Spencer Silver,
had developed a low-tack adhesive in the 1960, but the company had difficulty finding a commercial use
for it. In 1977, Fry applied a coating of the adhesive to scraps of paper, and Post-it Notes were born. They
are now one of the five top-selling office products in the United States.
The company’s tradition of encouraging innovation goes back to one of the company’s first em-
ployees, Richard Drew. 3M’s first product was a waterproof sandpaper. In 1923, Drew delivered samples
of the sandpaper to local auto body shops for testing. Two-tone paint finishes on cars had recently been
introduced and were an instant sensation. However, auto manufacturers discovered that they had no effec-
tive way to keep one color masked from the other during spray-painting. Body shops used gummed Kraft
paper to shield painted areas, but removing the tape often stripped off the paint. At one body shop, a dis-
gusted painter threw the masking tape at Drew along with some colorful language. When Drew presented
the idea to 3M management, they gave Drew the time and financial backing to experiment on a more ef-
fective masking tape. He settled on an adhesive formula of cabinetmaker’s glue combined with glycerin,
which he applied to treated crepe paper. In 1925 3M’s chief chemist brought samples of his new tape to
the automakers in Detroit. They immediately placed orders for three carloads.
To give you some idea of how wide the product line is at 3M, look at some products it is working
on. New product lines include fuel cells, thin-film mirrors, and a light fiber replacement for neon. 3M
manufactures electrical and telecommunication products, medical devices, and office supplies. The com-
pany started out as Minnesota Mining and Manufacturing (3M) Company, but has come a long way from
the mining days. Most of its success is due to intrapreneuring. It is frequently ranked 3M as one of the
world’s most innovative companies.xi
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discussion questions for bonus case 6-2
1. Why is it important for laboratory people to follow their new product ideas through production
and marketing?
2. How can a multibillion-dollar corporation keep its entrepreneurial spirit alive?
3. Is it healthy for a corporation to be involved in widely diverse industries such as Scotch tape and
bioelectronic ears? Doesn’t that prevent the corporation from having expertise in all those areas?
4. Could 3M survive without intrapreneuring?
notes on discussion questions for bonus case 6-2
1. Why is it important for laboratory people to follow their new product ideas through production
and marketing?
No one else in the company is as committed to that product and willing to fight to get the atten-
2. How can a multibillion-dollar corporation keep its entrepreneurial spirit alive?
One way is to give in-house entrepreneurial types free reign to create new ideas and to support
3. Is it healthy for a corporation to be involved in widely diverse industries such as Scotch tape and
bioelectronic ears? Doesn’t that prevent the corporation from having expertise in all those are-
as?
3M.
4. Could 3M survive without intrapreneuring?
3M could survive, but it wouldn’t grow as rapidly as it has nor come up with so many new and helpful
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endnotes
i Source: Philipp Harper, “History’s 10 Greatest Entrepreneurs,” MSNBC.com, November 9, 2004.
ii Source: James R. Hagerty, “Entrepreneur Let No Impediment Stop Him,” The Wall Street Journal, January 15,
2014.
iii Source: Nicole Hong, “More and More, There’s No Place Like Home for Small Firms,” The Wall Street Journal,
September 30, 2013.
iv Source: Nick Leiber, “Canada Launches a Startup Visa to Lure Entrepreneurs,” Bloomberg BusinessWeek, April
11, 2013.
v Source: Ted Greenwald, “A Different Kind of Incubator,” Fortune, May 31, 2013.
vi Source: Angie Lau and Duane Stanford, “Challenging Bud on Its Home Turf,” Bloomberg Businessweek, January
13, 2011.
vii Source: Carol Tice, “Healthy Franchise: How Right at Home is Banking on the Senior Boom,” Forbes, May 27,
2014
viii Source: Sramana Mitra, “Key to Innovation: Universities,” Forbes, April 3, 2009.
ix The Internet is a dynamic, changing information source. Web links noted of this manual were checked at the time
of publication, but content may change over time. Please review the website before recommending it to your stu-
dents.
x Source: George F. Will, “Working Up a Tax Storm in Illinois,” The Washington Post, April 29, 2011.
xi Sources: “Art Fry and the Invention of Post-It Notes,” www.3M.com; Mary Bellis, “Post-It Notes: Art Fry and
Spencer Silver,” www.About.com; Mary Bellis, “Scotch Tape and Richard Drew,” www.About.com; Beth Shery
Sisk, “Engineers Find Solutions that Stick,” Engineers Week, February 18, 2006; “3M’s Seven Pillars of Innova-
tion,” BusinessWeek, May 10, 2006.
