Chapter 6Starting Your Own Business: The

Entrepreneurship AlternativeLearning Goals

Define the term entrepreneur and distinguish among entrepreneurs, small-business owners, and managers.

Identify four different types of entrepreneurs.

Explain why people choose to become entrepreneurs.

Discuss conditions that encourage opportunities for entrepreneurs.

Identify personality traits that typically characterize successful entrepreneurs.

Summarize the process of starting a new venture.

Explain how organizations promote intrapreneurship.

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WHAT IS AN ENTREPRENEUR?

Entrepreneur Person who seeks a profitable opportunity and takes the necessary risks to set up and operate a business.

• Differ from many small-business owners in their strong desire to make their business grow.

• Differ from managers through their overriding responsibility to sue the resources of the organization to accomplish their goals.

• Willing to take risks.

CATEGORIES OF ENTREPRENEURS

REASONS TO CHOOSE ENTREPRENEURSHIP AS A CAREER PATH

• More than 11 percent of Americans run their own business.

• In an average month, Americans start approximately 550,000 new businesses.

• Motivated by dissatisfaction with organizational work world.• May believe their ideas are opportunities to meet customer needs.

Being Your Own Boss

• Example: Liz Lange, founder and CEO of Liz Lange Maternity.• Had idea for upscale maternity wear.• Borrowed $50,000 and opened an office to sell her designs.• Now has annual sales exceeding $10 million.

Financial Success

• Two-thirds of all millionaires are self-employed.• Path to riches is uncertain due to high failure rate.

Job Security

• Over last decade, large companies have downsized, eliminating more jobs than they created.

• Key difference from traditional job is that an entrepreneur’s job depends on the decisions of customers and investors and cooperation of one’s own employees.

Quality of LifeLifestyle Entrepreneur Person who starts a business to reduce work

hours and create a more relaxed lifestyle.

• Yet, most entrepreneurs work long hours and at the whims of their customers.

• Many define quality of life by their ability to fulfill social objectives.

THE ENVIRONMENT FOR ENTREPRENEURS

Globalization

• Market products abroad and hire international talent.

• Growing internationally.

Education

• One hundred U.S. colleges and universities offer entrepreneurship majors, 73 offer an emphasis in entrepreneurship, hundreds of others offer courses.

• Universities are helping students launch businesses.

• Some programs teach entrepreneurship to young people.

• Students who graduate from entrepreneurship programs are three times as likely as others to be self-employed and to help start new businesses.

Information Technology

• Helps entrepreneurs work quickly and efficiently, provide attentive customer service, increase sales, and project professional images.

• Entrepreneurs also produce and market products that apply new information technology.

• Internet also presents a challenge because customers can check prices and buy online from large or small companies anywhere in the world.

Demographic and Economic Trends• New opportunities:

• Aging of U.S. population.

• Emergence of Hispanics as nation’s largest ethnic group.

• Growth of two-income families.

CHARACTERISTICS OF ENTREPRENEURS

Vision

• An overall idea for how to make their business a success.

High Energy Level

• Hard work of the entrepreneur compensates for small staff and limited resources available.

Need to achieve

• Enjoy the challenge of reaching personal goals and are dedicated to personal success.

Self-confidence and Optimism

• Believe in their own ability to succeed and instill optimism in others.

Tolerance for Failure

• Try and try again when others would give up and view setbacks and failures as learning experiences.

Creativity

• Typically conceive new ideas for products and services and devise innovative ways to overcome difficult problems and situations.

Tolerance for Ambiguity

• Take uncertainty in stride but not reckless gamblers.

Internal Locus of Control

• Believe they control their own fates and take personal responsibility for success and failure.

STARTING A NEW VENTURE

Selecting a Business Idea

• Two most important considerations:

• Finding something you love to do and are good at.• Determining whether your idea can satisfy a need in the marketplace.

• Guidelines for selecting an idea that is a good entrepreneurial opportunity:• List your interests and abilities. • List the types of businesses that match your interests and abilities. • Identify future needs for products that no one yet offers. • Evaluate existing goods and services and ways you can improve them. • Choose a business that offers profit potential. • Conduct marketing research to determine potential profitability. • Learn as much as you can about the appropriate industry.

Buying an Existing Business

• Advantages:

• Employees already in place serve established customers and deal with familiar suppliers.

• Good or service is known in the marketplace.

• Necessary permits and licenses secured.

• May be easier to get financing.

• Some buy successful businesses to build on their success.

• Turnaround entrepreneurs buy struggling businesses and improve them to generate profits.

Buying a Franchise

• Less risky than starting a new firm, but requires careful and energetic preparation.

Creating a Business Plan

• Forty-seven percent of the most recent Inc. 500 CEOs did not create a formal written plan.

• Still advisable because it helps an entrepreneur prepare enough resources and stay focused on key objectives.

• AllBusiness.com

• Kaufman eVenturing

• MoreBusiness.com

Finding Financing

Seed capital Initial funding needed to launch a new venture.

• Average amount of seed money is $1.5 million, but median is $50,000.

• Fifty-four percent of entrepreneurs started with $50,000 or less.

Debt Financing

Debt financing Borrowed funds that entrepreneurs must repay.

• When business fails, owner must often declare bankruptcy.

• Can be difficult to get bank loan for start-up.

Equity Financing

Equity financing Funds invested in new ventures in exchange for part ownership.

• May benefit entrepreneur with a good idea and skills but little or no money.

Venture capitalists Business firms or groups of individuals that invest in new and growing firms in exchange for an ownership share.

Angel investors Wealthy individuals who invest directly in a new venture in exchange for an equity stake.

• Angel networks match business angels with entrepreneurs.

• Isabella Capital and Springboard Enterprises focus on women.

• U.S. Hispanic Chamber of Commerce aids minority-owned businesses.

INTRAPRENEURSHIPIntrapreneurship Process of promoting innovation within the

structure of an existing organization.

• Example: 3M

• Researchers spend 15 percent of their time working on their own ideas without approval from management.• A skunkworks project is initiated by an employee who conceives an idea and then recruits resources from within to turn it into a commercial product.• Pacing programs are company-initiated projects that focus on a few products and technologies in which company sees potential for rapid marketplace winners.

• Helps firms retain valuable employees.