chapter 3: entrepreneurship, new ventures, and business
TRANSCRIPT
Copyright © 2019 Pearson Education, Inc. 3-1
Chapter 3: Entrepreneurship, New Ventures, and Business
Ownership
Chapter Overview
Have you ever wanted to be your own boss? Think of going to work when you want to. Think of
how it would be to call your own shots. Although it’s anything but easy, starting your own
business can be rewarding. The U.S. economic system welcomes entrepreneurship and offers
various forms of business ownership. This chapter discusses small business, its importance to the
U.S. economy, and the popular areas of small business. It looks at:
Key characteristics of entrepreneurial personalities and activities
Business plans
Start-up decisions made by small businesses
Sources of financial aid available
Trends in small business start-ups
Key reasons for success and failure among small businesses
Finally, the chapter discusses different forms of business ownership and the advantages and
disadvantages of each, as well as the basic issues involved in managing a corporation and special
issues related to corporate ownership.
Learning Objectives
3-1. Define small business, discuss its importance to the U.S. economy, and explain popular
areas of small business.
3-2. Explain entrepreneurship and describe some key characteristics of entrepreneurial
personalities and activities.
3-3. Describe distinctive competence, the business plan and the start-up decisions made by
small businesses and identify sources of financial aid available to such enterprises.
3-4. Discuss the trends in small business start-ups and identify the main reasons for success
and failure among small businesses.
3-5. Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages
and disadvantages of each.
3-6. Describe corporations, discuss their advantages and disadvantages, and identify different
kinds of corporations; explain the basic issues involved in managing a corporation and
discuss special issues related to corporate ownership.
Business Essentials 12th Edition Ebert Solutions ManualFull Download: https://alibabadownload.com/product/business-essentials-12th-edition-ebert-solutions-manual/
This sample only, Download all chapters at: AlibabaDownload.com
Copyright © 2019 Pearson Education, Inc. 3-2
LIST OF IN-CLASS ACTIVITIES: Instructor’s Choice
Activity Description Time Limit
1. Ice-Breaker: The Role
of Small Business
Students discuss the role of small business
in their communities. 15 min.
2. Up for Debate: The
Wide World of Risk
Students are divided into groups to
discuss ways in which the entrepreneurial
spirit has been evident throughout U.S.
history, and how entrepreneurship is
valuable to an economic system.
30 min.
3.Small-Group
Discussion:
Entrepreneurship and the
Growth of Businesses
Groups of students weigh the importance
of entrepreneurship in the development of
fast-growing businesses.
20 min.
4. Small-Group
Discussion: What’s the
Next Big Thing?
Groups of students design a new business
and identify possible products/services
being sold as well as possible customers.
45 min.
5. Small-Group
Discussion: How Can We
Succeed in the Software
Industry?
Students identify the factors that help a
company in the software industry become
a success.
30 min.
6. Class Discussion:
Conjuring Up Profits?
Students identify what makes a successful
company, at least in terms of usage,
financially successful.
30 min.
Copyright © 2019 Pearson Education, Inc. 3-3
CHAPTER OUTLINE
Learning Objective 3-1: Define small business, discuss its importance to the U.S. economy, and explain popular
areas of small business.
What Is a “Small” Business?
A small business is independent (that is, not part of a larger business) and has relatively little
influence in its market. The U.S. Department of Commerce and the Small Business
Administration (SBA), define the size of a business based on its industry and the number of
employees. According to SBA standards, a small business can have as many as 1,500 employees.
A. The Importance of Small Business in the U.S. Economy
Most U.S. businesses employ fewer than 20 people, and most U.S. workers are employed by
small firms. The contribution of small business can be measured through its impact on job
creation, innovation, and its importance to big business.
1. Job Creation. Small businesses are an important source of new jobs; in recent years,
small businesses have accounted for 40 percent of all new jobs in the high-technology
sectors of the economy alone.
2. Innovation. Small business produces 16 times as many patents per employee as large
patenting firms.
3. Contributions to Big Business. Most products made by big businesses are sold to
consumers by small ones.
B. Popular Areas of Small-Business Enterprise
Major small-business industry groups include the following:
1. Services. This is the fastest-growing segment of small business at approximately 56%.
Services range from marriage counseling to computer software to management consulting
to professional dog walking.
2. Retailing. Retailers, which sell products made by other firms directly to consumers,
account for 12 percent of all firms with fewer than 20 employees; retail businesses let
entrepreneurs focus limited resources on narrow market segments.
3. Construction. About 12 percent of businesses with fewer than 20 employees are
involved in construction. Projects are primarily locally based.
4. Wholesaling. Wholesalers buy products in bulk from manufacturers and sell them to
retailers; wholesalers are the middlemen. About 5 percent of all firms are in this
category.
Copyright © 2019 Pearson Education, Inc. 3-4
5. Finance and Insurance. These firms account for about 4 percent of all firms with fewer
than 20 employees. Many are affiliates of or agents for larger national firms. Small
locally owned banks are also common in smaller communities and rural areas.
