978-0134741086 Chapter 1 Part 1

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SECTION I. THE CHALLENGE OF ENTREPRENEURSHIP

CHAPTER 1. THE FOUNDATIONS OF ENTREPRENEURSHIP

Part 1: Learning Objectives

1. Define the role of the entrepreneur in business in the United States and around the

world.

2. Describe the entrepreneurial profile.

3-A. Describe the benefits of entrepreneurship.

3-B. Describe the drawbacks of entrepreneurship.

4. Explain the forces that are driving the growth of entrepreneurship.

5. Explain the cultural diversity of entrepreneurship.

6. Describe the important role that small businesses play in our nation’s economy.

7. Put failure into the proper perspective.

8. Explain how an entrepreneur can avoid becoming another failure statistic.

9. Discover how the skills of entrepreneurship, including critical thinking and problem

solving, written and oral communication, leadership, creativity, and ethics and social

responsibility, apply to every career choice and every avenue of life.

Part 2: Class Instruction

The World of the Entrepreneur LO 1

Around the world growing numbers of people are realizing their dreams of owning and

operating their own business. Entrepreneurship is thriving and is essential to a strong

global economy. Downsizing by large companies has resulted in a new population of

entrepreneurs. Today small companies have the competitive advantage as they can move

faster to exploit market opportunities and use modern technology to quickly create

products and service that once took years.

A study by the Global Entrepreneurship Monitor (GEM) found that 68 percent of working

adults around the world perceive entrepreneurs as having high status. Eastern European

countries, China, Vietnam, and other nations whose economies were state–controlled and

centrally planned now hold potential for entrepreneurs. (Refer to Figure 1.1 and Table 1.1)

What Is an Entrepreneur? LO 2

An entrepreneur is one who creates a new business in the face of risk and uncertainty for

the purpose of achieving profit and growth by identifying significant opportunities and

assembling the necessary resources to capitalize on them. Although many people come up

with great business ideas, most never act on their ideas.

One reason the U.S. economy has been so successful over time is the constant churn that

results from the rapid pace at which entrepreneurs create new businesses, destroy old

ones, and upend entire industries with their creativity and ingenuity. (Refer to Figure 1.2)

Studies have identified several characteristics entrepreneurs tend to exhibit, but none of

them has isolated a set of traits required for success. A brief summary of the

entrepreneurial profile includes:

1. Desire for responsibility

2. Preference for moderate risk (risk eliminators)

3. Willingness to break rules

4. Self-reliance

5. Confidence in their ability to succeed

6. Determination

7. Desire for immediate feedback

8. High level of energy

9. Competitiveness

10. Future orientation. Opportunity entrepreneurs start businesses because they spot

an opportunity in the marketplace. Necessity entrepreneurs start businesses

because they cannot find work any other way. Serial entrepreneurs repeatedly

start businesses and grow them to a sustainable size before striking out again.

11. Skill at organizing

12. Value of achievement over money

Other characteristics of entrepreneurs include:

High degree of commitment

Tolerance for ambiguity

Creativity

Flexibility

Resourceful. Bootstrapping is a strategy that involves conserving money and cutting

costs during start-up so that entrepreneurs can pour every available dollar into their

businesses.

Willingness to work hard

Tenacity

Entrepreneurs are not of one mold; no one set of characteristics can predict who will

become entrepreneurs and whether they will succeed. Diversity seems to be a central

characteristic of entrepreneurs. Anyone can become an entrepreneur. It is a practical

discipline; it is a skill that most people can learn. (Refer to Figure 1.3)

Consider using You Be the Consultant: “Making the Most of an Opportunity,” or

You Be the Consultant: “Decoding the DNA of the Entrepreneur” at this point.

The Benefits of Entrepreneurship LO 3A

The primary benefits entrepreneurs enjoy include the:

Opportunity to Create Your Own Destiny

Opportunity to Make a Difference. Social entrepreneurs use their skills not only to

create profitable businesses, but also to achieve economic, social and environmental goals

for the common good.

Opportunity to Reach Your Full Potential

Opportunity to Reap Impressive Profits

Opportunity to Contribute to Society and Be Recognized for Your Efforts

Opportunity to Do What You Enjoy and Have Fun at It

The Potential Drawbacks of Entrepreneurship

LO 3B

With these potential rewards, entrepreneurship also presents risk and uncertainty.

Individuals who prefer the security of a steady paycheck, a comprehensive benefits

package, a two-week paid vacation, and the support of a corporate staff probably should

not go into business for themselves. Entrepreneurs may experience:

Uncertainty of Income: The entrepreneur is the last one to be paid, as employees must

be paid first. While it is possible for an entrepreneur to earn more working for themselves,

their may end up earning less.

