Chapter 6 Starting Your Own Business: The Entrepreneurship Alternative

1. Chapter 6 Starting Your Own Business: The Entrepreneurship Alternative Learning Goals 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. 4 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. 1 5 2 6 3 7

2. WHAT IS AN ENTREPRENEUR? • EntrepreneurPerson 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.

3. CATEGORIES OF ENTREPRENEURS

4. 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.

6. 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.

7. 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 Life • Lifestyle EntrepreneurPerson 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.

8. THE ENVIRONMENT FOR ENTREPRENEURS

9. Globalization • • Market products abroad and hire international talent. • • Growing internationally.

10. 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.

11. 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.

12. CHARACTERISTICS OF ENTREPRENEURS

13. 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.

14. 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.

15. 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.

18. 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.

19. 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.

20. 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

21. Finding Financing • Seed capitalInitial 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 financingBorrowed funds that entrepreneurs must repay. • • When business fails, owner must often declare bankruptcy. • • Can be difficult to get bank loan for start-up.

22. Equity Financing • Equity financingFunds invested in new ventures in exchange for part ownership. • • May benefit entrepreneur with a good idea and skills but little or no money. • Venture capitalistsBusiness firms or groups of individuals that invest in new and growing firms in exchange for an ownership share. • Angel investorsWealthy 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.

23. INTRAPRENEURSHIP • Intrapreneurship 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.