Essentials of Entrepreneurship & Small Business Management (2016) - PDF

 CASES ESSENTIALS OF ENTREPRENEURSHIP ANd SmALL bUSINESS mANAgEmENT, 8/E Case # Entrepreneur & Company Name Related Topics Chapter Reference...

 CASES ESSENTIALS OF ENTREPRENEURSHIP ANd SmALL bUSINESS mANAgEmENT, 8/E Case # Entrepreneur & Company Name Related Topics Chapter Reference 1 Vincent Ko, Luke Lagera, Industry: Bamboo Sunglasses and Mike Mills * Social Entrepreneurship 1 Panda Sunglasses * Social Responsibility 2 * Business Model 4 * Bootstrap Marketing and Social Media 8 * E-Commerce 9 2 Dr. Luke Alphey Industry: Biotech Oxitec * Business Ethics and Social Responsibility 2 * Business Model 4 3 Gerald Shvartsman Industry: Outdoor Furniture Source Outdoor * Entrepreneurship 1 * Business Model 4 * Global Business 15 4 Carlos Vega Industry: Restaurant Father and Son Pizzeria * Intellectual Property 3 * Strategic Planning 5 * Bootstrap Marketing 8 * Location 14 5 Laura and Doug Zander Industry: E-Commerce and Retail Yarn Jimmy Beans Wool * Strategic Planning 5 * E-Commerce 9 * Cash Management 12 6 Telford and Ivey James Industry: Chocolate Confections James Confectioners – Part 1 * Pricing 10 * Financial Analysis 11 7 Telford and Ivey James Industry: Chocolate Confections James Confectioners – Part 2 * Managing Cash Flow 12 8 Brian Razzaque Industry: Social Media SocialToaster * Business Plan 5 * Sources of Financing 13 9 Sam Davidson Industry: Social Enterprise CoolPeopleCare * Social Entrepreneurship 1 and 2 * Business Model 4 * Business Plan 5 * Bootstrap Marketing 8 10 Michael Brody-Waite Industry: Healthcare InQuicker * Strategic Planning 5 * Equity Financing 13 * Culture 16 Scarborough_1292094869_ifc.indd 1 20/02/15 2:37 PM  Global Edition Essentials of Entrepreneurship and Small Business Management Eighth Edition Norman M. Scarborough Presbyterian College Jeffrey R. Cornwall Belmont University Boston Columbus Indianapolis New York San Francisco Hoboken Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Vice President, Business Publishing: Donna Battista Operations Specialist: Diane Peirano Editor-in-Chief: Stephanie Wall Creative Director: Blair Brown Acquisitions Editor: Dan Tylman Senior Art Director: Janet Slowik Program Manager Team Lead: Ashley Santora Text Designer: S4Carlisle Publishing Services Program Manager: Claudia Fernandes Cover Designer: Murugesh Rajkumar, Lumina Datamatics Editorial Supervisor: Linda Albelli Cover Art: © amenic181/Shutterstock Vice President, Product Marketing: Maggie Moylan VP, Director of Digital Strategy & Assessment: Paul Gentile Director of Marketing, Digital Services and Products: Jeanette Manager of Learning Applications: Paul Deluca Koskinas Digital Editor: Brian Surette Executive Product Marketing Manager: Anne Fahlgren Digital Studio Manager: Diane Lombardo Field Marketing Manager: Lenny Ann Raper Digital Studio Project Manager: Robin Lazrus Senior Strategic Marketing Manager: Erin Gardner Digital Studio Project Manager: Alana Coles Project Manager Team Lead: Judy Leale Digital Studio Project Manager: Monique Lawrence Project Manager: Kelly Warsak Digital Studio Project Manager: Regina DaSilva Senior Acquisitions Editor, Global Edition: Steven Jackson Full-Service Project Management and Composition: Kannan Poojali, Assistant Project Editor, Global Edition: Amrita Kar S4Carlisle Publishing Services Manager, Media Production, Global Edition: Vikram Kumar Printer/Binder: Courier/Kendallville Senior Manufacturing Controller, Production, Global Edition: Cover Printer: Lumina Datamatics Trudy Kimber Text Font: 8/10 Times LT Std Microsoft and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published as part of the services for any purpose. 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Authorized adaptation from the United States edition, entitledd Essentials of Entrepreneurship and Small Business Management, 8th edition, ISBN 978-0-13-384962-2, by Norman M. Scarborough and Jeffrey R. Cornwall, published by Pearson Education © 2016. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC 1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. ISBN-10: 1-292-09486-9 ISBN-13: 978-1-292-09486-1 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 Typeset by S4Carlisle Publishing Services Printed and bound by Courier Kendallville To Cindy, whose patience is always tested during a writing project of this magnitude. Your love, support, and understanding are a vital part of every book. You are the love of my life. —NMS To Ann, for her wisdom and love. Your encouragement and support is the foundation for each new entrepreneurial adventure we take. —JRC “May your own dreams be your only boundaries.” —The Reverend Purlie Victorious Judson, in “Purlie,” Broadway Theater, 1970 Brief Contents SECTION I The Challenge of Entrepreneurship 17 Chapter 1 The Foundations of Entrepreneurship 17 Chapter 2 Ethics and Social Responsibility: Doing the Right Thing 59 Chapter 3 Inside the Entrepreneurial Mind: From Ideas to Reality 96 SECTION II The Entrepreneurial Journey Begins 147 Chapter 4 Conducting a Feasibility Analysis and Designing a Business Model 147 Chapter 5 Crafting a Business Plan and Building a Solid Strategic Plan 177 Chapter 6 Forms of Business Ownership and Buying an Existing Business 230 Chapter 7 Franchising and the Entrepreneur 264 SECTION III Launching the Business 302 Chapter 8 Building a Powerful Bootstrap Marketing Plan 302 Chapter 9 E-Commerce and the Entrepreneur 340 Chapter 10 Pricing and Credit Strategies 385 Chapter 11 Creating a Successful Financial Plan 421 Chapter 12 Managing Cash Flow 458 SECTION IV Putting the Business Plan to Work: Sources of Funds 497 Chapter 13 Sources of Financing: Equity and Debt 497 Chapter 14 Choosing the Right Location and Layout 540 Chapter 15 Global Aspects of Entrepreneurship 589 Chapter 16 Building a New Venture Team and Planning for the Next Generation 624 Appendix The Daily Perc Business Plan 668 Cases 690 Name Index 706 Subject Index 714 4 Contents Preface 12 Corporate Dropouts 47 Retiring Baby Boomers 48 SECTION I The Challenge ◼ HANDS ON... HOW TO Launch of Entrepreneurship 17 a Successful Business While You Are Still in College 49 Chapter 1 The Foundations of The Power of “Small” Business 50 Entrepreneurship 17 Putting Failure into Perspective 51 The World of the Entrepreneur 18 How to Avoid the Pitfalls 53 What Is an Entrepreneur? 21 Know Your Business in Depth 53 The Benefits of Entrepreneurship 28 Build a Viable Business Model—and Test It 53 Opportunity to Create Your Own Destiny 28 Develop a Solid Business Plan 54 Opportunity to Make a Difference 29 Understand Financial Statements 54 ◼ YOU BE THE CONSULTANT Manage Financial Resources 54 Decoding the DNA of the Learn to Manage People Effectively 55 Entrepreneur 30 Set Your Business Apart from the Opportunity to Reach Your Full Potential 32 Competition 55 Opportunity to Reap Impressive Profits 32 Maintain a Positive Attitude 55 Opportunity to Contribute to Society and Be Recognized for Your Efforts 33 Conclusion 56 Opportunity to Do What You Enjoy Chapter Summary by Learning Objective 56 and Have Fun at It 33 Discussion Questions 57 Beyond the Classroom... 58 Endnotes 58 The Potential Drawbacks of Entrepreneurship 34 Uncertainty of Income 34 Chapter 2 Ethics and Social Responsibility: Doing Risk of Losing Your Entire Investment 34 the Right Thing 59 Long Hours and Hard Work 34 An Ethical Perspective 62 Lower Quality of Life Until the Business Gets Established 35 Three Levels of Ethical Standards 62 High Levels of Stress 35 Moral Management 64 Complete Responsibility 35 The Benefits of Moral Management 65 Discouragement 35 Establishing an Ethical Framework 66 Behind the Boom: What’s Feeding Why Ethical Lapses Occur 69 the Entrepreneurial Fire 36 An Unethical Employee 69 ◼ YOU BE THE CONSULTANT An Unethical Organizational Culture 69 College: The Ideal Place to Moral Blindness 70 Launch a Business 40 Competitive Pressures 70 The Cultural Diversity of Opportunity Pressures 70 Entrepreneurship 41 Globalization of Business 70 Young Entrepreneurs 41 