6. Manufacturing. More than any other industry, manufacturing lends itself to big
business. Still, about 4 percent of firms with fewer than 20 employees are involved in
manufacturing and may outperform big firms in innovation-driven industries.
7. Transportation. About 3 percent of all companies with fewer than 20 employees are in
transportation and related businesses.
8. Other. The remaining 4 percent or so of small businesses with fewer than 20 employees
are in other areas, including research and development laboratories and independent
media companies.
KEY TEACHING TIP
The definition of small business is different depending on whom you consult. The
textbook defines a small business as one that (a) is independent (not part of a larger
business) and (b) has little influence in its market. The U.S. Small Business
Administration defines companies with as many as 1,000 employees as “small,”
depending on industry, whereas the U.S. Department of Commerce considers a business
“small” if it has fewer than 500 employees.
QUICK QUESTION
In what ways is entrepreneurship an important part of our economic system?
Use In-Class Activity 1: Ice-Breaker: The Role of Small Business
Time Limit: 15 minutes
Copyright © 2019 Pearson Education, Inc. 3-5
Learning Objective 3-2: Explain entrepreneurship and describe some key characteristics of entrepreneurial
personalities and activities.
Entrepreneurship Entrepreneurs are people who assume the risk of business ownership. Entrepreneurship is the
process of seeking business opportunities under conditions of risk. Many entrepreneurs are
driven to launch new businesses by the goal of gaining independence from working for
somebody else and securing a financial future for themselves. Many such entrepreneurs,
however, may not aspire to grow the businesses much beyond their capacity to run them.
A. Entrepreneurial Characteristics
Successful entrepreneurs are often distinguished from others through a set of characteristics,
including:
1. Resourcefulness
2. A concern for customer relations
3. A desire for autonomy
4. The ability to handle ambiguity
5. A desire for risk-taking
KEY TEACHING TIPS
Ask how many students want to launch a business. (Typically, one-third to one-half of
each class will raise their hands.) Call on these students to share their interests, including
type of business and timeframe. You can then use their personal goals to illustrate
concepts for each section you teach.
Remind students that the goals of an entrepreneur can range from independence and
financial security to growth and expansion, even to transform the venture into a large
business.
QUICK QUESTIONS
What are some local examples of businesses that fit into the following small-business
industry groups: services, retailing, manufacturing, and transportation?
What are some common characteristics shared by all entrepreneurs?
Use In-Class Activity 2: Up for Debate: The Wide World of Risk
Time Limit: 30 minutes
Use In-Class Activity 3: Small-Group Discussion: Entrepreneurship and the Growth of
Businesses
Time Limit: 45 minutes
Copyright © 2019 Pearson Education, Inc. 3-6
Learning Objective 3-3: Describe the distinctive competence, business plan and the start-up decisions made by
small businesses and identify sources of financial aid available to such enterprises.
Starting and Operating a New Business
Entrepreneurs must make a number of decisions when they start their business. They must decide
whether to buy an existing business or to start one from scratch. In addition, they must determine
sources of financing needed and when to seek advice from others. Another integral part of
starting a small business is a well-crafted business plan.
A. Understanding Distinctive Competencies
An organization’s distinctive competencies are the aspects of business that the firm performs
better than its competitors. The distinctive competencies of small business usually fall into
three areas:
1. Identifying Niches in Established Markets: An established market is one in which
many firms compete according to relatively well-defined criteria. A niche is simply a
segment of a market that is not currently being exploited. In general, small entrepreneurial
businesses are better at discovering these niches than are larger organizations.
2. Identifying New Markets: Successful entrepreneurs excel at discovering whole new
markets. Two ways this often happens are 1) transferring a product or service that is well
established in one geographic market to a second market; and 2) creating an entire new
industry.
3. First-Mover Advantages: A first-mover advantage is any advantage that comes to a firm
because it exploits an opportunity before any other firm does. The ability to move quickly
is key to taking advantage.
B. Crafting a Business Plan
A business plan summarizes business strategy for the new venture and shows how it will be
implemented.
1. Setting Goals and Objectives: A business plan should discuss the entrepreneur’s goals
and objectives, the strategies used to obtain them, and how these strategies will be
implemented.
2. Sales Forecasting: The sales forecast requires that the entrepreneur demonstrate an
understanding of the market, the strengths and weaknesses of existing firms, and the means
by which the new venture will compete. The sales forecast impacts many of the other
decisions regarding the business.
3. Financial Planning: This is the entrepreneur’s plan for turning all activities into dollars. It
shows how much money is needed to open for business and how much is needed to keep it
going until it starts earning a profit.
Copyright © 2019 Pearson Education, Inc. 3-7
C. Starting the Small Business
Small business owners begin by understanding the true nature of their businesses.
