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CHAPTER 6 MANAGING ST START ART-UPS -UPS AND NEW VENTURES CHAPTER UT!INE Do You You Think Like an Entrepreneur? Entrepreneur? I. What hat Is Entr Entrep epre rene neur ursh shiip? II. Impact Impact of Entrep Entrepren reneur eurial ial Compan Companies ies A. Entrepreneu Entrepreneurship rship Internatio Internationally nally B. Entrepreneu Entrepreneurship rship in the United United States States III. III. Who Are Entrep Entrepren reneur eurs? s? A. Minori Minorityty-On Oned ed Busine Businesse ssess B. Women-O omen-Oned ned Busine Businesse ssess C. !raits of Entrepreneurs I". I". Social Social Entr Entrepr epreneu eneursh rship ip ". #aunch #aunchin$ in$ an Entr Entrepr epreneu eneuria riall Start Start-Up -Up A. Starti Startin$ n$ ith ith an Idea Idea B. Writin$ ritin$ the the Busin Business ess %lan %lan C. Choosin Choosin$ $ a #e$a #e$all Struc Structur turee &. Arran$i Arran$in$ n$ 'inanc 'inancin$ in$ New Manager Self-Test: Self-Test: Perceive Passion Passion A. !actics for Becomin Becomin$ $ a Business Business Oner B. Starti Startin$ n$ an Onli Online ne Busine Business ss
ANNTATED !EARNING "#ECTIVES After studyin$ this chapter( students should )e a)le to* +. Define entrepreneurship entrepreneurship an the four classifications of entrepreneurs! entrepreneurs! Entrepreneurship is the process of initiatin$ a )usiness ,enture( or$aniin$ the necessary resources( and assumin$ the associated associated riss and reards. !hey can )e classified into fi,e fi,e cate$ories.
Idealists who Idealists who like the idea of working on something new, creative, and personally meaningful. Optimizers who Optimizers who are rewarded by the personal satisfaction of being business owners. Sustainers who Sustainers who like the chance to balance work and personal life and don’t want the business to grow too large. Hard workers who workers who enjoy putting in the long hours and dedication to build a larger, more proitable business. business. Jugglers who Jugglers who like the chance a small business gives them to handle everything themselves. /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part .
e3cept foruse as permitted in a license distri)uted ith a certain product or ser,ice or otherise on a passord-protected e)site for classroom use. .
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C$apter 6
/. Descri"e the i#portance of entrepreneurship entrepreneurship to the glo"al an $!S! econo#ies! 5lo)ally( 5lo)ally( entrepreneurship has e3perienced a tremendous )oost due to hu$e hu$ e ad,ances in technolo$y and the rapid e3pansion of the middle class in de,elopin$ nations. In the U.S.( the impact of entrepreneurial companies is astonishin$. Small )usinesses create to out of e,ery three ne n e 6o)s. !hey represent 47 percent of all ) usinesses in the United States. Small )usinesses also represent 48 percent of America9s e3porters and produce :0./ percent of all e3port ,alue. :. Su##ari%e the i#pact of #inorit&- an wo#en-owne "usinesses! As the minority population of the United States S tates has $ron( so has the num)er of minorityoned )usinesses. !he num)er of minority-oned )usinesses accounts to a total of ;.7 million firms( accordin$ to the most recent data a,aila)le. !he types of )usinesses launched )y minority entrepreneurs are also increasin$ly sophisticated. Women are also a lso em)racin$ entrepreneurial opportunities in $reater num)ers.
early half of small )usiness oners or more than a re$ular =0 hours per ee. Nee to achieve. achieve. !he need to achie,e is a human uality uality lined to entrepreneurship that means people are moti,ated to e3cel and pic situations situations in hich success is liely. liely. %eople ith hi$h achie,ement needs lie to set their on $oals that are moderately difficult. Self-confience. Self-confience. %eople ho start and run a )usiness )usiness must act decisi,ely decisi,ely and need confidence a)out their a)ility to master master the day-to-day tass of the )usiness. Entrepreneurs ha,e a $eneral feelin$ of confidence that they can deal ith any comple3( unanticipated /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part . ( e3cept for
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pro)lems that may arise. Locus of control defines hether a person places the primary responsi)ility for hat happens to him or her ithin the self @internal locus of control or on outside forces @e3ternal locus of control. . ;. E)plain social entrepreneurship as a vital part of toa&*s s#all "usiness environ#ent! Social entrepreneurs are people ho are committed to )oth $ood )usiness and positi,e social chan$e. !hey create ne )usiness models that meet critical human needs and sol,e important pro)lems that remain unsol,ed )y current economic and social institutions. Social entrepreneurship com)ines the creati,ity( )usiness smarts( passion( and hard or of the traditional entrepreneur ith a mission to chan$e the orld for the )etter. !hou$h not ne( social entrepreneurship has )lossomed o,er the past /0 or so years. !he inno,ati,e or$aniations created )y social entrepreneurs are defyin$ the traditional )oundaries )eteen )usiness and elfare. 1. +utline the planning necessar& to launch an entrepreneurial start-up! Startin$ ith an Idea sill and maret need must )oth )e present Writin$ the Business %lan a document specifyin$ the )usiness details prepared )y an entrepreneur prior to openin$ a ne )usiness Choosin$ a #e$al Structure - Sole proprietorship an unincorporated )usiness oned )y an indi,idual for profit - %artnership an unincorporated )usiness oned )y to or more people - Corporation an artificial entity created )y the state that e3ists apart from its oners Arran$in$ 'inancin$ - &e)t 'inancin$ )orroin$ money that has to )e repaid at a later date - Euity 'inancin$ funds that are in,ested in e3chan$e for onership in the company either )y oners or those ho )uy stoc in the company
8. Descri"e tactics for "eco#ing a "usiness owner, incluing "u&ing a franchise an starting an online "usiness! Start-up. In the initial sta$e( the main pro)lems are producin$ the product or ser,ice and fundin$ the )usiness. ey issues are attractin$ enou$h customers and money to sur,i,e. Survival . In this sta$e( the )usiness demonstrates that it is a ora)le )usiness entity that produces a product or ser,ice and has sufficient customers. Concerns are $eneratin$ sufficient cash flo and main$ sure that re,enues e3ceed e3penses. Success. !he company is solidly )ased and profita)le at this sta$e. Systems and procedures are in place and they allo the oner to slo don if desired or consider turnin$ the )usiness o,er to professional mana$ers. /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part .