Establishing and Maintaining Ethical Women Entrepreneurs 41 Standards 71 Minority Enterprises 42 Establishing Ethical Standards 71 Immigrant Entrepreneurs 43 Maintaining Ethical Standards 73 Part-Time Entrepreneurs 44 Social Entrepreneurship 74 Home-Based Businesses 45 ◼ YOU BE THE CONSULTANT Family Businesses 45 Funding Social Ventures Through Copreneurs 46 Franchise Businesses 75 Corporate Castoffs 47 Social Responsibility 76 5 6 CONTENTS Business’s Responsibility to the Step 6. Verification 128 Environment 78 Step 7. Implementation 128 Business’s Responsibility to Techniques for Improving the Creative Employees 78 Process 129 Cultural Diversity in the Workplace 79 Brainstorming 129 Drug Testing 82 Mind Mapping 130 Sexual Harassment 83 Force-Field Analysis 131 ◼ HANDS ON... HOW TO TRIZ 132 How to Avoid Sexual Rapid Prototyping 133 Harassment Charges 86 Intellectual Property: Protecting Your Privacy 88 Ideas 134 Business’s Responsibility to Patents 134 Customers 88 Trademarks 137 Right to Safety 88 ◼ YOU BE THE CONSULTANT ◼ YOU BE THE CONSULTANT How Would You Rule in These Think before You Tweet 89 Intellectual Property Cases? 138 Right to Know 90 ◼ HANDS ON... HOW TO Protect Your Right to Be Heard 90 Company’s Intellectual Property— Right to Education 90 Both at Home and Abroad 141 ◼ YOU BE THE CONSULTANT 142 But Is It Safe? 91 Protecting Intellectual Property 142 Right to Choice 91 Chapter Summary by Learning Objective 143 Business’s Responsibility Discussion Questions 145 Beyond the Classroom... 145 Endnotes 146 to Investors 92 Business’s Responsibility to the Community 92 SECTION II The Entrepreneurial Conclusion 93 Journey Begins 147 Chapter Summary by Learning Objective 93 Discussion Questions 94 Beyond Chapter 4 Conducting a Feasibility the Classroom... 95 Endnotes 95 Analysis and Designing a Business Model 147 Chapter 3 Inside the Entrepreneurial Idea Assessment 148 Mind: From Ideas Feasibility Analysis 151 to Reality 96 Industry and Market Feasibility 151 Creativity, Innovation, and Entrepreneurship 97 Porter’s Five Forces Model 154 ◼ HANDS ON... HOW TO Forces Creativity—Essential to Survival 100 Shaping Innovation: Can Creativity Be Taught? 101 The Driverless Car 155 Creative Thinking 101 Product or Service Feasibility Analysis: Is Barriers to Creativity 104 There a Market? 159 ◼ YOU BE THE CONSULTANT ◼ HANDS ON... HOW TO Do You 10 Keys to Business Innovation 105 Want Fries with Those Crickets? 162 How to Enhance Creativity 111 Financial Feasibility Analysis: Is There Enhancing Organizational Enough Margin? 163 Creativity 111 Entrepreneur Feasibility: Is This Idea Right Enhancing Individual Creativity 118 for Me? 164 ◼ HANDS ON... HOW TO Be a Developing and Testing a Business Successful Innovator 122 Model 166 The Creative Process 123 ◼ YOU BE THE CONSULTANT Step 1. Preparation 124 RendezWoof: Creating a Minimal Step 2. Investigation 125 Viable Product for a Mobile App 171 Step 3. Transformation 125 Conclusion 172 Step 4. Incubation 126 ◼ YOU BE THE CONSULTANT When to Step 5. Illumination 127 Call It Quits on a New Business 173  CONTENTS 7 Chapter Summary by Learning Objective 174 Sole Proprietorships Discussion Questions 175 Beyond and Partnerships 235 the Classroom... 175 Endnotes 176 The Sole Proprietorship 235 Chapter 5 Crafting a Business Plan The Advantages of a Proprietorship 235 and Building a Solid The Disadvantages of a Proprietorship 235 Strategic Plan 177 The Partnership 237 The Benefits of Creating a Business The Revised Uniform Partnership Act 237 Plan 178 Partnership Agreement 238 The Elements of a Business Plan 180 The Advantages of the Partnership 238 What Lenders and Investors Look The Disadvantages of the Partnership 240 for in a Business Plan 189 ◼ YOU BE THE CONSULTANT Making a Partnership Work 242 The Pitch: Making the Business Plan Presentation 190 Limited Liability Partnerships 243 ◼ YOU BE THE CONSULTANT Corporations 243 The Battle of the Plans 192 The C Corporation 245 Building a Strategic Plan 193 The S Corporation 245 Building a Competitive Advantage 195 