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Ch. 2: Individual Leadership and Entrepreneurial Start-Ups
Key Terms
Agency Theory: A managerial theory that believes individuals act to maximize their
own benefit. Thus, in settings where there is a split between ownership and control (as
in most publicly traded corporations) the agents (managers) must be monitored or they
will act to maximize their own benefit, not necessarily that of those who own the firm
(the shareholders). (LO 2-1)
Bounded Rationality: Rational decision making that is constrained by the background
and history of the person making the decision. (LO 2-2)
Break-even Point: The time when a new business has reached a level where revenue
coming into the firm is sufficient to cover expenses. (LO 2-2)
Incubator: A facility that houses new businesses and provides many critical services for
the new ventures. New businesses are expected to develop and typically leave the
facility often within 18 months of founding. (LO 2-4)
Organizational Slack: Excess resources in an organization that allow for redundancy
and the quick deployment of personnel in crisis. (LO 2-1)
Small Business Assistance Centers: Centers funded by the Small Business
Administration that provide free advice to individuals wishing to start new businesses.
(LO 2-4)
Suggested Text Responses
Opening Vignette – “Ray Corkran – Entrepreneurship Later In Life” – p. 21
Student responses will vary.
Exercise 1 – p. 24
Student responses will vary.
Exercise 2 – p. 25
Student responses will vary.
Exercise 3 – p. 27
Student responses will vary.
Ethical Challenge – p. 29
Student responses will vary.
IM 2-1
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Ch. 2: Individual Leadership and Entrepreneurial Start-Ups
Exercise 4 – p. 35
Student responses will vary.
Exercise 5 – p. 36
Student responses will vary.
Review Questions – p. 37
1. How does the lack of “slack” resources impact new ventures?
2. Why is founder involvement in a new venture so critical to its success?
3. Is there a minimum level of risk tolerance required to start a business? Explain.
4. How does bounded rationality affect the way an entrepreneur determines what
type of business to start?
5. How do you think personality differences matter in the starting of a business?
6. List some triggers that push people into starting a new business.
IM 2-2
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Ch. 2: Individual Leadership and Entrepreneurial Start-Ups
7. Have you experience any of these triggers? Did it cause you to consider
starting your own business?
8. Which supports do you believe you might rely on the most if you started your
own business?
Class Activities and Sample Assignments
1. Divide the class into groups of two or three students. Ask students to choose a
business and list their individual risk tolerances. As a group, discuss the cumulative
risks associated with a potential new business if the students in each group were
partners in that new business. Next, ask the students to analyze the results and
decide if they should initiate the new business. Why or why not? (LO 2-2)
2. Ask students to define organizational slack. Discuss whether or not organizational
slack is abundant in an entrepreneurial business or a large business. Why? (LO
2-1)
3. Divide the class into groups of two or three students. Ask each group to define
bounded rationality and list their individual assessment of bounded rationality.
Discuss how bounded rationality can enhance leadership because individuals are
not limited by some past experiences. (LO 2-2)
4. In groups, ask students to discuss the key differences in the outcomes of the
Myers-Briggs test, the Enneagram, and the Big Five test. Which test would they
prefer for themselves? Why? (LO 2-2)
5. Ask the students to discuss their individual likes and dislikes related to opportunities
for a new business. Next, ask students if they would consider opening a new
business that offered a product that they did not like for the sole purpose that it
generated a tremendous amount of profit. Discuss whether or not that new business
would be successful over a long period of time. (LO 2-5)
6. Ask students to consider the various supports and resources that are available to
them as potential entrepreneurs and list the ones that they think are more important
and explain why. Ask students to support their various responses with specific
examples. (LO 2-4)
7. Ask students to consider the triggers that would enhance their motivation and
increase their efforts to focus on a new business venture. List the triggers on a flip
chart and discuss why it is motivational. (LO 2-3)
8. Discussion Questions for Online/Hybrid classe
IM 2-3
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Ch. 2: Individual Leadership and Entrepreneurial Start-Ups
1. Discuss the similarities and differences between entrepreneurial businesses and
large businesses. (LO 2-1)
2. Explain the advantages and disadvantages of new business entrepreneurship? (LO
2-1)
3. Compare and contrast the behavior of entrepreneurs versus the behavior of large
corporate executives. Why are entrepreneurs more dedicated to their businesses?