e3cept foruse as permitted in a license distri)uted ith a certain product or ser,ice or otherise on a passord-protected e)site for classroom use. .
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C$apter 6
Takeoff . In the fourth sta$e( the pro)lem is ho to $ro rapidly and finance that $roth. !he oner must learn to dele$ate( and the company must find sufficient capital to in,est in ma6or $roth. esource #aturit&. At this sta$e( the company has made su)stantial financial $ains and has the staff and resources to de,elop detailed plannin$ and control systems( )ut may lose the ad,anta$es of small sie( includin$ fle3i)ility and the en trepreneurial spirit. 7. E)plain how the #anage#ent activities of planning, organi%ing, ecision #aking, an controlling appl& to a growing entrepreneurial co#pan&! In the early start-up sta$e( formal plannin$ tends to )e none3istent e3cept for the )usiness plan. !he primary $oal is to stay ali,e. 'ormal plannin$ usually is not instituted until the success sta$e. !he $roin$ importance of e-)usiness means entrepreneurs ha,e to plan and allocate resources for Internet operations from the )e$innin$ and $ro those plans as the company $ros. In the first to sta$es of $roth( the or$aniation9s structure is ,ery informal( ith all employees reportin$ to the oner. At a)out the success sta$e( functional mana$ers )e$in to e,ol,e to mana$e finance( manufacturin$( and maretin$. &urin$ the taeoff and resource maturity sta$es( mana$ers must learn to dele$ate and decentralie authority. As an or$aniation $ros( it may )e characteried )y $reater use of rules( procedu res( and ritten 6o) descriptions. When mana$in$ a $roin$ )usiness( oners face masses of decisions that affect the performance of the or$aniation. !hese decisions may include determinin$ in,entory le,els( hirin$ ne employees( choosin$ a domain name for a e)site( or e3pandin$ into a ne maret. Sometimes the decisions are easy to mae. E,ery decision has the potential to alter the direction and success of the )usiness. 'inancial control is important in each sta$e of a firm9s $roth. In the start-up and sur,i,al sta$es( control is e3ercised )y simple accountin$ records and personal super,ision. By the success sta$e( operational )ud$ets are in place and the oner should start implementin$ more structured control systems. &urin$ the taeoff sta$e( the company ill need to mae $reater use of )ud$ets( standard cost systems( and computers to pro,ide statistical reports. !hese techniues ill )ecome more sophisticated durin$ the resource maturity sta$e.
LEC!"E #!L$%E D+ Y+$ T(.N/ L./E 'N ENTEPENE$? Entrepreneurs face many demands. Impro,isation is a correlate of entrepreneurial intentions. Entrepreneurial impro,isation consists of three elements* the a)ility to produce no,el solutions under constrained conditionsD the a)ility to e3cel under pressure-filled circumstancesD and the /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part . ( e3cept for
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determination to achie,e $oals and sol,e pro)lems in the moment. !his e3ercise helps students determine hether they ha,e the inclination to start and )uild their on )usinesses.
I.
W!2E%2E>EU2S
E3hi)it 1.+
Entrepreneurs$ip is the process of initiatin$ a )usiness ,enture( or$aniin$ the necessary resources( and assumin$ the associated riss and reards. An entrepreneur reco$nies a ,ia)le idea for a )usiness product or ser,ice and carries it out )y findin$ and assem)lin$ the necessary resourcesmoney( people( machinery( and locationto undertae the )usiness ,enture.
Entrepreneurs ha,e many different moti,ations and measure reards in different ays. !hey can )e classified into fi,e cate$ories.
