Chapter 6 Starting Your Own Business: The Entrepreneurship Alternative (Contemporary Business)

Contemporary Business 18 Edition th Louis E. Boone; David L. Kurtz; Susan Berston Chapter 6 Starting Your Own Business: The Entrepreneurship Alternative Learning Objectives 1. Define entrepreneur. 2. Identify the different categories of entrepren...

Contemporary Business 18 Edition th Louis E. Boone; David L. Kurtz; Susan Berston Chapter 6 Starting Your Own Business: The Entrepreneurship Alternative Learning Objectives 1. Define entrepreneur. 2. Identify the different categories of entrepreneurs. 3. Explain why people choose entrepreneurship as a career path. 4. Discuss the environment for entrepreneurs. 5. Identify the characteristics of entrepreneurs. 6. Summarize the process of starting a new venture. 7. Explain intrapreneurship. Copyright ©2019 John Wiley & Sons, 2 Inc. What is an Entrepreneur? A risk taker in the private enterprise system, who seeks a profitable opportunity, and takes the necessary risks to set up and operate a business. They differ from many small-business owners in their strong desire to expand and grow their business. Entrepreneurs differ from managers through their overriding responsibility to use the resources of the organization to accomplish their goals Copyright ©2019 John Wiley & Sons, 3 Inc. Categories of Entrepreneurs Classic Entrepreneurs Identify business opportunities and allocate available resources to tap those markets Serial Entrepreneurs Start one business, run it, and then start and run additional businesses in succession Social Entrepreneurs Recognize a societal problem and use business principles to develop innovative solutions Lifestyle Entrepreneur Starts a business to gain flexibility in work hours Copyright ©2019 John Wiley & Sons, 4 Inc. Entrepreneurship as a Career Path 27 million working-age Americans are starting or running new businesses The past two decades have shown a heightened interest in entrepreneurial careers People choose to become entrepreneurs: Dissatisfaction with traditional work To fill a gap in goods or services they could use themselves Financial necessity Heightened publicity surrounding celebrity entrepreneurs Copyright ©2019 John Wiley & Sons, 5 Inc. Why People Become Entrepreneurs Freedom to make decisions and self-management Being first to bring an idea for a superior product to market can translate to financial gains as creators of wealth Working for a large company does not guarantee job security Freedom to decide when, where, and how to work Figure 6.1 Why People Become Entrepreneurs Copyright ©2019 John Wiley & Sons, 6 Inc. The Environment for Entrepreneurship Globalization Education Demographic & Economic Trends Information Technology Figure 6.2 Factors Supporting and Expanding Opportunities for Entrepreneurs Copyright ©2019 John Wiley & Sons, 7 Inc. The Environment for Entrepreneurship Globalization Rapid globalization of business has created opportunities for entrepreneurs Entrepreneurs market their products abroad and hire international workers Almost two of every five small U.S. companies have international sales. Role of entrepreneurs is growing in most industrialized and newly industrialized nations Business ownership rate is highest in economies that compete based on unskilled labor and natural resources Copyright ©2019 John Wiley & Sons, 8 Inc. The Environment for Entrepreneurs Education U.S. colleges and universities: entrepreneurship majors Universities are helping students launch businesses Teaching entrepreneurship to young people Information Technology Technology has provided entrepreneurs tools to compete Entrepreneurs have used IT to revolutionize industries Demographic and Economic Trends Aging of U.S. population Increasingly diverse ethnic groups Growth of two-income families Copyright ©2019 John Wiley & Sons, 9 Inc. Characteristics of Entrepreneurs (1 of 2) Figure 6.3 Characteristics of Entrepreneurs Copyright ©2019 John Wiley & Sons, 10 Inc. Characteristics of Entrepreneurs (2 of 2) Vision - how to make Tolerance for Failure - not business ideas successful easily discouraged High Energy Level - a Creativity –overcoming willingness to work long and difficult problems and hard situations Need to Achieve competitive Tolerance for Ambiguity – drive and desire to excel uncertainties taken in stride Self-Confidence – optimism Internal Locus of Control - and fearlessness control of their own destiny Copyright ©2019 John Wiley & Sons, 11 Inc. Entrepreneurial Characteristics Entrepreneurs need to have a vision of how to make their business idea a success. After graduating from the University of California, Berkeley, Cher Wang, a Taiwanese born entrepreneur and philanthropist, co- founded smart phone maker, HTC. Copyright ©2019 John Wiley & Sons, 12 Inc. Figure 6.4 Quiz for Small-Business Success Figure 6.4 Quiz for Small-Business Success Source: “Small Business Readiness Assessment,” eweb1.sba.gov/cams/training/busin ess_primer/assessment.htm , accessed March 14, 2018. Copyright ©2019 John Wiley & Sons, 13 Inc. Starting a New Venture Considerations for choosing an idea for your business: Find something you love to do and are good at doing Determine whether your idea can satisfy a need in the marketplace Do what makes you happy and be true to yourself Copyright ©2019 John Wiley & Sons, 14 Inc. Choosing a Business Idea (1 of 2) List your interests and abilities. Include your values and beliefs, your goals and dreams, things you like and dislike doing, and your job experiences. Make another list of the types of businesses that match your interests and abilities. Read business and consumer magazines and websites to learn about demographic and economic trends that identify future needs for products that no one yet offers. Copyright ©2019 John Wiley & Sons, 15 Inc. Choosing a Business Idea (2 of 2) Carefully evaluate existing goods and services, looking