Risk of Losing Your Entire Investment

Long Hours and Hard Work

Lower Quality of Life Until the Business Gets Established

High Levels of Stress

Complete Responsibility

Discouragement

Behind the Boom: What’s Feeding the

Entrepreneurial Fire LO 4

Some of the most significant factors that have led to this age of entrepreneurship include:

 Entrepreneurs as heroes

 Entrepreneurial education

 Demographic factors. See Figure 1.4 for global entrepreneurial activity by age

group.

 Shift to a service economy

 Technology advancements

 Independent lifestyle

 Outsourcing

 The Internet, cloud computing, and mobile marketing. Cloud computing:

Internet-based subscription or pay-per-use software services that allow business

owners to use a variety of business applications, from database management and

inventory control to customer relationship management and accounting. (Refer to

Figure 1.5)

 International opportunities. Micromultinationals are small companies that

operate globally from their inception.

Consider using You Be the Consultant: “College: The Ideal Place to Launch a

Business” at this point.

The Cultural Diversity in Entrepreneurship LO 5

Entrepreneurs are found virtually every walk of life and include:

Young Entrepreneurs

Women Entrepreneurs. (Refer to Figure 1.6.)

Minority Enterprises. (Refer to Figure 1.7.)

Immigrant Entrepreneurs

Part-Time Entrepreneurs

Home-Based Businesses

Family Businesses. Family-owned business includes two or more members of a family

with financial control of the company.

Copreneurs. Copreneurs are entrepreneurial couples who work together as co-owners

of their businesses.

Corporate Castoffs

Encore Entrepreneurs

Retiring Baby Boomers. (Refer to Figure 1.8)

The Power of “Small” Business LO 6

Because big business is more visible than small business, most people underestimate the

role of the small firm in the U.S. economy. Approximately 99.7 percent of all businesses

in the United States are considered small. While there is no universal definition of what

constitutes a small business, a common delineation of a small business is one that employs

fewer than 100 people.

The majority of small companies are concentrated in the service, construction and retail

industries. (Refer to Figure 1.9)

Small companies account for 43 percent of total private payroll in the United States.

Small businesses actually create more jobs than do big businesses. Between 1993 and

2013 small companies created 63 percent of the net new jobs in the U.S. economy.

Gazelles are small companies that are growing at 20 percent or more per year with at least

$100,000 in annual sales; they create 70 percent of net new jobs in the economy.

Putting Failure into Perspective LO 7

Because of their limited resources, inexperienced management, and lack of financial

stability, small businesses suffer relatively high mortality rates. Two years after start-up,

21 percent of small companies have failed, and after five years, 51 percent have failed.

(Refer to Figure 1.10)

Entrepreneurs recognize that failure is likely to be part of their lives, but they are not

paralyzed by that fear. Failure is an inevitable part of being an entrepreneur, and true

entrepreneurs don’t quit when they fail. One hallmark of successful entrepreneurs is the

ability to fail intelligently, learning why they failed so that they can avoid making the same

mistake again. Success requires both persistence and resilience, the ability to bounce back

from failure.

The following material in this section is in addition to the text.

The Ten Deadly Mistakes of Entrepreneurship

Studies have indicated that there are common reasons for new business ventures to fail.

These causes of small business failure may include:

1. Management mistakes

2. Lack of experience

3. Poor financial control

4. Weak marketing efforts

5. Failure to develop a strategic plan

6. Uncontrolled growth

7. Poor location

8. Improper inventory control

9. Incorrect pricing

10. Inability to make the “entrepreneurial transition”

How to Avoid the Pitfalls LO 8

Ways to avoid becoming another failure statistic and gain insight into what makes a

successful business include:

Developing Skills for Your Career

LO 9

The skill sets that are desired by employers that are a part of this book include:

Conclusion

Entrepreneurs are a key part of America’s free enterprise system, and as we will discover,

are changing the business of the world as well. Their contributions are as many and as

diverse as the businesses themselves. There are steps that entrepreneurs can take to

Part 3: Chapter Exercises

You Be the Consultant: Making the Most of an

Opportunity

1. What benefits do entrepreneurs such as Bill Mitchell, John Carrington, and

Kevin Maloney gain from creating businesses of their own rather than working

for someone else? (LO 3-A) (AACSB: Reflective thinking)

Chapter 1, Page 9

2. What risks do these entrepreneurs take on when they started their businesses?

(LO 3-B) (AACSB: Application of knowledge)

3. Is the way that these entrepreneurs discovered their business opportunities

typical? Explain. (LO 2) (AACSB: Application of knowledge)

You Be the Consultant: Decoding the DNA of the

Entrepreneur

2. How do the characteristics at the model’s nucleus—opportunistic mindset and

tolerance of risk and failure—fit together in the entrepreneur’s mind? (LO 2)

(AACSB: Reflective thinking)