Idealists who like the idea of working on something new, creative, and personally meaningful. Optimizers who are rewarded by the personal satisfaction of being business owners. Sustainers who like the chance to balance work and personal life and don’t want the business to grow too large. Hard workers who enjoy putting in the long hours and dedication to build a larger, more proitable business. Jugglers who like the chance a small business gives them to handle everything themselves.
Many people re$ard entrepreneurship as a )etter use of their time( talent( and ener$y. Women and minorities( ho ha,e found corporate opportunities more limited( often see entrepreneurship as the only ay to $o.
Discussion Question #2: #ver the past &' years, entrepreneurship has been the fastest( growing course of study on campuses throughout the !nited )tates. *o you think it is possible to teach someone to be an entrepreneur+ hy or why not+ >O!ES FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF
II. Impact of Entrepreneurial Companies Small )usinesses ha,e )een hit particularly hard )y the $lo)al economic crisis and ea consumer demand. But re6u,enation in the economy is underay( and small )usinesses and entrepreneurs are the en$ine )ehind the re)ound that9s occurrin$ in many marets. A. Entrepreneurship Internationally
E3hi)it 1./
/0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part .
e3cept foruse as permitted in a license distri)uted ith a certain product or ser,ice or otherise on a passord-protected e)site for classroom use. .
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C$apter 6
+. 5lo)ally( entrepreneurship has e3perienced a tremendous )oost due to hu$e ad,ances in technolo$y and the rapid e3pansion of the middle class in countries such as China and India. Entrepreneurship in other countries is also )o omin$. /. !he rate of entrepreneurial acti,ity amon$ omen surpassed the rate amon$ men in %anama and !hailand and as a)out eual in 5hana( Ecuador( >i$eria( Me3ico( and U$anda. O!ES FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF III. W!2E%2E>EU2S? !he heroes of American )usiness
E3hi)it 1.:
+. As the minority population of the United States has $ron( so has the num)er of minority-oned )usinesses. !he num)er of minority-oned )usinesses increased )y =;.1 percent )eteen /00/ and /008( to ;.7 million firms( accordin$ to the most recent data a,aila)le. More minorities are looin$ to control their destiny )y esta)lishin$ themsel,es in the U.S. /. !he types of )usinesses launched )y minority entrepreneurs are also increasin$ly sophisticated. !he traditional retail stores or restaurants are replaced )y firms in /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part . ( e3cept for
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industries such as financial ser,ices( insurance( and online )usinesses. B. Women-Oned Businesses
E3hi)it 1.=
+. Women are also em)racin$ entrepreneurial opportunities in $reater num)er in a ran$e of industries lie )usiness ser,ices( health care( and communication. O!ES FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF C. !raits of Entrepreneurs
E3hi)it 1.;
+. In $eneral( entrepreneurs seem to ant somethin$ different from life than do traditional mana$ers. Se,en personality traits associated ith entrepreneurship ha,e special importance. a. 'utono#&. !he desire for autonomy is reportedly the primary moti,ator for pursuin$ an entrepreneurial life. !he freedom of main$ their on decisions a)out their )usiness dri,es the desire for autonomy in entrepreneurs. Because of this desire( they consider flyin$ solo( ithout partners or si$nificant in,estors. It may affect the firm9s de,elopment. It is )est for start-ups to fore$o autonomy and )e mana$ed )y someone ith a different set of mana$erial sills. ). Entrepreneurial Sacrifice! !he a)ility to perse,ere and stay positi,e after lon$ periods of stru$$le is another common trait amon$ entrepreneurs. c. (igh energ&. A )usiness start-up reuires $reat effort. Most entrepreneurs report stru$$le and hardship( )ut they persist and or incredi)ly hard despite traumas and o)stacles. In a recent sur,ey( it as found that =: percent of small )usiness oners or more than a re$ular =0-hour ee( :+ percent reported orin$ durin$ holidays( and +: percent said they re$ularly ored for more than 70 hours a ee. Entrepreneurial passion in people can )e reco$nied )y their una,erin$ )elief in a dream( intense focus( and uncon,entional ris tain$. /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part .
e3cept foruse as permitted in a license distri)uted ith a certain product or ser,ice or otherise on a passord-protected e)site for classroom use. .