1. Buying an Existing Business: Existing businesses have already proven their ability to
attract customers and to establish rapport with lenders, suppliers, and the community. Most
consultants recommend that entrepreneurs buy existing businesses because the odds of
success are greater.
2. Franchising: A franchise agreement involves two parties, a franchisee (the local owner)
and a franchiser (the parent company). Franchisees benefit from the parent corporation’s
experience and expertise. The franchiser may pick the store location, negotiate the lease,
purchase equipment, and supply financing. Franchisees invest in ready-made businesses
but also receive expert help in running them. Startup costs vary quite widely. For example,
a McDonald’s franchise has an initial fee of at least $1 million, but a Fantastic Sam’s hair
salon is $185,000.
3. Starting from Scratch: Risks with this approach are greater than with buying an existing
business. However, starting from scratch does allow the entrepreneur the satisfaction to
grow an idea into a successful business. An entrepreneur must identify who and where the
customers are, how much customers will pay for the product, how much of the product
should be expected to sell, who the competitors are, and why customers will purchase this
product rather than the competitors’ products.
D. Financing the Small Business
Many sources for business financing are available. Personal resources account for more than
two-thirds of all money invested; smaller portions of funding come from banks, independent
investors, and government loans.
1. Venture capital companies are groups of investors seeking to profit on companies with
rapid growth potential; money is invested in return for partial ownership. Small business
investment companies are licensed to borrow money from the SBA and invest it in or loan
it to small businesses.
2. SBA Financial Programs: Under the SBA’s 7(a) loans program, small businesses may
borrow from commercial lenders with the SBA guaranteeing to repay a maximum of 75
percent of a loan over $150,000. The SBA’s special purpose loans target businesses with
special needs, such as those meeting international demands. For loans under $35,000, the
SBA offers a micro-loan program.
Aside from its financing role, the SBA offers management counseling programs at virtually
no cost. One of the SBA’s management counseling projects is its Small Business
Development Center (SBDC) program.
3. Other sources of financing include overseas financing and online companies that focus on
small businesses.
Copyright © 2019 Pearson Education, Inc. 3-8
KEY TEACHING TIPS
Make sure that students understand that, as a general rule, the more resources required,
the harder it is to start a new business.
Remind students that the odds for success are greater when buying an existing business
than building one from scratch. An existing business provides a tested system, trained
employees, a recognized name, and established suppliers.
Remind students that personal resources account for over two-thirds of all of the money
invested in new small businesses; half of that is used to purchase existing businesses.
QUICK QUESTIONS
What is the purpose of a business plan?
What are some of the advantages and disadvantages of franchising (to the franchisee)?
Where can a person find money to start a new venture?
What is the main reason that most venture capital companies invest in new businesses?
What types of assistance can an entrepreneur expect from the Small Business
Administration?
Use In-Class Activity 4: Small-Group Discussion: What’s the Next Big Thing?
Time Limit: 45 minutes
HOMEWORK
Franchises
Now is a good time to assign Application Exercise 10 from the end-of-chapter materials in the
textbook. The assignment asks students to research a popular food industry franchise analyzing
the requirements to purchase as well as the up-front and ongoing cost.
At-Home Completion Time: 30 minutes
Copyright © 2019 Pearson Education, Inc. 3-9
Learning Objective 3-4: Discuss the trends in small business start-ups and identify the main reasons for success and
failure among small businesses.
Trends, Successes, and Failures in New Ventures
A. Trends in Small-Business Start-Ups
Several factors account for the thousands of new business start-ups in the United States each
year.
1. Emergence of E-Commerce: The rapid emergence of electronic commerce is the most
significant recent trend. Because e-commerce provides new and different ways of doing
business, it has enabled savvy entrepreneurs to create and expand businesses far easier and
quicker than ever before.
2. Crossovers from Big Business: Many businesses are started by individuals who leave
positions in large corporations to put their experience to work for themselves.
3. Opportunities for Minorities and Women: The number of businesses started by
minorities and women is growing rapidly.
4. Global Opportunities: Many entrepreneurs are finding business opportunities throughout
the world.
5. Better Survival Rates: New businesses now have a better chance of survival than ever
before; the SBA estimates that over half of all new businesses can expect to survive for
four years. One third make it for ten years or more.
B. Reasons for Failure
Four general factors contribute to small-business failure:
1. Managerial incompetence or inexperience
2. Neglect
3. Weak control systems
4. Insufficient capital
C. Reasons for Success
Four general factors contribute to small-business success:
1. Hard work, drive, and dedication
2. Market demand for the products or services being provided
3. Managerial competence
4. Luck
Copyright © 2019 Pearson Education, Inc. 3-10
KEY TEACHING TIPS
Emphasize to students that electronic commerce is the most significant trend among
small-business start-ups. You might want to ask them for examples of recent successful
e-commerce start-ups, such as Facebook, Twitter, and SnapChat..
