Entrepreneurship Chapter 3 Quiz

Chapter 3: Entrepreneurship, New Ventures, and Business Ownership

• This chapter examines converting business ideas into profitable ventures, assessing market potential for new and emerging businesses, and analyzing business plans, success factors, and failure reasons.
• It also explores the advantages and disadvantages of various ownership structures.

Introduction

• The chapter details the processes of turning a business idea into a successful enterprise.
• It delves into evaluating the potential of new and developing business sectors.
• The business plan, including reasons for success and failure, is a key part of the discussion.
• Different ownership structures and their respective benefits and drawbacks are considered.

Learning Objectives

• Objective 1: Defining small businesses, detailing their significance to the U.S. economy, and outlining common small business sectors.
• Objective 2: Defining entrepreneurship and outlining key characteristics of entrepreneurial personalities and activities.
• Objective 3: Defining distinctive competence, describing business plans, and detailing start-up decisions and financial assistance resources for small businesses.
• Objective 4: Identifying trends in small business start-ups and analyzing causes for success and failure.
• Objective 5: Defining sole proprietorships, partnerships, and cooperatives, along with their advantages and disadvantages.
• Objective 6: Characterizing corporations, investigating their advantages and disadvantages, and distinguishing different corporate structures while discussing issues involved in management.

What is a "Small" Business?

• A small business is independent and has limited influence within its market and doesn't belong to a larger enterprise.
• The SBA (Small Business Administration) supports small businesses.

The Importance of Small Business in the U.S. Economy

• Nearly 90% of U.S. businesses employ fewer than 20 people.
• Small businesses contribute significantly to the U.S. workforce.
• Small businesses drive job creation in high-tech sectors and often lead the economic recovery.
• Small businesses drive innovation.
• Small businesses contribute to larger established companies.

Popular Areas of Small-Business Enterprise

• Small businesses are heavily concentrated in services (approximately 55.8%).
• Retailing (about 11.8%) and construction (about 12.1%) round out the top three sectors.

Entrepreneurship

• An entrepreneur is a businessperson who takes on the risks of launching and operating a new business.
• Entrepreneurship is the process of seeking business opportunities within uncertain environments.

Entrepreneurial Characteristics

• Key traits include resourcefulness, customer care, desire for independence, and managing uncertainty and risk.

Understanding Distinctive Competencies

• An established market is one with numerous competing firms, working within predefined parameters.
• A niche market is an underserved portion of an existing market.

First-Mover Advantages

• First-mover advantage is a benefit to a firm gained by being the first to exploit an emerging market.

Starting and Operating a New Business

• A business plan is a document that describes the new business strategy and illustrates its implementation.

Crafting a Business Plan

• Components include setting goals and objectives, sales forecasting, and financial planning.

Starting the Small Business

• Options include purchasing an existing business, franchising, or starting from scratch.

Franchising

• A franchise is a business arrangement where a buyer acquires the right to sell a seller's goods or services.
• Franchises offer advantages such as proven business models and management expertise but involve upfront and ongoing costs, as well as various management rules and restrictions.

Starting from Scratch

• Crucial questions when starting a business from scratch involve determining target customers, pricing strategies, estimated sales volumes, competition, and consumer demand for the product.

Financing a Small Business

• Options include using personal resources, loans from family and friends, bank loans, venture capital, Small Business Investment Companies (SBICs), Minority Enterprise Small Business Investment Companies (MESBICs), and SBA programs.

Trends in Small-Business Start-Ups

• E-commerce, and crossovers from larger businesses are emerging trends.
• Increased opportunities exist for minorities and women.

Reasons for Failure

• Common reasons for small business failure include managerial incompetence or inexperience, neglect, weak control systems, and insufficient capital.

Reasons for Success

• Reasons for success include hard work, drive, dedication, market demand for goods/services, managerial competence, and luck.

Noncorporate Business Ownership

• Sole Proprietorship: This is a business owned by one person, holding sole responsibility for the business's debts.
• General Partnership: A partnership involves two or more owners sharing operating duties, and financial responsibilities for all business debts.

Sole Proprietorship

• Advantages: Freedom, ease of formation, low initial costs, and tax benefits.
• Disadvantages: Unlimited liability, limited resources, difficulties raising additional capital, and lack of continuity beyond the owner's control.

Partnerships

• Advantages: More resources, easier formation, and tax benefits.
• Disadvantages: Potential for disagreements amongst partners, unlimited liability for general partners, and lack of continuity.

Comparative Summary: Three Forms of Business Ownership

• This table summarizes the three ownership structures, comparing liability, continuity, management, and capital sources.

Alternatives to General Partnerships

• Limited Partnerships allow limited partners to invest without assuming full liability; General partners operate the business.
• Master Limited Partnerships give the master partner majority ownership and operational control, while minority partners lack management input.

Cooperatives

• Cooperatives combine the flexibility of sole proprietorships with the financial strength of corporations.
• Partnerships or sole proprietorships collaborate to achieve shared benefits.

Proportions of U.S. Firms in Terms of Organization Type and Sales Revenue

• Corporations tend to be bigger and hold a smaller percentage of businesses but account for much of the revenue.
• Proprietorships make up a greater percentage of businesses but a smaller percentage of sales revenue.

The Corporate Entity

• Corporations are legally distinct from their owners, and owners are liable only up to their investment.

Corporations

• Advantages: Limited liability, continuity, and strong fundraising capabilities.
• Disadvantages: Potential for takeover against management wishes, double taxation of profits, and complex formation processes.

Types of Corporations

• Different corporate structures exist, each with its own characteristics.
• Closely held corporations, publicly held corporations, S corporations, limited liability corporations (LLCs), and multinational corporations are further categorized, each with specific regulations and features.

Managing a Corporation

• Corporate governance outlines the roles of shareholders, directors, and officers in decision-making and accountability.

Special Issues in Corporate Ownership

• These include joint ventures, employee stock ownership plans, institutional ownership, mergers, divestitures, and spin-offs.

Applying What You've Learned

• Key aspects of small businesses, entrepreneurship, business plans, and financing are reviewed.
• Additional learnings include different types of business ownership structures.