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C$apter 6
d. Nee to achieve. !he need t% a&$ie'e is a human uality lined to entrepreneurship that means people are moti,ated to e3cel and pic situations in hich success is liely. %eople ith hi$h achie,ement needs lie to set their on $oals that are moderately difficult. e. Self-confience. %eople ho start and run a )usiness must act decisi,ely and need confidence a)out their a)ility to master the day-to-day tass of the )usiness. Entrepreneurs ha,e a $eneral feelin$ of confidence that they can deal ith any comple3( unanticipated pro)lems that may arise. f. Locus of control defines hether a person places the primary responsi)ility for hat happens to him or her ithin the self @internal locus of control or on outside forces @e3ternal locus of control. &iscussion Guestion H=* 3onsier the seven characteristics of entrepreneurs escri"e in the chapter! 2hich two traits o &ou think are #ost like those of #anagers in large co#panies? 2hich two are least like those of #anagers in large co#panies? >O!ES FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF
I". SOCIA# E>!2E%2E>EU2S
Social entrepreneurship com)ines the creati,ity( )usiness smarts( passion( and or of the traditional entrepreneur ith a mission to chan$e the orld for the )etter. !hou$h not ne( social entrepreneurship has )lossomed o,er the past /0 or so years. In the United States( se,eral states ha,e ad 6usted their incorporation las to create a ne corporate structure non as a K)enefit corporationL for entrepreneurs ho ant to include a stron$ social or en,ironmental component to their for-profit )usiness. !he ne form pro,ides le$al protection for entrepreneurs to consider the local community in corporate decisions( not 6ust shareholders. &iscussion Guestion H+* Social entrepreneurship is a growing pheno#enon! Do &ou "elieve that for-profit "usinesses can have a social #ission? Shoul the& o so, if it #eans hurting profits? >O!ESFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part . ( e3cept for
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#AU>C5 A> E>!2E%2E>EU2IA# S!A2!-U% A. Startin$ ith an Idea
E3hi)it 1.1
+. Some people are inspired to choose entrepreneurship )y e3citin$ ideas. Others decide to start their on )usinesses and $o looin$ for an idea. !he tric for entrepreneurs is to )lend their on sills and e3perience ith a need in the maretplace. %ast 6o) e3periences also influence an entrepreneur to come up ith ne )usiness ideas. /. The trick for entrepreneurs is to blend their own skills and experience with a need in the marketplace. B. Writin$ the Business %lan +. A )usiness p(an is a document specifyin$ the )usiness details prepared )y an entrepreneur prior to openin$ a ne )usiness. %lannin$ forces the entrepreneur to carefully thin throu$h the issues and pro)lems associated ith startin$ and de,elopin$ the )usiness. !he details may ,ary( )ut successful )usiness plans $enerally share se,eral characteristics* a. &emonstrate a clear( compellin$ ,ision that creates an air of e3citement. ). %ro,ide clear and realistic financial pro6ections. c. %rofile potential customers and the tar$et maret. d. Include detailed information a)out the industry and competitors. e. %ro,ide e,idence of an effecti,e entrepreneurial mana$ement team. f. %ay attention to $ood formattin$ and clear ritin$. $. eep the plan shortno more than ;0 pa$es. h.
Spell out the sources and uses of start-up funds and operatin$ funds.
6.
Capture the reader9s interest ith a iller summary.
/. Startin$ a )usiness is a reardin$ and comple3 process that starts ith $ood plannin$( preparation( and insi$ht. A ell-crafted )usiness plan summaries the road map for success. /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part .
e3cept foruse as permitted in a license distri)uted ith a certain product or ser,ice or otherise on a passord-protected e)site for classroom use. .
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C$apter 6
&iscussion Guestion H1* Man& successful entrepreneurs sa& that the& i little planning, perhaps scratching notes on a legal pa! (ow was it possi"le for the# to o well, even so? >O!ES FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF C. Choosin$ a #e$al Structure +. Sole %roprietorship a. A s%(e pr%priet%rs$ip is an unincorporated )usiness oned )y an indi,idual for profit. %roprietorships mae up the ma6ority of )usinesses in the United States. !his form is popular )ecause the proprietor has total onership and control of the company and there are fe le$al reuirementsD hoe,er( the oner also has unlimited lia)ility for the )usiness( placin$ the oner9s personal as ell as )usiness assets at ris. /. %artnership a. A partners$ip is an unincorporated )usiness oned )y to or more people. %artnerships( lie proprietorships( are relati,ely easy to start. 'ormal partnership a$reements are a $ood idea to mae sure the )usiness is ell planned and to a,oid misunderstandin$s )eteen the partners. #ie sole proprietors( partners also ha,e unlimited lia)ility( puttin$ their personal and )usiness assets at ris. :. Corporation a. A &%rp%rati%n is an artificial entity created )y the state that e3ists apart from its oners. As a separate le$al entity( the corporation is lia)le for its actions and must pay ta3es on its incomeD it has a le$al life of its on and continues to e3ist if the oners li,e or die. %ersonal assets of the oners are not at ris.