The Limited Liability Company 247 The Strategic Management How to Create a Legal Business Process 197 Entity 248 Step 1. Develop a Clear Vision and Translate It Buying an Existing Business 249 into a Meaningful Mission Statement 198 The Advantages of Buying an Existing Step 2. Assess the Company’s Strengths and Business 251 Weaknesses 202 Disadvantages of Buying an Existing Step 3. Scan the Environment for Significant Business 253 Opportunities and Threats Facing The Steps in Acquiring a Business 255 the Business 202 Analyze Your Skills, Abilities, ◼ HANDS ON... HOW TO and Interests 256 Beat the Big Guys 203 Develop a List of Criteria 257 Step 4. Identify the Key Factors for Success in Prepare a List of Potential Candidates 257 the Business 206 Investigate and Evaluate Potential Companies: Step 5. Analyze the Competition 207 The Due Diligence Process 258 ◼ YOU BE THE CONSULTANT Explore Financing Options 258 Digital Franchise Seeks to Expand Negotiate a Reasonable Deal Nationwide 208 with the Owner 258 ◼ YOU BE THE CONSULTANT Ensure a Smooth Transition 259 Finding a Niche with a Subscription Business Model 211 Negotiating the Deal 260 ◼ HANDS ON... HOW TO Objectives 212 Become a Successful Negotiator 260 Step 7. Formulate Strategic Options and Select Chapter Summary by Learning Objective 261 the Appropriate Strategies 213 Discussion Questions 246 Beyond Step 8. Translate Strategic Plans into Action the Classroom... 263 Endnotes 263 Plans 219 Step 9. Establish Accurate Controls 219 Chapter 7 Franchising and the Conclusion 223 Entrepreneur 264 Sample Business Plan Outline 223 Types of Franchising 267 Chapter Summary by Learning Objective 226 The Benefits of Buying a Discussion Questions 228 Beyond Franchise 268 the Classroom... 228 Endnotes 229 A Business System 269 Chapter 6 Forms of Business Ownership Management Training and Support 269 and Buying an Existing Brand-Name Appeal 270 Business 230 Standardized Quality of Goods and ◼ HANDS ON... HOW TO Come Up Services 270 with the Perfect Moniker for Your National Advertising Programs and Business 233 Marketing Assistance 271 8 CONTENTS Financial Assistance 272 SECTION III Launching the Proven Products, Processes, Business 302 and Business Formats 274 Centralized Buying Power 274 Chapter 8 Building a Powerful Site Selection and Territorial Bootstrap Marketing Protection 274 Plan 302 Greater Chance for Success 275 Building a Bootstrap Marketing ◼ YOU BE THE CONSULTANT Plan 303 Would You Buy This Franchise? 276 Pinpointing the Target Market 305 The Drawbacks of Buying a Determining Customer Needs and Wants Franchise 277 through Market Research 307 Franchise Fees and Ongoing Royalties 277 ◼ YOU BE THE CONSULTANT Strict Adherence to Standardized.CO Internet S.A.S. 308 Operations 278 The Value of Market Research 308 Restrictions on Purchasing and Prices 279 How to Conduct Market Research 310 Limited Product Line 279 Plotting a Bootstrap Marketing Contract Terms and Renewal 280 Strategy: How to Build Unsatisfactory Training Programs 280 a Competitive Edge 313 Market Saturation 280 Bootstrap Marketing Principles 313 Less Freedom 281 ◼ YOU BE THE CONSULTANT Franchising and the Law 281 Auto Repair Goes Social 321 The Way to Buy a ◼ HANDS ON... HOW TO Franchise 284 Make Social Media Work Evaluate Yourself 285 for Your Business 323 Research Your Market 286 ◼ YOU BE THE CONSULTANT A Company with Soul 331 Consider Your Franchise Options 286 Conclusion 337 Get a Copy of the Franchisor’s FDD 288 Chapter Summary by Learning Objective 337 Talk to Existing Franchisees 289 Discussion Questions 338 Beyond Ask the Franchisor Some Tough the Classroom... 338 Endnotes 339 Questions 290 Make Your Choice 291 Chapter 9 E-Commerce and the Trends Shaping Franchising 291 Entrepreneur 340 Changing Face of Franchisees 291 Factors to Consider before Launching into International Opportunities 292 E-Commerce 344 ◼ HANDS ON... HOW TO Select Ten Myths of E-Commerce 345 the Ideal Franchise— ! 