Although starting a new business is risky, make sure you tell students that the small-
business failure rate has declined since the 1980s. The SBA estimates that one third of all
new start-ups now survive ten years.
QUICK QUESTION
What do people with big-business experience bring to a new venture?
Use In-Class Activity 5: Small-Group Discussion: How Can We Succeed in the Software
Industry?
Time Limit: 30 minutes
Copyright © 2019 Pearson Education, Inc. 3-11
Learning Objective 3-5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages
and disadvantages of each.
Noncorporate Business Ownership
A. Sole Proprietorships
A sole proprietorship is owned and usually operated by one person; about 74 percent
of all U.S. businesses are sole proprietorships though they provide only 4 percent of total
business revenues.
1. Advantages of Sole Proprietorships: Freedom, ease in forming, low start-up costs, and
tax benefits are the advantages of this form of ownership.
2. Disadvantages of Sole Proprietorships: Unlimited liability, lack of continuity, and a
possible lack of resources and/or managerial and financial limitations from the single
individual are the major drawbacks of this form of organization.
B. Partnerships
A general partnership, the most common type, is a sole proprietorship multiplied
by the number of partner-owners. Partners may invest unequal sums of money. In most cases,
partners share the profits equally or in proportion to their investment in the partnership.
1. Advantages of Partnerships: The ability to grow with the addition of new talent and
money, few legal requirements, and tax advantages are benefits of this form of ownership.
2. Disadvantages of Partnerships: Unlimited liability in that each partner may be liable for
the debts incurred in the name of the partnership, lack of continuity, and difficulty of
transferring ownership are the major drawbacks of this form of ownership.
3. Alternatives to General Partnerships: Because of the disadvantages of partnerships,
general partnerships are the least popular forms of business. Limited partnerships have
been formed to compensate for some of these disadvantages. This type of agreement allows
for limited partners who cannot share in a firm’s management and are liable only to the
limits of a partner’s investment. There is, however, a requirement that there is at least one
general partner who actively manages a firm and has unlimited liability for the debt.
Master Limited Partnerships is a form of ownership that sells shares to investors who are
repaid from the firm’s profits. The master partner retains at least 50 percent ownership and
runs the business.
C. Cooperatives
Cooperatives combine the freedom of sole proprietorships with the financial power
of corporations. These groups of sole proprietorships or partnerships agree to work
Copyright © 2019 Pearson Education, Inc. 3-12
together for their common benefit. They give members greater production power, greater
marketing power, or both, though they are limited to serving the specific needs of their
members.
KEY TEACHING TIPS
Make sure that students understand the different forms of business ownership. For
example, a sole proprietorship is owned and usually operated by one person; 74 percent
of all U.S. businesses are sole proprietorships.
Students often forget that unlimited liability is a major drawback to a sole proprietorship
and a partnership. With unlimited liability, if the business fails to generate enough
money, bills must be paid out of the owner’s pocket.
Remind students that a general partnership is a sole proprietorship multiplied by the
number of partner-owners.
Remind students that a limited partnership allows for limited partners who are liable for
debts only to the extent of their investments in the company; a limited partnership must
have at least one general partner for liability purposes.
Remind students that a cooperative provides the advantages of a sole proprietorship with
the financial power of a corporation.
QUICK QUESTIONS
What are some of the advantages and disadvantages of sole proprietorships?
What are some of the advantages and disadvantages of partnerships?
HOMEWORK
Interview a Sole Proprietor or General Partner
Now is a good time to assign Application Exercise 9 from the end-of-chapter materials as
homework. The assignment asks students to interview the owner/manager of a sole
proprietorship or a general partnership and determine why the person chose that form of
ownership.
At-Home Completion Time: 60 minutes
Copyright © 2019 Pearson Education, Inc. 3-13
Learning Objective 3-6: Describe corporations, discuss their advantages and disadvantages, and identify different
kinds of corporations; explain the basic issues involved in managing a corporation and
discuss special issues related to corporate ownership.
Corporations
Both large and small corporations account for 17 percent of all businesses, but generate about 81
percent of all sales revenues in the United States.
A. The Corporate Entity
Characteristics of corporations include legal status as separate entities, property rights and
obligations, and indefinite life spans. Corporations may sue and be sued; buy, hold, and sell
property; make and sell products to customers; commit crimes, and be tried and punished for
them.
1. Advantages of Incorporation. These include limited liability, continuity, and the ability
to raise money.
2. Disadvantages of Incorporation. Ease of transferring ownership, legal requirements and
regulations, and start-up cost are drawbacks of incorporation. In addition, double taxation
plagues a corporation, because a regular corporation must pay income taxes on profits and
stockholders must pay taxes on income returned by their investments.