for ways you can improve them. Decide on a business that matches what you want and offers profit potential. Conduct marketing research to determine whether your business idea will attract enough customers to earn a profit. Learn as much as you can about the industry in which your new venture will operate, your product(s) or service, and your competitors. Read surveys that project growth in various industries. Copyright ©2019 John Wiley & Sons, 16 Inc. Buying an Existing Business Established businesses may be less risky than starting a new one Employees and suppliers are in-place to serve established customers The company’s good or service is well known in marketplace Necessary permits and licenses are already secured In some cases, financing may be easier for an existing business Copyright ©2019 John Wiley & Sons, 17 Inc. Buying a Franchise (1 of 2) A less risky way to begin a new business than establishing an entirely new firm A franchise usually means better brand recognition Firms in franchises showing growth include those targeting children and parents, such as photography, cloth, and security Franchise fees can be costly Copyright ©2019 John Wiley & Sons, 18 Inc. Buying a Franchise (2 of 2) Buying a franchise, such as a Fleet Feet Sports store, offers entrepreneurs a less risky way to begin a business than starting an entirely new firm. Copyright ©2019 John Wiley & Sons, 19 Inc. Creating a Business Plan In the past, many entrepreneurs did not always create a business plan when starting a new venture Although flexibility is crucial for any startup, particularly in quickly changing markets, planning is essential Entrepreneurs typically solve problems as they arise, and change course as necessary If seeking funds from outside sources, some planning is necessary Part of the planning effort includes research needed to create a business plan, or a road map of sorts Copyright ©2019 John Wiley & Sons, 20 Inc. Business Plan Resources Table 6.2 Online Resources for Preparing a Business Plan Bplans http://bplans.com Click “Sample Business Plans” under “Business Planning.” Score Click on “Business Plan Template for a https://www.score.org/ Startup business-plan resources Business.” MoreBusiness.com Under “Business Plan,” click on http:// “Templates.” www.morebusiness.com Small Business Go to “Write Your Business Plan” under Administration “Business Guide.” http://sba.gov Copyright ©2019 John Wiley & Sons, 21 Inc. Finding Financing Finding financing remains a key issue for most startups Seed capital, funds to launch a company, is a key issue for most startups There are two types of financing: Debt Financing – money borrowed to be repaid Equity Financing – a share of ownership is exchanged for money supplied Copyright ©2019 John Wiley & Sons, 22 Inc. Startup Funding Sources Table 6.3 Funding Used by Entrepreneurs for Start-Ups Source Percentage of Entrepreneurs Personal savings 67% Bank loans 52% Loans from family, friends, or business associates 40% Credit cards 34% Have not used financing 14% Angel investors 8% Venture capitalists 7% Government grants 4% *Percentages do not total 100 because entrepreneurs often use multiple sources to finance start-ups. Source: Organization website, “How Entrepreneurs Access Capital and Get Funded,” Entrepreneurship Policy Digest, www.kauffman.org, accessed March 14, 2018. Copyright ©2019 John Wiley & Sons, 23 Inc. Debt Financing Money borrowed that must be repaid Banks, finance companies, families & friends, and credit cards Very few startups are financed through bank loans, which are difficult to secure in today’s environment Applying for a bank or SBA-backed loan requires careful preparation, planning and analysis Entrepreneur’s credit history will be important A professional and detailed business plan is necessary A track record of profits may make it easier to obtain bank financing Copyright ©2019 John Wiley & Sons, 24 Inc. Equity Financing (1 of 2) Entrepreneurs exchange a share of ownership in their company for money supplied by investors Sources of equity financing include family and friends, business partners, venture capital firms, and private or angel investors Venture Capitalists are business organizations or groups of private individuals that invest in early-stage, high-potential growth companies Angel Investors are wealthy individuals who invest money directly in new ventures in exchange for equity, are a larger source of investment capital for start-up firms Copyright ©2019 John Wiley & Sons, 25 Inc. Equity Financing (2 of 2) David Gilboa and Neil Blumenthal have found creative ways to obtain equity financing. With an initial seed investment of $2,500, War by Parker has grown into an American brand of prescription eyewear Copyright ©2019 John Wiley & Sons, 26 Inc. Government Support for New Ventures Federal, state, and local governments support new ventures The SBA, state and local agencies, and business incubators all offer information, resources, and access to financing Enterprise Zones - Entrepreneurship is also encouraged through specific geographic areas designated for economic revitalization Enterprise zones encourage investment, often in distressed areas, by offering tax advantages and incentives to businesses Government Legislation Immigration Act of 1990 Copyright ©2019 John Wiley & Sons, 27 Inc. Intrapreneurship Intrapreneurship process of promoting innovation within the structure of an existing organization. Skunkworks project initiated by an employee who conceives an idea, convinces top management of its potential, and then recruits human and other resources from within the company to turn the idea into a commercial project. Copyright ©2019 John Wiley & Sons, 28 Inc. Copyright Copyright © 2019 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 19 76 United States Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein. Copyright ©2019 John Wiley & Sons, 29 Inc.