293 Myth 1. If I Launch a Site, Customers ◼ YOU BE THE CONSULTANT Will Flock to It 345 Franchising in Africa: Potential Myth 2. Online Customers Are Easy to Abounds but So Do Please 346 Challenges 295 Myth 3. Making Money on the Web Is Smaller, Nontraditional Locations 296 Easy 347 Conversion Franchising 296 Myth 4. Privacy Is Not an Important Issue on the Web 347 Refranchising 296 Myth 5. “Strategy? I Don’t Need a Strategy to Multi-Unit Franchising 297 Sell on the Web! Just Give Me a Web Site, Area Development and Master and the Rest Will Take Care of Itself” 348 Franchising 297 Myth 6. The Most Important Part of Any Cobranding 298 E-Commerce Effort Is Technology 349 Conclusion 298 Myth 7. Customer Service Is Not as Chapter Summary by Learning Objective 298 Important Online as It Is in a Traditional Discussion Questions 299 Beyond Retail Store 349 the Classroom... 300 Endnotes 300 Myth 8. Flashy Web Sites Are Better Appendix A. A Franchise Evaluation Than Simple Ones 351 Checklist 300 Myth 9. It’s What’s Up Front That Counts 352  CONTENTS 9 Myth 10. My Business Doesn’t Need Chapter 11 Creating a Successful a Web Site 353 Financial Plan 421 Strategies for E-Success 354 Basic Financial Statements 422 ◼ HANDS ON... HOW TO Use a The Balance Sheet 422 Mobile-First, Responsive Web Design The Income Statement 424 to Increase Online Sales 362 The Statement of Cash Flows 426 Designing a Killer Web Site 367 Creating Projected Financial ◼ YOU BE THE CONSULTANT Statements 427 A Total Makeover 368 Projected Financial Statements for a Tracking Web Results 376 Small Business 427 Ensuring Web Privacy and Security 378 Ratio Analysis 431 Privacy 378 Twelve Key Ratios 432 Security 378 ◼ YOU BE THE CONSULTANT ◼ HANDS ON... HOW TO Build The Challenges of Debt 436 a Web Site That Lands Customers Interpreting Business Ratios 443 and Creates Conversions 379 ◼ YOU BE THE CONSULTANT Chapter Summary by Learning Objective 382 All Is Not Paradise in Eden’s Discussion Questions 383 Beyond Garden: Part 1 444 the Classroom... 384 Endnotes 384 What Do All of These Numbers Mean? 447 Chapter 10 Pricing and Credit Break-Even Analysis 450 Strategies 385 ◼ YOU BE THE CONSULTANT Three Potent Forces: Image, Competition, All Is Not Paradise in Eden’s and Value 388 Garden: Part 2 450 Price Conveys Image 388 Calculating the Break-Even Point 451 Competition and Prices 390 Adding a Profit 452 Focus on Value 393 Break-Even Point in Units 453 Pricing Strategies and Tactics 397 Constructing a Break-Even Chart 454 Introducing a New Product 397 ◼ YOU BE THE CONSULTANT Where Do We Break Even? 455 ◼ YOU BE THE CONSULTANT What’s the Right Price? 398 Using Break-Even Analysis 455 Pricing Established Goods and Services 400 Chapter Summary by Learning Objective 456 Discussion Questions 457 Beyond ◼ ETHICS AND ENTREPRENEURSHIP the Classroom... 457 Endnotes 457 The Ethics of Dynamic Pricing 402 Chapter 12 Managing Cash Flow 458 Pricing Strategies and Methods Cash Management 459 for Retailers 406 Cash and Profits Are Not the Same 463 Markup 406 The Cash Budget 464 Pricing Concepts for Manufacturers 408 Step 1: Determining an Adequate Minimum Direct Costing and Pricing 409 Cash Balance 468 Computing the Break-Even Selling Price 411 Step 2: Forecasting Sales 468 Pricing Strategies and Methods for Step 3: Forecasting Cash Receipts 469 Service Firms 412 ◼ HANDS ON... HOW TO ◼ HANDS ON... HOW TO Manage Cash Flow in a Highly Calculate Your Company’s Seasonal Business 470 Pocket Price Band 412 Step 4: Forecasting Cash Disbursements 472 The Impact of Credit on Pricing 414 Step 5: Estimating the End-of-Month Cash Credit Cards 415 Balance 473 Installment Credit 418 The “Big Three” of Cash Trade Credit 418 Management 474 Chapter Summary by Learning Objective 418 ◼ YOU BE THE CONSULTANT In Search Discussion Questions 419 Beyond of a Cash Flow Forecast 475 the Classroom... 