E3hi)it 1.8
Most entrepreneurs are particularly concerned ith financin$ the )usiness. An in,estment is reuired to acuire la)or and ra materials( and perhaps a )uildin$ and euipment as ell. !he financin$ decision initially in,ol,es to optionshether to o)tain loans that must )e repaid @de)t financin$ or hether to share onership @euity financin$. +. &e)t 'inancin$ a. Borroin$ money that has to )e repaid at a later date to start a )usiness is referred /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part . ( e3cept for
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to as de)t *inan&ing . Common sources of de)t financin$ include )orroin$ money from family and friends( )an loans( and SBA loans. ). Ange( *inan&ing refers to financin$ from ealthy indi,iduals ho )elie,e in the idea for a start-up and are illin$ to in,est their personal funds and pro,ide ad,ice and assistance to the entrepreneur to help the )usiness $et started. /. Euity 'inancin$ a. E+uit, *inan&ing consists of funds that are in,ested in e3chan$ e for onership in the company either )y oners or those ho )uy stoc in the company. ). A 'enture &apita( *ir is a $roup of companies or indi,iduals that in,est money in ne or e3pandin$ )usinesses for onership and potential profits. "enture capitalists are interested in hi$h-tech )usinesses such as )iotechnolo$y( inno,ati,e online ,entures( or telecommunications )ecause they ha,e a potential for hi$h rates of return on in,estment. c. Cr%wd*unding is a ay of raisin$ capital )y recei,in$ small amounts of money from a lar$e num)er of in,estors( usually throu$h social media and the Internet.
Discussion Question #10 *escribe the beneits of using social media to help a start(up gain traction during the early stages of its life cycle. hat are some possible disadvantages of using social media+ >O!ESFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF NE2 M'N'4E SEL5-TEST: PE3E.6ED P'SS.+N An entrepreneur startin$ a )usiness often has to mae presentation to in,estors in order to raise money. !his test measures the persuasi,eness of presentations to ,enture capitalists )y entrepreneurs in an effort to o)tain in,estment money. !o aspects of the presentation measured are passion and preparedness. %reparedness h as the most positi,e impact on decisions to in,est money ith entrepreneurs. !hus( a hi$her score on preparedness is more important to in,estors than a hi$h score on presentation passion.
A. !actics for Becomin$ a Business Oner Aspirin$ entrepreneurs can )ecome )usiness oners in se,eral different ays. !hey can start a ne )usiness from scratch( )uy an e3istin$ )usiness( start a franchise( or participate in a )usiness incu)ator. +. Start a >e Business /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part .
e3cept foruse as permitted in a license distri)uted ith a certain product or ser,ice or otherise on a passord-protected e)site for classroom use. .
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C$apter 6
a. !his approach is e3citin$ to an entrepreneur ho sees a need for a product or ser,ice that has not )een filled )efore and then sees the idea or dream )ecome a reality. ). !he ad,anta$e is the a)ility to desi$n and de,elop the )usiness the ay the oner ants it to )e. c. !he disad,anta$e is the time( money( and effort necessary to mae the )usiness profita)le. /. Buy an E3istin$ Business a. %urchasin$ an e3istin$ )usiness offers the ad,anta$e of a shorter time to $et started and an e3istin$ trac record. An esta)lished )usiness already has filin$ systems( a payroll ta3 system( and other operatin$ procedures. ). !he disad,anta$es are the need to pay for $oodill the oner )elie,es e3ists and the possi)le e3istence of ill ill toard the )usiness( )ad practices( or outdated technolo$y. :. Buy a 'ranchise
E3hi)it 1.7
a. 'ranchisin$ is perhaps the most rapidly $roin$ path to entrepreneurship. .ran&$ising is a )usiness arran$ement here a firm collects upfront and on$oin$ fees in e3chan$e for other firms to offer products and ser,ices under its )rand name and usin$ its processes. !he franchisee in,ests his or her on money and ons the )usiness )ut does not ha,e to de,elop a ne product( create a ne company( or test the maret. !he )i$ ad,anta$e of a franchise is that mana$ement help is pro,ided )y the franchisor. !he )i$$est disad,anta$es are potential hi$h start-up costs folloed )y monthly payments to the franchisor and limited freedom for the franchisee to mana$e in his or her on ay.
Discussion Question #: hat personal skills do you need to keep your inancial backers feeling conident in your new business+ hich skills are most useful when you’re dealing with more informal sources such as family and friends versus receiving funds from stockholders, a bank, or a venture capital irm+ ould these considerations affect your inancing strategy+ >O!ES FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF FFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF =. %articipate in a Business Incu)ator a. A )usiness in&u)at%r typically pro,ides shared office space( mana$ement /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part . ( e3cept for
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support ser,ices( and mana$ement and le$al ad,ice to entrepreneurs. Incu)ators also $i,e entrepreneurs a chance to share information ith one another a)out local )usiness( financial aid( and maret opportunities. ). 6irtual incu"ators do not reuire entrepreneurs to set up on-site. !hey connect entrepreneurs ith a ide ran$e of e3perts and mentors and offer loer o,erhead and cost sa,in$s for cash-strapped small )usiness oners. B. Startin$ an Online or Mo)ile Ap Business +. Many entrepreneurs are turnin$ to the Internet to e3pand their small )usinesses or launch ne ,entures. Anyone ith an idea( a personal computer( access to the Internet( and the tools to create a e)site can start an online )usiness. !o incenti,es for startin$ an online )usiness include lo o,erhead and the a)ility to or from home or any location. /. An even more rapidly growing area of new business formation is the app boom. Mobile devices have inspired a new generation of entrepreneurs :. Se,eral steps reuired to start an online )usiness are hi$hli$hted )elo. a. 5in a #arket niche. !o succeed in the competiti,e online maret( aspirin$ entrepreneurs need to identify a maret niche that isn9t )ein$ ser,ed )y other companies. ). 3reate a professional we"site. !o impro,e customers9 online e3perience( e)sites should )e easy to na,i$ate( intuiti,e( and offer menus that are easy to read and understand. c. 3hoose a o#ain na#e. &omain names should )e chosen carefully and )e easy to remem)er( pronounce( and spell. d. Know when to pivot One of the biggest mistakes that new entrepreneurs make is in not knowing when to pi,ot, which means to change the strategic direction of the business .