(LO 2-1)
4. Why is it important for potential entrepreneurs to have a personality that
compliments their interest in a potential new business opportunity? Why should
entrepreneurs enjoy their work? (LO 2-2 and LO 2-5)
5. What is risk tolerance? Why should potential entrepreneurs analyze their risk
tolerance? (LO 2-2)
6. Consider the reasons why potential entrepreneurs decide to pursue
entrepreneurship. Compare and contrast personal motivations with circumstance
motivations. Discuss what motivates you to consider entrepreneurship. (LO 2-3)
7. Why are minority women-owned firms so popular? In your opinion, does the
glass-ceiling exist? Do you believe that it is a barrier that prevents women from
promotions to executive-level positions in corporate America? (LO 2-3)
8. If you were a potential entrepreneur, what supports and resources would you use to
enhance your new business? Explain why they are important to the success of your
new business. (LO 2-4)
9. Suppose you are a new entrepreneur and you hired several family members to fill
key positions vacant at your new business. Discuss the ethical issues that might
arise between the employees that are relatives and the other employees that work at
your new business? (LO 2-4)
10.What is a business incubator? How do they assist entrepreneurs with new business
startups? (LO 2-4)
Discussion Questions for Online/Hybrid classes- Responses
1. Discuss the similarities and differences between entrepreneurial
businesses and large businesses. (LO 2-1) In a large business, no one
2. Explain the advantages and disadvantages of new business
entrepreneurship? (LO 2-1) Entrepreneurial businesses have greater
IM 2-4
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Ch. 2: Individual Leadership and Entrepreneurial Start-Ups
3. Compare and contrast the behavior of entrepreneurs versus the
behavior of large corporate executives. Why are entrepreneurs more
dedicated to their businesses? (LO 2-1) Managers in large businesses
4. Why is it important for potential entrepreneurs to have a personality
that compliments their interest in a potential new business
opportunity? Why should entrepreneurs enjoy their work? (LO 2-2 and
5. What is risk tolerance? Why should potential entrepreneurs analyze
their risk tolerance? (LO 2-2) Potential entrepreneurs need to determine
6. Consider the reasons why potential entrepreneurs decide to pursue
entrepreneurship. Compare and contrast personal motivations with
circumstance motivations. Discuss what motivates you to consider
entrepreneurship. (LO 2-3) Personal motivations come from the
7. Why are minority women-owned firms so popular? In your opinion,
does the glass-ceiling exist? Do you believe that it is a barrier that
prevents women from promotions to executive-level positions in
corporate America? (LO 2-3) Many women find their career opportunities
8. If you were a potential entrepreneur, what supports and resources
would you use to enhance your new business? Explain why they are
important to the success of your new business. (LO 2-4) Student
9. Suppose you are a new entrepreneur and you hired several family
members to fill key positions vacant at your new business. Discuss the
ethical issues that might arise between the employees that are relatives
and the other employees that work at your new business. (LO 2-4)
10.What is a business incubator? How do they assist entrepreneurs with
new business startups? (LO 2-4) A business incubator is a facility that
IM 2-5
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Ch. 2: Individual Leadership and Entrepreneurial Start-Ups
Lecture Links
Lecture Link 2.1: Incubators and the Concept of Legitimacy
(LO 2-4)
New business owners must consider many options when they plan to implement a new
business. After generating your innovative business idea, now it is time to analyze what
type of support you require to get the operation up and running. Recall from the text that
an incubator is a facility that houses new businesses. It provides the essential services
for new startups and meets the needs that are required to continue these businesses.
Perhaps you do not have the funding that is required to purchase the essential tools and
equipment outright to start the business. You could start it up in the basement, the
garage, or your home office. However, consider how a potential investor or partner
might view that operation. A new business owner wants to give all their business
projects a level of legitimacy not only for investors and potential partners, but also for
the purpose of projecting a legitimate and trusted business.
Assume that you have already established your business and in your analysis you
realize that you require a business incubator for the business. Conduct research on the
internet to find a business incubator firm in your area and complete the questions listed
below.
Discussion Questions:
1. Summarize the results of your research for a business incubator in your area.
What was the outcome of your research? Be specific.
2. What type of products and services did the companies offer? Were they
reasonably priced?
3. Which business incubator would you choose for your new business needs?
Provide specific reasons and explain why.
4. Discuss the products and services that you will utilize from a business incubator
and why you believe those are the products or services that you need. Be
specific.
IM 2-6
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Ch. 2: Individual Leadership and Entrepreneurial Start-Ups
Lecture Link 2.1: Incubators and the Concept of Legitimacy (LO 2-4) – Notes
Student responses will vary.
Lecture Links 2.2: Social Networking in Practice
(LO 2-4)
Many new business owners need to consider how they will network in order to promote
and develop their new business initiatives. Networking is important for a variety of
reasons. In the text, you learned that networks provide key support resources to
entrepreneurs. In addition, individuals from various businesses in the community offer
support that assist new business owners to pursue their new business goals.
The internet provides a variety of social networking resources that new business owners
can join to achieve their network goals. Analyze the various resources that are available
to entrepreneurs. Consider the type of networks that you will utilize to promote your
business. Conduct research and discuss the following questions:
1. List ten social network resources for entrepreneurs to consider for their new
businesses.
2. Compare and contrast the features and benefits of these resources. Discuss the
advantages of each resource. Be specific.
