Entrepreneurship Fundamentals

• Chapter 1 introduces entrepreneurship as the art of founding a business.
• The chapter contains formal definitions of entrepreneurship and its historical context.
• The chapter also highlights the growing importance of entrepreneurship in today's global work environment.

Learning Objectives

• This chapter will define entrepreneurship
• This chapter will explore how entrepreneurship has evolved through the years
• Some success stories of entrepreneurs are cited
• The advantages and disadvantages of entrepreneurship are listed
• Trends under Entrepreneurial Economy are covered
• Social entrepreneurship is defined, and its relevance explained

Definition of Entrepreneurship

• The word “entrepreneur" originates from the French word entreprendre, meaning “to undertake.”
• Webster's dictionary defines an entrepreneur as “one who organizes and directs a business undertaking, assuming the risk for the sake of profit."
• Entrepreneurship is the art and skill of founding a business.
• It involves creating a business offering economic value, characterized by creativity and risk-taking.

The Business World Needs Entrepreneurs

• Entrepreneurial success benefits the whole society.
• Entrepreneurs spur economic growth within a state.
• The world is re-focusing from big business to small business.

Advantages & Disadvantages of Entrepreneurship

• Advantages include: achieving ambitions, feeling respect, being creative, being distinguished, being independent, and creating opportunities.
• Disadvantages include: income instability, high pressure, working long hours, full responsibility, high risk, and less social life.

Ownership Structure of the Business

• Types of ownership include: Sole proprietorships, general partnerships, corporations, and Limited Liability Companies (LLC).
• Types of businesses include: Start-ups, buying an existing business, and franchises.
• Business size can be micro, small, medium, and large.

Sole Proprietorship

• A sole proprietorship is the simplest, oldest, and most common form of business structure.
• A sole proprietorship has no legal existence separate from its owner.
• In the event of business debt, lenders can claim both business and personal assets as payment.
• It is easy and cheaper to set up, the owner controls the business, owns all profits, has few administrative duties, and can decide matters quickly.
• Profits are taxed as personal income.
• It is often hard to obtain financing for sole proprietorships.
• If the business can’t pay its debts, lenders pursue the owner's assets.
• The owner carries a big burden, often has a low salary, and manages all business aspects.

General Partnership

• A general partnership involves personal liability for all business transactions.
• General partners face the risk of unlimited liability in case of business failure.
• General partnerships raise capital and are relatively easy to set up.
• Partners pool knowledge and share liability, which limits administrative duties.
• Partners are not protected from bad financial decisions made by their partners.
• Tax savings are limited; only direct, out-of-pocket expenses can be deducted.
• Disagreements among partners can be unpleasant and the partnerships can be difficult to dissolve.

Corporation

• A corporation is a legal entity separate from its creators
• Corporations are owned by shareholders and run by a board of directors, who are elected by the shareholders.
• Shares of a corporation represent equal parts of the ownership of a company.

Limited Liability Company (LLC)

• An LLC is a legal business form that provides limited liability to its owners.
• An LLC is not a corporation, but it provides limited liability, like a corporation.
• LLC's are often more flexible than corporations and well-suited for companies with a single owner.

Types of Businesses: Start-ups

• Start-ups are new companies built from scratch.
• Most start-ups do not evolve into large and long-term firms.
• More than 60% are out of business in the first six years.
• More than 70% are out of business in the first eight years.
• Most startups remain small, even if they survive the first few years.

Advantages of Start-ups

• Start-ups can be based on a unique idea or opportunity,
• Start-ups have unlimited potential growth and earnings.

Disadvantages of Start-ups

• There are many variables for which the owner will initially have assumptions rather than facts
• There is no assurance that you can acquire enough customers within a certain timeframe

Buying an Existing Business

Advantages

• There is a financial track record to analyz performance, and the current owner to train you
• Customers are familiar with the product, and supplier and vendor relationships are established
• It is an advantage if there is a prime location, established employees, and established business loan approvals
• The existing owner may be willing to contribute to financing, and the record keeping and accounting systems should be installed.

Disadvantages

• The cost is generally more than that of a start-up.
• The owner's reason for selling could be hidden.
• Financial statement validity could be questionable, and customer satisfaction levels may be exaggerated
• Condition of assets may be worse than it appears.
• Current employees may not be suitable.
• The equipment and facilities are in need of repair.
• The inventory may be outdated.
• A change of ownership may inhibit innovation.
• Receivables may be inflated, and the business may be overpriced.

Franchise

• A franchise agreement is an agreement in which the franchiser grants the franchisee rights to market or distribute a patented or trademarked product or service in exchange for payment or royalties.
• There are more than 3,000 franchise opportunities in the U.S. alone.
• Franchises span every type of business imaginable.
• Franchises control 50% of retail sales in the U.S. and a new franchise opens somewhere in the world every six minutes.

Franchising advantages

• Franchises provide a proven success formula, training programs for new owners, and brand names
• Franchises provide advertising, promotional programs initiated by the franchise, tested accounting systems, and volume discounts on purchases.

Franchising disadvantages

• Franchises involve high start-up franchise and annual fees.
• Franchisees must abide by franchise operating restrictions and may require a renewal fee after a period of time.
• Franchise growth may be limited by contract.

Size of the Business

• Business sizes include: micro, small, medium, and large.
• In Saudi Arabia, Micro-Businesses have 1-5 employees and less than SR 3M in sales.
• In Saudi Arabia, Small businesses have 6-49 employees and 3-40 SR M in sales.
• In Saudi Arabia, Medium businesses have 50-249 employees and 40-200 SR M in sales.

Determine the Business Opportunity

• Determining business opportunities depends on what the customer wants, and what the entrepreneur wants to do.

What the Customer Wants

• Finding a business depends on whether the customers want to buyn and if it fulfills a human need.
• Products must meet human needs that are unmet, poorly met, not met locally, and not recognized by customers themselves.
• Potential business needs can be found at trade fairs, exporters conventions, inventor gatherings, business newspapers, patent lawyers, the patent office, and technology magazines.
• Online sources include The Entrepreneur's business ideas index.
• Start with an existing product, a variation of an old product, a product that can be made to appeal to a new market, or a totally new product.
• Researching the answers to such questions helps you narrow down from a list of 100 to shorter list of 10 products to pursue and helps determine key aspects to consider.
• You must determine who will be interested, how you can market it exclusively, how much it will cost to market, how much it will cost to produce, if you can offer it quickly, and if you can get funding.
• Finding your product's unique selling proposition and identifying it as faster, higher, or stronger than others is critical.

Protecting a Business Idea

• Your ideas are your intellectual property, and you deserve to get commercial benefit from them.
• Ideas should be protected because other individuals can copy it and profit from it, and in that event, they need to pay you some money.
• The four types of common intellectual properties are copyright, patent, trademark, and trade secret.

Intellectual Properties

• Copyright gives protection for the creative work of composers, authors/writers, artists, and filmmakers spanning the lifetime of the creator and for many years after his or her death.
• Copyright is designated by the symbol ©.

Patent

• A patent gives the exclusive right to use or sell an invention.
• Subtypes of patents include: patents on a device, an artistic design, and a mechanical design
• Patents on plants also exist for those created by a botanist.

Trademark

• A trademark is a word or symbol used by a manufacturer or merchant to identify their goods and distinguish them from others.
• Trademarks are designated by the symbol ®.

Trade Secret

• A trade secret is a secret formula, method, device, or item of information that gives an entrepreneur an advantage over competitors.

Explore the core activities, essential elements, and societal contributions of entrepreneurs. Understand the shift in the business world, the definition of entrepreneurship, and the advantages and disadvantages of different business ventures.