B. Types of Corporations
Stock is held by only a few people and is not available for sale to the public in a closely held
(or private) corporation. When shares are publicly issued, the firm becomes a publicly held
(or public) corporation. The S corporation is a hybrid of a private corporation and
partnership. In a limited liability corporation, owners are taxed like partners, with each
paying personal taxes only. Professional corporations are most likely comprised of doctors,
lawyers, accountants, or other professionals. A multinational (or transnational)
corporation spans national boundaries.
C. Managing a Corporation
Once the corporate entity comes into existence, it must be managed by people who
understand the principles of corporate governance. Defined by the firm’s bylaws, corporate
governance involves stockholders, the board of directors, and corporate officers.
1. Stock Ownership and Stockholders’ Rights. Stockholders are the owners of a
corporation. Corporations sell shares, called stock, to investors who then become
stockholders, or shareholders. Profits are distributed among stockholders in the form of
dividends, and corporate managers serve at stockholders’ discretion.
2. Board of Directors. The board of directors is the governing body of the corporation and
communicates with stockholders and other stakeholders, sets policies, and is legally
responsible for corporate actions.
Copyright © 2019 Pearson Education, Inc. 3-14
3. Officers. Appointed by the board of directors, officers oversee the day-to-day operations
of the corporation. The chief executive officer, or CEO, oversees overall operations.
D. Special Issues in Corporate Ownership
1. Joint Ventures and Strategic Alliances: In a strategic alliance, two or more organizations
collaborate on a project for mutual gain; when partners share ownership of what is
essentially a new enterprise, it is called a joint venture.
2. Employee Stock Ownership Plans (ESOPs): ESOPs allow employees to own a significant
share of the corporation through trusts established on their behalf.
3. Institutional Ownership: Institutional investors include mutual funds and pension funds
that buy enormous blocks of stock.
4. Mergers and Acquisitions: A merger occurs when two firms combine to create a new
company; in an acquisition, one firm buys another outright. Many deals that are loosely
called mergers are really acquisitions.
5. Divestitures and Spin-Offs: A divestiture occurs when a firm sells off unrelated and/or
underperforming businesses. When a firm sells part of itself to raise capital, the strategy is
known as a spin-off.
KEY TEACHING TIPS
Ownership in a corporation is represented through the sale of stock. Remind students that
shareholders own the corporation.
Remind students that stock in a publicly held corporation is available for sale to the
public, whereas stock in a closely held corporation (private) is not available for sale to
the general public.
Make sure students understand that stockholders elect the board of directors, who, in turn,
hire the officers—including the CEO, president, and vice presidents.
Students don’t always understand why companies merge. Discuss the possible reasons,
including an attempt to increase product lines, expand operations, or go international.
QUICK QUESTIONS
What is meant by “double taxation?”
How do joint ventures and strategic alliances allow companies to spread risk?
Copyright © 2019 Pearson Education, Inc. 3-15
Use In-Class Activity 6: Class Discussion: Conjuring Up Profits?
Time Limit: 30 minutes
Learning Catalytics is a "bring your own device" student engagement, assessment,
and classroom intelligence system. It allows instructors to engage students in class
with realtime diagnostics. Students can use any modern, web-enabled device
(smartphone, tablet, or laptop) to access it. For more information on using
Learning Catalytics in your course, contact your Pearson Representative.
IN-CLASS ACTIVITIES
In-Class Activity 1: Ice-Breaker: The Role of Small Business
Activity Overview:
This activity helps students understand the role of small business in their communities.
Time Limit: 15 minutes
What to Do:
1. Ask students to list small businesses.
2. Ask students to share how those businesses are important to their towns or communities,
whether small businesses in the area complement each other in the products and services they
offer, and in what way(s) these businesses help big businesses. (10 minutes)
Don’t Forget:
Be sure to review the definition of small business prior to the activity.
Wrap-Up:
Bring the discussion to a close by introducing how many small businesses create jobs, launch
innovations, and promote big businesses. Remind students that almost all businesses begin small.
Copyright © 2019 Pearson Education, Inc. 3-16
In-Class Activity 2: Up for Debate: The Wide World of Risk
Activity Overview:
This activity is designed to get students thinking about the importance of entrepreneurship in the
U.S. economy.
Time Limit: 30 minutes
What to Do:
1. Divide the class into small groups and have them list various examples of how entrepre-
neurial spirit has been/is evident throughout this country’s history. How is entrepreneurship
valuable to an economic system? In what types of businesses is entrepreneurship especially
important? (15 minutes)
2. Reassemble the class and discuss the degree of entrepreneurial spirit evidenced by the group.
In which area(s) of the U.S. economy is entrepreneurship most important? (15 minutes)
Don’t Forget:
Entrepreneurship is a factor of production and an essential part of a free-market economy. Risk-
taking promotes heavy competition, which in turn improves quality and maintains market
pricing, which is valuable to the U.S. economy.
Wrap-Up:
To wrap up the discussion, remind students that exhibiting entrepreneurial spirit indicates a high
level of risk-taking, for which Americans are known.