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e. $se social #eia. Social media sites ha,e the potential to )e poerful tools for small )usiness oners. !he ad,anta$es include $ainin$ ,alua)le feed)ac on products and ser,ices( )uildin$ communities of loyal folloers( and promotin$ special e,ents and pricin$. &iscussion Guestion H;* 7& the ti#e that an online or #o"ile "usiness starts noticea"l& losing custo#ers, it is often too late to turn things aroun! .f &ou were the creator of a successful ga#e app, such as 'ngr& 7irs or iShoot, how #ight &ou know when it was ti#e to pivot in orer to keep thriving? /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part .
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C$apter 6
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Suggested Answers t% Dis&ussi%n /uesti%ns +. Social entrepreneurship is a growing pheno#enon! Do &ou "elieve that for-profit "usinesses can have a social #ission? Shoul the& o so, if it #eans hurting profits?
'or-profit )usinesses can ha,e a social mission. In fact( today9s consumers ha,e a $roin$ e3pectation that or$aniations ill operate in socially responsi)le ays. 'or this reason( a ne )reed of )usiness is emer$in$ that is moti,ated to help society sol,e all types of social pro)lems( includin$ en,ironmental pollution( $lo)al hun$er( and deaths from treata)le diseases. 'or e3ample( a company lie
2! #ver the past &' years, entrepreneurship has been the fastest(growing course of study on campuses throughout the !nited )tates. *o you think it is possible to teach someone to be an entrepreneur+ hy or why not+ Students9 opinions ill differ. Some people seem to ha,e a nac for entrepreneurship( much the same ay some people ha,e a nac for sports or other acti,ities. !hat ould seem to support an ar$ument that people are K)ornL to )e entrepreneursD hoe,er( it is certainly true that the )usiness techniues related to entrepreneurship can )e tau$ht and mentors can help stru$$lin$ entrepreneurs learn to employ those techniues )etter. !o that e3tent( entrepreneurship can )e tau$ht.
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hy would small business ownership have great appeal to immigrants, women, and minorities+ /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part . ( e3cept for
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Many esta)lished corporations ha,e informal )arriers to top mana$ement for these $roups. It is human nature to hire and promote persons ho are lie you( and that usually e3cludes immi$rants( omen( and other minorities. Small-)usiness onership pro,ides these persons ith the opportunity to )e their on )osses and to $o as far as they are a)le to $o )ased on their on dri,e and a)ilities rather than on social )arriers.
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Consider the si characteristics of entrepreneurs described in the chapter. hich two traits do you think are most like those of managers in large companies+ hich two are least like those of managers in large companies+ Self-confidence and need to achie,e may )e most liely to also )e found in mana$ers in lar$e companies.
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7& the ti#e that an online or #o"ile "usiness starts noticea"l& losing custo#ers, it is often too late to turn things aroun! .f &ou were the creator of a successful ga#e app, such as 'ngr& 7irs or iShoot, how #ight &ou know when it was ti#e to pivot in orer to keep thriving? One of the )i$$est mistaes that ne entrepreneurs mae is in not noin$ hen to pi'%t( hich means to chan$e the strate$ic direction of the )usiness0 !echnolo$y entrepreneurs may cycle throu$h se,eral ideas for a ne )usiness )efore ultimately landin$ on the o ne that taes off. E,en after initial success( there ill )e times hen the )usiness needs to chan$e course. Startin$ somethin$( determinin$ it9s not orin$( and then le,era$in$ aspects of that technolo$y is e3tremely poerful. Each business will have to determine whether or not it is able to thrive based on the measurable criteria set forth in the planning process. The criteria might include metrics such prot level, number of customers, level of competition, or other technological advances.
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0any successful entrepreneurs say that they did little planning, perhaps scratching notes on a legal pad. 1ow was it possible for them to do well, even so+ If an entrepreneur comes up ith a product or ser,ice that is needed and not )ein$ supplied( this demand can often )e stron$ enou$h to compensate for the lac of plannin$. It may also mae up for other mistaes that are made. If plannin$ had )een done( chances are the success of these entrepreneurs ould ha,e )een e,en more spectacular. >ot plannin$ is a chance that one should not tae.
