Management Chapter 18 The objective of this chapter is to familiarize a student with the nature of entrepreneurship

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Schermerhorn & Bachrach Exploring Management 6th edition Instructor’s Manual

CHAPTER 18

Entrepreneurship and Small Business

Taking Risks Can Make Dreams Come True

Chapter 18 Overview

Each Chapter contains several inset features designed to assist the student reader in applying the

concepts to relevant examples. Management Live illustrates how experiences and activities relate

to work performance. Hot Topic explores samples of debated topics in business and strategy.

Facts to Consider introduces research or trends that may be used for class discussion in the

classroom or online for distance learning. Insight profiles the importance of understanding risk

taking. Quick Case presents a business related scenario for class analysis and discussion.

The objective of this chapter is to familiarize a student with the nature of entrepreneurship, small

business, and new venture creation, so one can consider starting a business and, by doing so,

make a personal contribution to society. Entrepreneurship is an important aspect of the

contemporary business world. Entrepreneurship fuels success in a highly competitive business

environment.

Chapter 18 Takeaways

• Takeaway 18.1 Understand the nature of entrepreneurship and entrepreneurs.

• Takeaway 18.2 Discuss small business and how to start one.

Schermerhorn & Bachrach Exploring Management 6th edition Instructor’s Manual

Chapter 18 Lecture Outline

Takeaway 18.1 What is Entrepreneurship, and Who Are Entrepreneurs?

• Entrepreneurs are risk takers who spot and pursue opportunities.

Takeaway 18.2 What Should We Know About Small Businesses and How to Start One?

• Small businesses are mainstays of the economy.

Chapter 18 Supporting Materials

Figures

Figure 18.1 What Are the Stages in the Life Cycle of an Entrepreneurial Firm?

What’s Inside

• Management Live: Hobby First, New Business Startup Second

• Ethics Check: Entrepreneurship and social good

Applications

• TestPrep 18 Multiple-Choice Questions

• Skill Building Portfolio

Schermerhorn & Bachrach Exploring Management 6th edition Instructor’s Manual

Chapter Outline:

Takeaway 18.1: What is Entrepreneurship, and Who Are Entrepreneurs?

• Entrepreneurs are risk takers that spot and pursue opportunities

✓ Mompreneurs pursue business opportunities they spot as mothers.

✓ Entrepreneurship – dynamic, risk-taking, creative, growth-oriented behavior

• Entrepreneurs often share similar backgrounds and experiences

✓ Experiences may include:

• See Table 18.1 for debunking common myths about entrepreneurs

•Entrepreneurs are born, not made.

Not true! Talent gained and enhanced by experience is a foundation for entrepreneurial

success.

Schermerhorn & Bachrach Exploring Management 6th edition Instructor’s Manual

• Entrepreneurs often share similar personality traits

✓ Personality traits common among entrepreneurs

➢ Internal locus of control

DISCUSSION TOPIC

To make the discussion of entrepreneurship more personally meaningful for students, ask

them to describe themselves in terms of each of the above characteristics of entrepreneurs.

• Women and minority entrepreneurs are growing in numbers

✓ Necessity-based entrepreneurship – start of new business because of no other

18.1 Questions for discussion with suggested answers

1) Does an entrepreneur always need to have first-mover advantage in order to -succeed?

While first-mover advantage provides a strong base for success, there are many examples

2) Are there any items on the list of entrepreneurial characteristics that are “must–haves” for

someone to succeed in any career, not just entrepreneurship?

Schermerhorn & Bachrach Exploring Management 6th edition Instructor’s Manual

• Small businesses must master three life-cycle stages

o See Figure 18.1 for a depiction of the typical progression of a small business

• Family-owned businesses can face unique challenges

✓ Family-owned businesses – those owned and financially controlled by family

DISCUSSION TOPIC

Ask the students if any of their families have their own businesses. For those students whose

families do have their own businesses, ask them to describe for the class some of the

challenges and joys that they have witnessed or experienced with a family-owned business.

This discussion can be used as a bridge to the following material.