420 Endnotes 420 Accounts Receivable 476 10 CONTENTS Accounts Payable 482 U.S. Department of Agriculture’s Business ◼ HANDS ON... HOW TO Programs and Loans 531 Avoid Losses from Accounts Small Business Innovation Research Receivable 483 Program 532 Inventory 484 Small Business Technology Transfer Program 532 Avoiding the Cash Crunch 487 State and Local Loan Development Barter 488 Programs 532 Trim Overhead Costs 489 Other Methods of Financing 533 ◼ YOU BE THE CONSULTANT Factoring Accounts Receivable 533 Controlling Employee Theft 493 Leasing 534 Conclusion 494 ROBS 534 Chapter Summary by Learning Objective 495 Discussion Questions 495 Beyond Merchant Cash Advance 535 the Classroom... 496 Endnotes 496 Peer-to-peer Lending 535 Loan Brokers 535 SECTION IV Putting the Business Credit Cards 535 Plan to Work: Sources Chapter Summary by Learning Objective 536 of Funds 497 Discussion Questions 537 Beyond the Classroom... 538 Endnotes 539 Chapter 13 Sources of Financing: Equity and Debt 497 Chapter 14 Choosing the Right Location and Layout 540 Equity Capital versus Debt Capital 500 Location: A Source of Competitive Sources of Equity Financing 500 Advantage 541 Personal Savings 500 Choosing the Region 542 Friends and Family Members 501 Choosing the State 545 Crowd Funding 502 Choosing the City 551 ◼ HANDS ON... HOW TO Structure Family and Friendship ◼ ETHICS AND ENTREPRENEURSHIP Financing Deals 503 “Wait, You Can’t Take Our Location... Can You?” 556 Accelerators 504 Choosing the Site 557 ◼ HANDS ON... HOW TO Crowdfunding 505 Location Criteria for Retail and Service Angels 506 Businesses 558 Venture Capital Companies 509 Trade Area Size 558 Corporate Venture Capital 513 ◼ YOU BE THE CONSULTANT “Pop” Goes the Store 559 Public Stock Sale (“Going Public”) 513 Retail Compatibility 560 Sources of Debt Financing 517 Degree of Competition 560 Commercial Banks 518 The Index of Retail Saturation 560 Short-Term Loans 518 Reilly’s Law of Retail Gravitation 561 Intermediate- and Long-Term Loans 519 Transportation Network 562 ◼ HANDS ON... HOW TO Get a Physical and Psychological Barriers 562 Bank to Say “Yes” to Your Loan Application 520 Customer Traffic 562 Adequate Parking 562 The Small Business Administration (SBA) Loan Guarantee Programs 522 Reputation 563 ◼ YOU BE THE CONSULTANT Visibility 563 The Never-Ending Hunt for Location Options for Retail Financing 523 and Service Businesses 563 Other SBA Loan Programs 526 Central Business District 564 Nonbank Sources of Debt Capital 527 Neighborhood Locations 565 Other Federal and State Programs 530 Shopping Centers and Malls 565 Economic Development Administration 531 Near Competitors 568 Department of Housing and Urban Development 531  CONTENTS 11 Shared Spaces 569 International Trade Agreements 619 Inside Large Retail Stores 569 Conclusion 620 Nontraditional Locations 569 Chapter Summary by Learning Objective 621 Home-Based Businesses 569 Discussion Questions 622 Beyond On the Road 570 the Classroom... 623 Endnotes 623 The Location Decision for Chapter 16 Building a New Venture Team Manufacturers 570 and Planning for the Next Foreign Trade Zones 571 Generation 624 Business Incubators 572 Leadership: An Essential Part of an Layout and Design Considerations 572 Entrepreneur’s Job 625 Size and Adaptability 574 Building an Entrepreneurial Team: Construction and Appearance 574 Hiring the Right Employees 631 Entrances 575 How to Hire Winners 633 The Americans with Disabilities Act 575 Create Practical Job Descriptions and Signs 575 Job Specifications 637 Building Interiors 576 ◼ YOU BE THE CONSULTANT Drive-Through Windows 576 Avoid These Hiring Mistakes 638 Sight, Sound, Scent, and Lighting 577 Plan an Effective Interview 639 Sustainability and Environmentally ◼ ETHICS AND ENTREPRENEURSHIP Friendly Design 578 Honesty in Job Descriptions 641 Conduct the Interview 642 Layout: Maximizing Revenues, Increasing Efficiency, or Reducing Costs 579 Contact References and Conduct a Background Check 643 Layout for Retailers 579 Creating an Organizational Culture That ◼ HANDS ON... HOW TO Create the Ideal Layout 580 Encourages Employee Motivation and Retention 645 Layout for Manufacturers 583 Culture 645 Chapter Summary by Learning Objective 586 Discussion Questions 587 Beyond Job Design 650 the Classroom... 