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Chapter 1: The Entrepreneurial Life

CHAPTER 1: THE ENTREPRENEURIAL LIFE

CHAPTER OUTLINE

Spotlight: Table Occasions, Inc.

(http://www. tableoccasions.com)

1) Small Size, Great Significance

LO1: Explain the importance of small business and entrepreneurship in our society.

a) U.S. Small Business Administration reports the following:

i) As of 2012, there are 27.8 million businesses in the United States with fewer than

500 employees. Small companies account for 99.7% of all business; 90% have

fewer than 20 employees.

ii) The companies with fewer than 500 employees hired almost 50% of all

employees and accounted for 42% of all the salaries paid to employees.

iii) Small enterprises hire 43% of all high-tech employees (scientists, engineers,

computer programmers, and others).

iv) Many small companies have been going global, representing 97% of all exporters.

v) Fifty percent of business owners had college degrees, a increase of 32% from

2000 to 2010.

vi) About one-fourth of the 23.5 million military veterans in the United States are

interested in starting or buying their own business.

b) Many people talk about owning a business but never make it happen.

2) Small Business and Entrepreneurial Opportunity: Is There a Difference?

LO2: Distinguish between the terms small business and entrepreneurial opportunity.

a) What Is a Small Business?

i) High Potential Ventures or Gazelles- the few businesses that have phenomenal

prospects for growth.

ii) Attractive Small Firms- these businesses offer substantial financial rewards for

their owners.

iii) Microbusiness or Lifestyle Business- the least profitable types of small businesses

and provide modest returns to the owners. These types of businesses permit an

owner to follow a desired lifestyle.

(1) For the purposes of this textbook a small business meets the following

criteria, at least in spirit:

(a) Compared to the largest firms in the industry, the business is small; in

most instances, the business has fewer than 100 employees.

(b) Except for its marketing function, operations are geographically localized

(d) The business may begin with a single individual, but it has the potential to

become more than a “one-person-show” and may eventually grow to be a

mid-sized company or even a large firm.

b) What Is an Entrepreneurial Opportunity?

i) Entrepreneurial Opportunity- an economically attractive and timely opportunity

that creates value both for prospective customers and for the firm’s owners.

Chapter 1: The Entrepreneurial Life

ii) Entrepreneur- a person who relentlessly pursues an opportunity, in either a new or

an existing enterprise, to create value while assuming both the risk and the reward

for her or his efforts.

iii) Bootstrapping- entrepreneurs who work to do more with less.

c) Entrepreneurial Opportunities: Three Success Stories

i) Kelly’s Delight (Hewitt, Tx)

(1) Patrick Linstrom founder

(2) All natural liquid cane sugar

(3) Changed his strategy to reach more customers

(4) Persistent business owner who stayed prepared for the opportunity when it

arrived.

ii) Blank Label (Boston, MA)

(1) Fan Bi, owner

(2) Came up with the idea for affordable custom shirts during his study abroad

program at Babson College.

(3) Despite obstacles, Fan Bi partnered with Danny Wong and brought the

business online where overhead expenses were lower and potential market

was larger.

(4) Since going online in 2010 they’ve gone from generating $345,000 in their

first year to over $1.1milling in 2011.

iii) Hughes Group (Tacoma, WA)

(1) Patrick L. Hughes, owner

(2) Logistics company serving both government and commercial markets

(3) Opened in 2004 and in 2011 had 213 employees in 11 locations across the

nation..

(4) Revenue in 2011 were just over $8 million.

3) Entrepreneurial Qualities: No Big Ego Required

LO3: Explain the basic characteristics of entrepreneurs and describe several different

kinds of entrepreneurship.

Spinelli and Adams research on entrepreneurial characteristics on “desirable and

acquirable attitudes and behaviors” uncovered six descriptions:

• Commitment and determination

• Leadership

• Opportunity obsession

• Tolerance of risk, ambiguity, and uncertainty

• Creativity, self-reliance, and adaptability

• Motivation to excel

Attitudes and behaviors to avoid:

• Overestimate what you can do

• Lack an understanding of the market

• Hire mediocre people

• Fail to be a team player

• Be a domineering manager

Chapter 1: The Entrepreneurial Life

• Fail to share ownership in the business in an equitable way

a) Founders and Second-Stage Entrepreneurs

i) Founders are “pure” entrepreneurs who bring new or improved products or

services to market

b) Franchisees

i) Franchisees differ due to having less independence

ii) Franchises- Differ from other business owners in the degree of their

independence. Because of the guidance and constraints provided by contractual

arrangements with franchising organizations, franchisees function as limited

entrepreneurs. (Chapter 5 present more information on franchisees.)