3. Discuss which social networking web sites you would consider to join. Why?
Lecture Links 2-2: Social Networking in Practice
(LO 2-4) – Notes
1. List ten social network resources for entrepreneurs to consider for their
new businesses. Social networking sites are constantly changing so the
2. Compare and contrast the features and benefits of these resources.
Discuss the advantages of each resource. Be specific. Student’s response
will vary.
3. Discuss which social networking web sites you would consider to join.
Why? Student responses will vary.
Lecture Link 2.3: Do Not Compete Agreements and other Confidentiality Issues
(LO 2-3)
Entrepreneurs consider many details when they implement their new business ideas,
development, planning, and goals. In the ethical challenge case presented by the
authors, you observed an ethical decision that an employee had to make about taking a
client list prior to her departure from the company.
Generally, many businesses today ask employees to sign confidentiality agreements,
non-compete documents, and other non-disclosure documents. Typically, these
documents forbid employees from using client lists, competing with the company for a
IM 2-7
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Ch. 2: Individual Leadership and Entrepreneurial Start-Ups
specified period of time after leaving, and adhering to other specific stipulations. A
company could choose to have these documents drawn up by an attorney or other
professional. The purpose of such documents is to prevent past employees from taking
business away from the company.
Conduct research on the internet to search for do not compete agreements, non
disclosure agreements, and confidentiality agreements.
Discussion Questions:
1. Summarize the outcome of your research. What did you discover about
non-compete agreements and confidentiality agreements? What legal issues are
involved?
2. Discuss what you might do as a new business owner to prevent individuals from
using your client lists or other confidential data. What type of documents would
you consider enforcing as an entrepreneur?
3. Discuss the possible results of not implementing these types of agreements for
your new business.
4. Discuss the actions that you would take as a new business owner if an employee
endorsed a confidentiality agreement and later took a client list regardless of the
agreement. What are your options? Be specific.
Lecture Link 2.3: Do Not Compete Agreements and other Confidentiality Issues
(LO 2-3) - Notes
Discussion Questions:
1. Summarize the outcome of your research. What did you discover about
non-compete agreements and confidentiality agreements? What legal
issues are involved? A non-compete agreement is an agreement where one
IM 2-8
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Ch. 2: Individual Leadership and Entrepreneurial Start-Ups
2. Discuss what you might do as a new business owner to prevent individuals
from using your client lists or other confidential data. What type of
documents will you consider enforcing as an entrepreneur? Both a
3. Discuss the outcome of not implementing these types of agreements for
your new business. Not having such an agreement may allow a former
4. Discuss the actions that you would take as a new business owner if an
employee endorsed a confidentiality agreement and took a client list
regardless of the agreement. What are your options? Be specific. This
Bonus Internet Exercises
Bonus Internet Exercise 2.1: Business Risk
(LO 2-4)
In this chapter we discussed that risk tolerance is one of the three elements of
entrepreneurial orientation. It was defined as the amount of risk a new business owner
is willing to assume when they implementing the new business.
Assume that you already established your new business. Next, perform a search on the
internet to discover various types of business risks you might encounter. In the search
engine, type in “business risk” and review some articles or web sites that discuss the
various types of business risk and answer the following questions.
1. Describe your business. What possible risks to your business did you discover in
your research? List at least five types of business risks you found and identify the
web site that you used.
2. Discuss each risk and summarize how that risk might adversely affect your new
business.
3. What could you do to mitigate that risk? Be specific.
Bonus Internet Exercise 2.1: Business Risk
(LO 2-4) - Notes
IM 2-9
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Ch. 2: Individual Leadership and Entrepreneurial Start-Ups
The answers from the students will vary. According to a recent article at Forbes.com i
the following risks were discussed:
1. Credit
2. Legal
3. Regulatory
4. Operational
5. Hiccups
6. Concentration risk
7. You
Students are encouraged to discuss their new business and discuss what they
would do to limit business risk and assure their new business is successful.Bonus
Internet Exercise 2.2: Organizational Slack: Not for New
Businesses
(LO 2-4)
Consider some of the differences between large firms and entrepreneurial businesses.
Large organizations have different characteristics than small entrepreneurial firms. For
example, organizational slack is defined as the excess resources in an organization but
it is not found in an entrepreneurial business (text page 22).
Conduct research on the internet and discover a large organization that could have
excess resources, compare it to the resources of an entrepreneurial business, and
discuss the questions below.
1. Discuss the two businesses that you researched. List their name, their industry,
and the URL address where you found your data.
2. What major differences in resources did you observe? Be specific.
3. Summarize the reasons why the large firm has excess resources and the
entrepreneurial business did not.
4. Compare and contrast the two businesses. Discuss other differences that you
observed in your research.
IM 2-10
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
i Sutton, C. and Nelson, B. (2009). The biggest risks to your business and how to minimize them in a bad economy. Forbes.com.
http://www.forbes.com/2009/04/15/biggest-business-risks-entrepreneurs-management-risk.htmlRetrieved on October 13, 2009.