Copyright © 2019 Pearson Education, Inc. 3-17
In-Class Activity 3: Small-Group Discussion: Entrepreneurship and the
Growth of Businesses
Activity Overview:
This activity asks students to weigh the importance of entrepreneurship in the development of
fast-growing businesses; this activity is based on Application Exercise 10 of the end-of-chapter
materials.
Time Limit: 20 minutes
What to Do:
1. Divide the class into small groups and ask each group to identify two or three of the fastest-
growing businesses in the United States. (5 minutes)
2. Ask each group to consider what role entrepreneurship has played in the growth
of these firms. (5 minutes)
3. Reassemble the class and ask students to share their results. (10 minutes)
Don’t Forget:
A number of fast-growing businesses are flourishing in the United States; students can consider
assessing some of the more popular, commonly cited businesses like JetBlue, Starbucks,
Walmart, Dell, and Southwest Airlines. (If students require a little extra time to research a
company, you may want to use this activity as a homework assignment.)
Wrap-Up:
Remind students that entrepreneurial success can be driven by many variables. Some
entrepreneurs launch a business with the goal of independence, whereas others seek growth and
expansion. Still others may not know exactly where they are headed.
Copyright © 2019 Pearson Education, Inc. 3-18
In-Class Activity 4: Small-Group Discussion: What’s the Next Big Thing?
Activity Overview:
This activity is designed to encourage students to be innovative in designing a business.
Time Limit: 45 minutes
What to Do:
1. Place students in four-member groups and ask each group to come up with an innovative
business idea. Groups should consider the following questions: (30 minutes)
What is my product or service?
Who are my customers?
Where are my customers located?
Is my business idea easily copied?
If there are substitutes for my product or service, how can I make my product/service
stand out from competitors’ offerings?
2. Reassemble the class and ask each group to share their ideas. (15 minutes)
Don’t Forget:
Encourage students to be as innovative as possible in completing this activity; some of the
seemingly silliest ideas have become multimillion-dollar ventures. If you want them to develop
their ideas even more, you may want to assign Step 1 as group homework and then discuss their
progress as a class the next time you meet.
Wrap-Up:
Bring the activity to a close by taking a class vote on which idea is the best of those presented.
Copyright © 2019 Pearson Education, Inc. 3-19
In-Class Activity 5: Small-Group Discussion: How Can We Succeed in the
Software Industry?
Activity Overview:
This activity asks students to identify what helps a company become a success or a failure.
Time Limit: 30 minutes
What to Do:
1. Divide the class into small groups and ask each group to put together a list of factors that
might mean the difference between the success and failure of a new company entering the
business software industry. Can small start-ups realistically hope to compete with companies
such as Microsoft? (15 minutes)
2. Reassemble the class and ask students to share their results. (15 minutes)
Don’t Forget:
No set pattern for success or failure has been established in any industry.
Wrap-Up:
Remind students that managerial incompetence, neglect, weak control systems, and insufficient
capital are the primary reasons for business failure. Hard work, market demand for the products
or services being provided, managerial competence, and luck contribute to business success.
Copyright © 2019 Pearson Education, Inc. 3-20
In-Class Activity 6: Conjuring up Profits?
This activity should generate a lot of discussion since most of the students have a Facebook
account and have probably seen the movie, The Social Network..
DISCUSSION QUESTIONS
1. Why do you think Facebook has been so successful?
Answers will vary, but most students will cite the drive of its founder, the unique product,
ease of use, etc.
2. Facebook is a corporation. Why do you think the firm uses this form of ownership?
Again, answers will vary but most students probably will cite limited liability due to the
lawsuits when the company was founded. They will probably note the favorable financing for
corporations and IPOs.
3. What threats might derail Facebook’s success? What steps might the firm take today in order
to thwart those threats?
Answers will vary but most students will probably mention privacy issues, competitors, and
decline in ad revenue.
4. Suppose Mark Zuckerberg asked you for advice on how to generate more profits from
Facebook. What would you tell him?
This question gives students an opportunity to use their creativity to suggest future directions
for Facebook.
Copyright © 2019 Pearson Education, Inc. 3-21
ANSWERS FOR END OF CHAPTER ACTIVITIES
QUESTIONS FOR REVIEW
3-1. Why are small businesses important to the U.S. economy?
Small businesses create new jobs, foster entrepreneurship and innovation, and supply goods
and services needed by larger businesses. (Learning Objective 1 – AACSB – application of
knowledge)
3-2. Which industries are easiest for a small business to enter? Which are hardest? Why?
The easiest industries for new start-ups include services, which is the fastest-growing
segment of small business. In addition, start-ups in retailing, construction, and wholesaling
are relatively easy. Start-ups in finance and insurance may be more difficult because these
businesses are mostly affiliates of or agents for larger national firms. Start-ups in manu-
facturing and transportation are difficult because of the higher initial outlay of cash required.
(Learning Objective 1 – AACSB – application of knowledge)
3-3. What are the primary reasons for new business failure and success?