c) Entrepreneurial Teams

i) Two or more people who work together as entrepreneurs on one endeavor

ii) Able to use talents, skills and resources of team

d) Social Entrepreneurs

i) Entrepreneurial activity with an embedded social purpose. In other words, one

who comes up with innovative solutions to society’s most pressing needs,

problems, and opportunities.

e) Women Entrepreneurs

i) An increasing number of women are starting and growing profitable businesses.

f) Be a Small Business Owner Who Thinks and Acts Like an Entrepreneur

i) What type of opportunity do you want to pursue? Think and act entrepreneurially.

4) Your Motivations for Owning a Business

LO4: Describe the importance of understanding your motivations and perceptions

related to owning a small business.

i) Before you choose to enter the small business game, you need to think carefully

about whom you want to be and how owning a business will help make you that

person.

ii) Understanding clearly why you want to own a small business and what motivates

you are vital to eventually achieving fulfillment through your business.

(1) Starting a business may provide an escape from a bad situation.

(a) Reluctant entrepreneur- a person who becomes an entrepreneur as a result

of severe hardship.

(2) Corporate Refugees – a person who becomes an entrepreneur to escape an

undesirable situation

a) Types of Entrepreneurial Motivations

i) Personal fulfillment

(1) Making a difference in others’ lives, particularly customers, employees, and in

the community

(2) Having a sense of belonging and working with others in a common cause.

ii) Personal satisfaction-

(1) Working with an enterprise that is intellectually challenging.

(2) Having a passion for the company’s products or services

(3) Receiving recognition and respect.

iii) Independence

(1) Being my own boss where I can make things happen.

(2) Controlling my own future.

Chapter 1: The Entrepreneurial Life

iv) Financial rewards

(1) Creating personal financial wealth based on sound decisions and hard work.

When businesses are profitable, everyone benefits.

b) Understanding Your Paradigm

i) Knowing your motivation is important but it’s not enough. You also need to

understand if your perceptions of what it takes to be successful in business are

accurate.

ii) According to Stephen Covey having a positive attitude or working harder is not

enough. Instead, we have to change how we fundamentally see a situation, or

what he calls a paradigm shift.

(1) Michael Gerber describes three paradigms (personalities)

(a) The Technician Personality- a steady worker, experiences at doing what

he or she knows best.

(b) The Manager Personality- pragmatic, assuming responsibility for the

planning, order, and predictability of the business.

that a business does, but instead the entrepreneur examines how the

business does what it is intended to do.

5) The Entrepreneur’s Competitive Edge

LO5: Describe five potential competitive advantages of small entrepreneurial

companies compared to large firms.

a) Integrity and Responsibility– In order to maintain a strong competitive advantage, it

is essential that you add to good customer service and excellent product quality a

solid reputation for honesty and dependability.

b) Customer Focus- Business opportunities exist for those who can produce products

and services desired by customers. Having a small number of customers and a close

relationship with them makes customer service a powerful tool for entrepreneurial

businesses.

c) Quality Performance– Quality is mostly independent of firm size, but it there is an

advantage, it most often goes to the smaller business.

d) Innovation– Innovation, both in products or services and in competitive strategies, is

within the reach of the small business in ways that were not thought possible a few

years ago. Thomas Friedman (The World Is Flat) indicates that “anything can now be

done from anywhere in the world”. Large businesses tend to emphasize the

improvement of existing products sidetracking creative ideas that don’t meet that

criteria. Bhide indicates that small businesses are more capable of taking inventions

or innovations developed elsewhere and putting them into use. Smaller firms have

less bureaucracy to deal with than small businesses.

e) Niche Markets– Almost all small businesses try to shield themselves from

competition by targeting a specific group of customers who have an identifiable but

very narrow range of product or service interest and comprise what is classed a niche

market.

6) Building an Entrepreneurial Legacy

LO6: Explain the concept of an entrepreneurial legacy and its challenges.

a) Upon final exit from the business questions of reflection occur. An entrepreneurial

legacy is established- this becomes everything that one has left behind.

7) Where to From Here

a) End of Part 1 (Chapter 2) discusses the fundamental values of the entrepreneur

b) Parts 2 and 3 look at a firms basic strategy, the various types of entrepreneurial

ventures, and initial planning required for startups

c) Parts 4 through 6 deal with marketing and management of a growing business,

including its human resources, operations, and finances.