587 Endnotes 588 Motivating Employees to Higher Levels of Performance: Rewards and Compensation 652 Chapter 15 Global Aspects of Management Succession: Passing the Entrepreneurship 589 Torch of Leadership 655 Why Go Global? 590 ◼ HANDS ON... HOW TO Make Your Strategies for Going Global 592 Small Business a Great Place to Work ◼ YOU BE THE CONSULTANT 656 Going Global from the Outset 594 Exit Strategies 664 ◼ YOU BE THE CONSULTANT Selling to Outsiders 664 Selling a Simple Product to a Selling to Insiders 665 Global Market 601 Chapter Summary by Learning Objective 666 610 Discussion Questions 666 Beyond the Domestic Barriers 610 Classroom... 667 Endnotes 667 ◼ YOU BE THE CONSULTANT Appendix The Daily Perc Business Plan 668 Expat Entrepreneurs Find Opportunity in Argentina 611 Cases 690 ◼ HANDS ON... HOW TO Build a Successful Global Company 614 Name Index 706 615 Subject Index 714 Political Barriers 616 Business Barriers 616 Cultural Barriers 617 Preface Entrepreneurship is a fast-growing and ever-changing discipline. People of all ages, backgrounds, and nationalities are launching businesses of their own and, in the process, are reshaping the world’s economy. The purpose of this book is to open your mind to the possibilities, the chal- lenges, and the rewards of owning your own business and to provide the tools you will need to be successful if you choose the path of the entrepreneur. It is not an easy road to follow, but the rewards—both tangible and intangible—are well worth the risks. Not only may you be rewarded financially for your business ideas, but like entrepreneurs the world over, you will be able to work at something you love! Now in its eighth edition, Essentials of Entrepreneurship and Small Business Management has stood the test of time by bringing you the material you need to launch and manage a small business successfully in a hotly competitive environment. In writing this edition, we have worked hard to provide plenty of practical, “hands-on” tools and techniques to make new business ven- tures successful. Many people launch businesses every year; only some of them succeed. This book provides the tools to help teach students the rightt way to launch and manage a small busi- ness with the staying power to succeed and grow. What’s New to This Edition? This edition includes many new features that reflect this dynamic and exciting field of study. One of the first changes you will notice is the addition of Jeff Cornwall as coauthor. Jeff, who holds the Jack C. Massey Chair of Entrepreneurship and is Professor of Entrepreneurship at Belmont University, is an experienced and successful entrepreneur, a dedicated teacher, a respected author, and an acknowledged expert in the field of en- trepreneurship. The United States Association for Small Business and Entrepreneurship has honored Jeff on numerous occasions, naming him a Longenecker/USASBE Fellow in 2006 and presenting the center that he headed at Belmont University the USASBE National Model Undergraduate Program of the Year Award in 2008. USASBE also recog- nized Jeff in 2013 with the prestigious Outstanding Educator of the Year award. He also served as USASBE’s president in 2010. Jeff’s blog, the Entrepreneurial Mind, is one of the most popular small business blogs on the Internet, named by Forbes as a “best of the Web” selection. Almost all of the real-world examples in this edition are new and are easy to spot because they are accompanied by an icon. These examples allow you to see how entrepreneurs are putting into practice the concepts you are learning about in the book and in class. These ex- amples are designed to help you to remember the key concepts in the course. The business founders in these examples also reflect the diversity that makes entrepreneurship a vital part of the global economy. We have added a new chapter on “Ethics and Entrepreneurship: Doing the Right Thing” that provides you with a framework for making ethical decisions in business and with the opportunity to wrestle with some of the ethical dilemmas entrepreneurs face in business, including the