Reasons for failure include managerial incompetence or inexperience, neglect, weak control
systems, and insufficient capital. Reasons for success include hard work and dedication,
market demand for the products or services being provided, managerial competence, and
luck. (Learning Objective 4 – AACSB – application of knowledge)
3-4. What are the basic forms of noncorporate business ownership? What are the key
advantages and disadvantages of each?
The basic forms of noncorporate business ownership include proprietorships and
partnerships. Proprietors answer to no one but themselves, and they enjoy easy entry and exit
into and out of the market. Further, tax laws permit owners to treat sales revenues and
operating expenses as part of their personal finances, paying taxes based on their personal tax
rate. However, proprietors experience unlimited liability, making them liable for all debts
incurred by the business. Finally, proprietors face a potential lack of continuity and can
depend only on their own resources and, perhaps, their limited managerial and financial
capabilities. The partnership, on the other hand, can grow by being able to add new talent and
money. In addition, the skills and experience of one partner can complement the skills and
experience of another partner. As with the proprietorship, big drawbacks facing a partnership
are unlimited liability and potential lack of continuity. (Learning Objective 5 – AACSB –
reflective thinking)
Copyright © 2019 Pearson Education, Inc. 3-22
QUESTIONS FOR ANALYSIS
3-5. After considering the characteristics of entrepreneurs, do you think that you would be a
good candidate to start your own business? Why or why not?
Answers will vary but many students want to start their own business so this question should
generate a lively discussion. Their analysis should contrast their personality characteristics
with those of successful entrepreneurs. (Learning Objective 2 – AACSB –application of
knowledge, reflective thinking)
3-6. If you were going to open a new business, what type would it be? Why?
Answers will vary, but many students will choose businesses within those industries that
offer ease in market entry, primarily because resource availability may be limited to most
students; they may not have built much personal credit and are likely not at the peak of their
income-earning capacity. (Learning Objective 3 and 4 – AACSB – application of
knowledge)
3-7. Would you prefer to buy an existing business or start from scratch? Why?
Answers will vary, but some students may find the added difficulty in starting from scratch
especially challenging, but preferable. Others will likely want to benefit from an existing
business. (Learning Objective 4 – AACSB application of knowledge, reflective
thinking)
3-8. Why might a closely held corporation choose to remain private? Why might it choose to
be publicly traded?
Such corporations may choose to remain private if control retention is the aim. Many closely
held corporations choose to become public to generate additional funding. (Learning
Objective 6 – AACSB – application of knowledge)
APPLICATION EXERCISES
3-9. Interview the owner/manager of a sole proprietorship or a general partnership. What
characteristics of that business form led the owner to choose it? Does he or she ever
contemplate changing the form of the business?
Answers will vary, but most students will discover that proprietors in small businesses are
attracted to the simplicity in starting up and in being their own boss, in spite of the
disadvantage of unlimited liability. Those contemplating changing the form of business
ownership may be considering the advantages of additional capital and/or forms of
managerial expertise added to the business. (Learning Objectives 2 and 5 – AACSB –
application of knowledge)
Copyright © 2019 Pearson Education, Inc. 3-23
3-10. Although more than half of all small businesses don’t survive five years, franchises have a
much better track record. However, it can be difficult to buy a franchise. Research a popular
food industry franchise, such as Panera Bread, Sonic, California Tortilla, or Subway, and
detail the requirements for net worth and liquid cash for the franchisee as well as up-front
and annual fees.
This should be an interesting and eye-opening exercise. Students should carefully evaluate
the costs and the various success rates among popular restaurant concepts. A good source of
information for this exercise is Restaurant News. (Learning Objective 3 – AACSB –
application of knowledge)
BUILDING A BUSINESS: CONTINUING TEAM EXERCISE 3-11 TO 3-15
(Learning Objectives 2, 3, 4, and 5 – AACSB – application of knowledge and interpersonal
relations and teamwork)
This exercise helps students focus on the reality of being an entrepreneur, the costs of starting a
business, obtaining financing, and the steps that an entrepreneur has to follow to have any chance
of success. Students should discuss the pros and cons of various forms of financing noting the
likelihood of obtaining said financing, start-up costs, and the pros and cons of various forms of
ownership. Although there are no right or wrong answers, students should have engaged in
rigorous discussion and analysis before presenting their answers.
The starting point for nearly every new successful venture is a business plan. The key
components include (a) setting out the goals and objectives of the new business, (b) what are the
sales forecasts of the new business and (c) the business’s financial plan. The most important
reason for writing a business plan is that it will help the entrepreneur really think through the
viability of the business idea. Having to put ideas, plans, and expectation in writing is sobering,
and the very step of writing a business plan will have prevented many would-be entrepreneurs
from launching foolish ventures. The second reason for the business plan is to help attract
financing for the new venture. This might come from friends, banks, or venture capitalists.