ADDITIONAL DISCUSSION QUESTIONS

1. The three stories discussed at the beginning of the chapter are to some extent

exceptions to the rule in the amount of success the entrepreneurs experienced.

What then is their significance in illustrating entrepreneurial opportunity? Are

these stories misleading?

2. What is meant by the term entrepreneur?

3. Consider an entrepreneur you know personally. What was the most significant

reason for his or her following an independent business career? If you don’t

already know the reason, discuss it with that person.

Answers will vary, of course. Some students should know some entrepreneurs—

4. What do you believe would be the two most desirable and undesirable qualities

of an entrepreneur?

Answers will vary, of course.

5. The motivators/rewards of profit, independence, and personal fulfillment are

the reasons that individuals enter entrepreneurial careers. What problems

might be anticipated if an entrepreneur were to become obsessed with one of

these rewards—for example, if he or she had an excessive desire for profit,

independence, or a particular life-style?

Chapter 1: The Entrepreneurial Life

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A balanced perspective is needed. While each reward can give a strong

motivation to build a good business, each also has some potential for creating

havoc in an unbalanced life. An excessive desire for profit can lead to attempts to

make short-run gains at the expense of long-run customer or employee

relationships. It may also tempt one to lower ethical standards and to neglect

family relationships. An excessive desire for independence may make one

difficult to deal with in interpersonal relationships. Some degree of perceived

interdependence between employer and employee contributes to mutual respect

and cooperative relationships. An excessive desire for a satisfying way of life may

dull one’s sensitivity to cost and profit issues. An entrepreneur must achieve a

profit goal in order to be able to afford a life-satisfaction goal.

6. How do different personalities affect our effectiveness in running our own

small business?

7. What do you believe would be the advantage of having an entrepreneurial team

when starting a business?

8. Explain how customer focus and innovation can be special strengths of small

businesses.

9. Explain the concept of an entrepreneurial legacy.

community.

10. Explain the following statement: “One can climb the ladder to success only to

discover it is leaning against the wrong wall.”

Chapter 1: The Entrepreneurial Life

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relationships. The statement points to the need to have one’s goals properly

defined and to have one’s efforts properly forecasted.

SUGGESTED ANSWERS TO YOU MAKE THE CALL EXERCISES

Situation 1

1. Should this venture be regarded as entrepreneurial? Is the owner a true

entrepreneur?

2. Do you agree with the philosophy expressed here? Is the owner really doing

what is best for his family?

3. What kinds of problems is this owner trying to avoid?

Situation 2

1. What do you like and not like about the Simple Bills concept?

2. Would you recommend raising funds from outside investors and growing faster

or continuing to bootstrap the operations to conserve ownership? Why?

3. What strategy would you suggest for growing the business, assuming new

investors are brought in?

4. If you choose to raise funds, whom might you seek as investors?

Situation 3

1. Is work-life balance for everyone?

2. Is work-life balance simply a preference, or is it a necessity?

Answers will vary on this as this is based on opinion. Most will argue that it’s a

3. As an entrepreneur, would there be areas in your life that you would place at a

higher priority than growing a business? Explain.

Answers will vary as this is based on individual preferences.

SUGGESTED SOLUTION TO CASE 1: DASHLOCKER

1. How did Hennessy’s background prepare him for starting a business? What

entrepreneurial qualities does he embody?

Chapter 1: The Entrepreneurial Life

Hennessy’s background as a research analyst for a hedge fund certainly would not have

directly prepared him to operate a dry cleaning company, especially knowing what works

and what does not work. However, his research skills probably served him well in

2. What were Hennessy’s entrepreneurial motivations for founding DashLocker?

3. What type of entrepreneurial opportunity did Hennessy identify and how did he

capitalize on those opportunities?

license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 1-

4. Describe DashLocker’s growth potential.

DashLocker has good growth potential. He had five locations and believed he could

5. Describe DashLocker’s competitive advantage.

6. What impact does DashLocker have on society?

7. What do you think about DashLocker’s social mission? What else could the company

do to reduce its footprint? Should businesses be concerned with social

entrepreneurship?

Hennessy envisions a social mission for his business by using green, earth-friendly

machines in the firm’s operations. Nothing is said on whether this decision imposes

8. Visit DashLocker’s website http://www.dashlocker.com/ and explore the process of

signing up for services. What recommendations would you give to Hennessy to make

the process easier?

No specific answer can be provided to this question.