! hat personal skills do you need to keep your inancial backers feeling conident in your new business+ hich skills are most useful when you’re dealing with more informal sources such as family and friends versus receiving funds from stockholders, a bank, or a venture capital irm+ ould these considerations affect your inancing strategy+ Communication sills and persuasion sills ould )e ,ery important in maintainin$ financial )acers9 confidence. ou ould need $ood communication sills to eep them informed of your pro$ress( of any chan$es in plans that ha,e )een made necessary alon$ the ay( and of /0+1 Cen$a$e #earnin$. All 2i$hts 2eser,ed. May not )e scanned( copied or duplicated( or posted to a pu)licly accessi)le e)site( in hole or in part .
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C$apter 6
your on$oin$ e3pectations for success. %ersuasion sills ould )e especially important hen thin$s do not $o as ell as e3pected( hich is almost alays the case in some respects. At that point( you ould need to )e a)le to persuade your financial )acers that their in,estment is still sound. With family and friends you can pro)a)ly rely more on the stren$th of the relationship itself to eep people interested. Althou$h you ill still need to eep them informed and confident of your a)ility to succeed( they ill )e much more liely to )elie,e in you )ecause of the closeness they feel( and ill )e sloer to lose confidence. Of course( if the )usiness fails and the in,estments are lost( you also ris losin$ those ,alued relationships. 'ormal sources of funds @stocholders( )an( or ,enture capital firm ill ant to see or$aniation and plannin$( as ell as formally prepared financial reports. If you are a less formal or less or$anied person( or a more relationship-oriented person( you ill pro)a)ly loo for financial )acin$ from family and friends. If you are a detailed planner ith $ood or$aniational sills and feel more comforta)le ith formal )usiness relationships( you ill pro)a)ly see your financial )acin$ from stocholders( )ans( andNor a ,enture capital firm.
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0any people who are successful at the start(up stage of a business are not the right people to carry the venture forward. 1ow do you decide whether you’re better suited to be a serial entrepreneur 2start the business and then move on to start another3, or whether you can guide the venture as it grows and matures+ !he early sta$es of a ne )usiness reuire tremendous ener$y as the oner handles nearly all of the tass )y himself or herself. E,en as the company )e$ins to $ro somehat and hire a fe others( the oner may still )e the only mana$er. !hese early sta$es are ell suited to indi,iduals ho ant to )e in char$e and ha,e the freedom and fle3i)ility to do hat they ant to hen they ant to do it ith re$ard to the company and their on schedules. !hose same indi,iduals may )e$in to feel constrained )y their responsi)ilities as the company mo,es into the success sta$e of $roth. Moreo,er( they may find it difficult to dele$ate mana$ement to others and( thou$h hi$hly moti,ated themsel,es( may not )e interested in or a)le to moti,ate others. A person ho ants a $reat deal of freedom and fle3i)ility( or a hi$h-ener$y idea person ith e3cellent tas sills )ut less e3ceptional people sills( ould )e )etter suited to )e a serial entrepreneur. A person hose ,ision is to create a lar$e company( or a person ho has the tas sills to $et the )usiness $oin$ )ut also has stron$ interpersonal sills and ants the sta)ility of stayin$ ith the ne )usiness instead of $oin$ throu$h the difficulty of startin$ somethin$ ne e,ery fe years ould )e )etter suited to stayin$ ith the ori$inal start-up throu$hout its $roth to maturity.
4. 1ow does starting an online business differ from starting a small business such as a local auto repair shop or delicatessen+ $s it really possible for businesses that operate totally in cyberspace to build close customer relationships+ *iscuss.
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Managing Start-Ups and New Ventures
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Startin$ an Internet )usiness reuires loer start-up capital )ecause the initial K)rics and mortarL in,estment can )e none3istent. At the )e$innin$( it may only reuire We) space and alliances ith other companies to supply( store( and deli,er products. If it is a ser,ice pro,ider( the Internet company could )e entirely online. An auto repair shop or small delicatessen ould in,ol,e rentin$( leasin$( or )u yin$ real assets such as a )uildin$( euipment( andNor in,entory and supplies. !his type of in,estment ould reuire increased start-up capital( maretin$ research( and production plannin$. Buildin$ a successful online )usiness reuires( at minimum( start-up capital for the necessary computer euipment to $o online and to promote the )usiness. 'ast( efficient ser,ice ith a customer-dri,en approach can create a successful online ser,ice ithout partnerin$ andNor strate$ic alliances ith other companies. Online product pro,iders should participate in ,ertical and horiontal inte$ration ith other )usinesses hen it is economically feasi)le. Each )usiness opportunity must )e ei$hed and analyed )efore any decision is made for this type of inte$ration. It taes a $reat deal of time and ener$y to de,elop close customer relationships for a )usiness operatin$ totally in cy)erspace( )ut it can )e done.
10 *escribe the beneits of using social media to help a start(up gain traction during the early stages of its life cycle. hat are some possible disadvantages of using social media+ Social media sites( such as 'ace)oo( !itter( and ou!u)e ha,e the potential to )e poerful tools for small )usiness oners. !he )enefits of usin$ social media include $ainin$ ,alua)le feed)ac on products and ser,ices( )uildin$ communities of loyal folloers( and promotin$ special e,ents and pricin$. 'or some start-ups( social media ill help them $ro and for others it is the )asis of )usiness. Some of the possi)le disad,anta$es of usin$ social media include ne$ati,e pu)licity( pri,acy and security issues( time consumin$( and $o,ernment restrictions.