TEAM EXERCISE, A TASTY IDEA 3-16 TO 3-18
(Learning Objective 3 – AACSB – application of knowledge, analytical thinking)
At the very least the business partners will be required to have a formal business plan that
includes (a) setting out the goals and objectives of the new business, (b) what are the sales
forecasts of the new business, and (c) the business’s financial plan.
Students will identify a variety of sources of funding including loans, SBA-funded programs,
venture capitalists, friends and family, internet sources, etc. Students should consider the pros
and cons of the funding sources. For example, venture capital as a source may have “strings
attached” that might interfere with plans for the business. However, if the terms were especially
favorable (e.g., low interest rate, long life of loan) and the entrepreneur has future plans that
would use the funds effectively, the venture capital may be welcomed.
Copyright © 2019 Pearson Education, Inc. 3-24
When deciding on the form of business, students will need to carefully analyze the pros and cons
of each focusing especially on unlimited liability, the role of decision making, dissolution, ease
of start-up, cost, etc.
EXERCISING YOUR ETHICS: BREAKING UP IS HARD TO DO
(Learning Objective 5 – AACSB – ethical understanding and reasoning, analytical
thinking)
3-19. What are the reasons the business has been successful? How did each partner contribute to
the success?
The business presumably is successful because it offers products and services that customers
find valuable. Each partner contributed to the business based on the individual strengths they
brought to the partnership. This led to a balance of contributions that worked well.
3-20. Looking ahead, what are the biggest risks to their venture?
Risks include Mark needing to perform well in areas that are not his strengths, but the biggest
risk may be the status of Mark and Connie’s interpersonal relationship. This relationship was
the basis for initially creating the partnership, so if the relationship changes, it can risk the
success of the business.
3-21. Is it fair for Connie to work fewer hours than Mark? What changes could they make to
create equity and fairness in their agreement?
Answers will vary, but students will want to consider whether changes should be made to the
partnership agreement to account for the changing contributions by Mark and Connie. If
Mark feels the 50/50 arrangement is no longer appropriate, the two will need to determine
what the new ratio should be. Connie will need to show how working only two days instead
of the original four, plus the stated inventory and payment problems, justifies a continuation
of the original agreement. For the partnership to continue, all tasks should be reviewed and
responsibilities evaluated and reassigned.
CASES:
IT ALL STARTED WITH A LATE FEE
(Learning Objective 6 – AACSB – analytical thinking, application of knowledge)
3-22. What are some of the primary reasons Netflix has been successful?
Netflix has been successful because it has focused on convenience and ease of use for which
consumers are very willing to pay. It continually innovates to stay ahead of competitors.
3-23. Netflix is a corporation. Why do you think the firm uses this form of ownership?
Netflix is structured as a corporation because it provides multiple advantages such as limited
Copyright © 2019 Pearson Education, Inc. 3-25
liability, easier access to financing, and continuity of operation.
3-24. What threats might derail Netflix’s success? What steps might the firm take today to thwart
those threats?
Just as Netflix has driven Blockbuster out of business, it is possible that another competitor
could emerge that would be a threat to Netflix. Students might suggest a strategic alliance
with television and movie producers to secure Netflix’s position. Netflix is already taking
steps in this direction with the original series it now offers.
3-25. Suppose Reed Hastings asked you for advice on how to make Netflix better. What would
you tell him?
Answers will vary but students will probably focus on cost, ease of use, technology changes,
competitors, etc.
ICE CREAM HEADACHE
(Learning Objective 3 – AACSB – analytical thinking, application of knowledge)
3-26. What would be the advantages of buying a Cold Stone Creamery franchise as opposed to
starting a business from scratch?
Answers will vary, but some students may find the added difficulty in starting from
scratch challenging, but preferable due to the increased independence. Others will likely want
to benefit from a well-established franchise. After all, the corporation provides start-up
assistance and ongoing support.
3-27. What are the disadvantages of buying a Cold Stone Creamery franchise?
Students will likely mention the start-up cost, ongoing costs, and loss of autonomy as
disadvantages.
3-28. While franchise owners must have at least $125,000 of cash available, average start-up
costs are more than double this amount. What are the most likely sources of funding for a
franchise?
The responses will include: SBA programs, banks, personal savings, and franchiser-supplied
financing.
3-29. How would you research a franchise purchase before making the decision to invest?
A potential franchisee could contact the FTC for information, search the Internet for articles
on a particular franchise, and contact current franchisees to hear about their experiences and
concerns.
Copyright © 2019 Pearson Education, Inc. 3-26
3-30. Do you think that you would be interested in owning a Cold Stone Creamery franchise?
Why or why not?
Answers will vary depending on students’ interest.
Business Essentials 12th Edition Ebert Solutions ManualFull Download: https://alibabadownload.com/product/business-essentials-12th-edition-ebert-solutions-manual/
This sample only, Download all chapters at: AlibabaDownload.com