• Many small businesses fail within five years

➢ Small Business Administration reports that as many as 60 to 80% of new businesses

fail within the first five years of operation.

➢ Reasons small businesses fail

➢ Insufficient financing

➢ Lack of expertise

• Assistance is available to help small business get started

✓ Business incubators offer services to help new businesses get started

• A small business should start with a sound business plan

✓ Business plan – describes the goals for a new business, its operating plans, and the

required financing

Schermerhorn & Bachrach Exploring Management 6th edition Instructor’s Manual

• There are different forms of small business ownership

a. Sole Proprietorship – an individual that pursues business for a profit

b. Partnership – when two or more people agree to contribute resources to start and

operate a business together

i. Limited – a general partner and one or more limited partners whose losses are

limited to their investment

ii. General – simplest and most common form; owners share management and

liability

iii. Limited liability partnerships – usually professionals such as accountants,

lawyers and doctors; limits the liability of the partners

c. Corporation – usually “Inc.” is a legal entity that exists separately from its owners

a. Grants the right to engage in contracts

• Tips to Remember: What to Include in a Business Plan

• Executive summary—business purpose, highlights of plan

• Industry analysis—nature of industry, economic trends, legal or regulatory issues, risks

• Financial projection—cash flow projections 1–5 years, breakeven points

• Capital needs—amount needed, amount available, amount being requested

• Milestones—timetable for completing key stages of new venture

• There are different ways of financing a small business

a. Debt financing – borrowing money that must be repaid with interest over time

1. Requires collateral that pledges personal or business assets

b. Equity financing – exchanging ownership shares for outside investment monies; this

money does not need to be paid back

Schermerhorn & Bachrach Exploring Management 6th edition Instructor’s Manual

Management Live: Hobby First, New Business Startup Second

Ask students if there is a business opportunity lurking in one of their pastimes and leisure

interests? Discuss if they would like to be a business owner – part-time or full-time, and enjoy

the benefits it might bring?

Ethics Check: Entrepreneurship and Social Good

Students are probably familiar with Tom’s Shoes. The popular and fashionable shoes are also an

example of caring capitalism, if not social entrepreneurship. For every pair of shoes sold, Tom’s

Facts to Consider: Minority Entrepreneurs Are on The Move

This feature provides statistics on the minority-owned businesses in the U.S. This activity can be

used in class or online for discussion in addition to the question in the “What are your thoughts?”

Hot Topic: Students are Faultfinding their human capital

Crowdfunding is an interesting option for entrepreneurs, but the question posed has to do with

how far the practice should go. If an undergraduate student at an art and design school needs

Insight: Risk Taking has its Ups and Downs

Schermerhorn & Bachrach Exploring Management 6th edition Instructor’s Manual

Why is there so much interest in adventure sports such as ice climbing, river running, base

jumping, and spelunking, to name a few? Some people assume it is a quest for the adrenaline

Ask students to do a quick self-check of your risk-taking tendencies. Which side of the risk line

are you most often on—positive or negative? Write short descriptions of risks you’ve taken at

school, at work, and in your personal life that were driven (a) by confidence and (b) by

desperation. What do these descriptions suggest about how risk taking influences your behavior

in professional and personal areas of your life?

Quick Case: Money’s tight. How do we grow further?

We’re just about a year into full-time work on a high-school tutoring service called BeUrBest. It

offers tutoring to underprivileged students at “cost.” Tutors work for free, donating their time,

while the fees collected pay for operating costs. It’s been popular. We’ve already branched out

BeUrBest is your baby – you had the idea and you started it. But now the original model is being

tested. Which option for obtaining growth financing do you prefer and why? Are there any other

options available which could keep you growing while also sticking true to your social business

model? Or, should you take growth off the table and be content serving one or just a few local

communities?

Terms to Define

Angel investor

Benefit Corporation

Crowdfunding

Debt financing

Schermerhorn & Bachrach Exploring Management 6th edition Instructor’s Manual

Franchise

First-mover advantage

General partnership

Initial public offering (IPO)

Intrapreneur

Limited liability corporation (LLC)

Limited partnership

Necessity-based -entrepreneurship

Partnership