App(, 1%ur S2i((s3 E4perientia( E4er&ise W$at5s 1%ur Entrepreneuria( I/
Students should total the score for the +; items. A score of ;0-10 points su$$ests a stron$ entrepreneurial IG is acuired. A score of :0-;0 indicates $ood entrepreneurial possi)ilities. !he chance of startin$ a successful entrepreneurial )usiness is $ood if the student has the desire and moti,ation. If the score is )elo :0( the student pro)a)ly doesn9t ha,e much entrepreneurial potential.
App(, 1%ur S2i((s3 Sa(( Gr%up "rea2%ut W$at C%unts
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C$apter 6
!his e3ercise ass students to ran ei$ht ualities e3perts su$$est are reuired to )e a successful entrepreneur from most important to least important. Students share their ranin$s in $roups( then create a sin$le ranin$ for the $roup as a hole( and discuss uestions pro,ided in the e3ercise.
App(, 1%ur S2i((s3 Et$i&a( Di(ea C(%sing t$e Dea(
+. )ay nothing about the false numbers. #f course, the company will miss the projections and have to come up with a good eplanation, but after all, isn’t that par for the course among ledgling high(tech companies+ Chances are the whole thing will blow over without a problem! !his course of action could lead to le$al pro)lems for the firm and should not )e taen. /. 4o ahead and close the deal, but come clean later. Eplain that the controller had been on an etended leave of absence and, because you had been on the job only a few days, you had not had time to personally do an analysis of the numbers. !his option still reuires noin$ly misleadin$ the in,estors. It could also lead to le$al pro)lems and( therefore( is not a ,ia)le option. :. ake swift action to notify the venture capitalists of the truth of the situation5and start cleaning house to get rid of people who would knowingly lie to close a deal. !his is the only option there is to a,oid potential le$al issues later. Chuc Camp)ell should come clean and tae immediate action to notify in,estors( company personnel( etc. shortly after )ein$ apprised of the error made.
App(, 1%ur S2i((s3 Case *%r Criti&a( Ana(,sis "(a&2-#a&2 Anti+ues
+. $f you were 6evin how would you initiate a conversation with 7eremy+ hat would you want to learn+ hat would you say+
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If I ere e,in( I ould initiate the con,ersation )y asin$ a)out the pro)lems faced )y eremy and then as a)out his plannin$ for the future. I ould learn a)out the pro)lems faced )y eremy and try to con,ince him not to lea,e. /. hat does this case illustrate about the risks of starting a business with a partner+ 1ow might those risks be minimi8ed+ Eplain !his case illustrates the disad,anta$es of partnerships that include the unlimited lia)ility of the partners and the disa$reements that occur amon$ people. !hese riss can )e minimied )y drain$ up and si$nin$ a formal partnership a$reement ith the help of an attorney. :. *o you think 6evin could make a go of the business alone+ )hould he try+ *iscuss. e,in could mae a try at )usiness alone if he is sure that the antiue side of )usiness can carry all the ei$ht. e,in should try( e,en more so )ecause he is not sure of other 6o) prospects.
n t$e #%) Vide% Case Answers "isse(( "r%t$ers )rewing3 Managing Start-Ups and New Ventures
+. What are some of the entrepreneurial traits found in the to Bissell )rothers that help mae them successful? Are there any sills or traits you thin they could impro,e upon?
'utono#& Both )rothers sho the entrepreneurial trait of autonomy. !hey tae pride in de,elopin$( manufacturin$( paca$in$( and distri)utin$ the )eer themsel,es. While most companies use esta)lished )eer distri)utors for their products( the Bissell )rothers prefer to handle distri)ution themsel,es. (igh Energ&! Both )rothers sho the entrepreneurial trait of hi$h ener$y. !hey are passionate a)out creatin$ )eer and main$ their company $ro. Self-confience !he Bissell )rothers ha,e the entrepreneurial trait of self-confidence. !hey did not ha,e financial )ac$rounds---one as a photo$rapher and the other a psycholo$y ma6or in colle$e----)ut they fi$ured out ho to $et a )an loan ith no collateral and rent a )usiness location ell )efore the )usiness as operational. Each success $a,e them more self-confidence to try somethin$ ne. Personal sacrifice! !he )rothers ere illin$ to sacrifice personal $ain to use their profits for a don payment on a second location. !he need for )usiness $roth outei$hed any personal needs. !his is an entrepreneurial trait. Locus of control Both )rothers tae personal responsi)ility for the success or failure of the )usiness. !hey do their on trou)le-shootin$ to find solutions to pro)lems.
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C$apter 6
Nee to achieve! !he entrepreneurial trait of needin$ to achie,e could )e impro,ed upon if the company is $oin$ to continue to $ro. At a certain point( the Bissell )rothers ill ha,e to ha,e more people in their operation and dele$ate more authority to others.
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