controversial issues surrounding employers’ responses to employees’ post- ings on social media sites. Encouraging you to think about and discuss these issues now prepares you for making the right business decisions later. This edition provides expanded and updated coverage of important topics such as using the business model canvas to refine a business idea; using social media, including Facebook, Twitter, and YouTube, as bootstrap marketing tools; attracting capital using 12  PREFACE 13 crowd funding; using “pop-up” stores to test potential permanent locations; and identifying the factors that drive employee engagement. To emphasize the practical nature of this book, we have updated the content of the very popular “Hands On: How To...” feature, which selects a concept from each chapter and explains how you can put it to practice in your own company. These features include topics such as how to “Be a Successful Innovator,” “Use a Mobile-First, Responsive Web Design to Increase Online Sales,” “Manage Cash Flow in a Highly Seasonal Business,” and “Make Your Small Business a Great Place to Work.” Another feature that is popular with both students and professors is “You Be the Consul- tant.” Every chapter contains at least one of these inserts, which describe a decision an en- trepreneur faces and asks you to play the role of consultant and advise the entrepreneur on the best course of action. This feature includes the fascinating stories of how entrepreneurs came up with their business ideas (including one on decoding the DNA of the entrepreneur that introduces beekeepers Tim Dover and Susan Gardner, who turned their hobby into a successful bee supply business), setting the right price for a company’s custom-made shirts in a highly competitive market (direct sales company J. Hilburn, founded by Hil Davis), helping entrepreneurs revamp their Web site (New Columbia Distillers, the first new distillery to open in Washington, D.C., since Congress passed the Eighteenth Amendment to the U.S. Constitution), and advising companies on their strategies for becoming micro- multinational businesses (Zee Wines USA and Somnio, which makes unique running shoes that accommodate runners’ foot shapes and running styles). Each one poses a problem or an opportunity and includes questions that focus your attention on key issues and help you to hone your analytical and critical thinking skills. This edition includes ten brief cases, eight of them new to this edition, covering a variety of topics (see the Case Matrix that appears on the inside cover). All of the cases are about small companies, and most are companies you can research online. These cases challenge you to think critically about a variety of topics that are covered in the text—from develop- ing a business strategy and building a brand to protecting intellectual property and financ- ing a business. The content of every chapter reflects the most recent statistics, studies, surveys, and research about entrepreneurship and small business management. You will learn how to launch and manage a business the rightt way by studying the most current concepts in entrepreneurship and small business management. Entrepreneurship has become a major force in the global economy. Policymakers across the world are discovering that economic growth and prosperity lie in the hands of entrepreneurs— those dynamic, driven men and women who are committed to achieving success by creating and marketing innovative, customer-focused new products and services. Not only are these entrepre- neurs creating economic prosperity, but as social entrepreneurs, many of them are also striving to make the world a better place in which to live. Those who possess this spirit of entrepreneurial leadership continue to lead the economic revolution that has proved time and again its ability to raise the standard of living for people everywhere. We hope that by using this book in your small business management or entrepreneurship class, you will join this economic revolution to bring about lasting, positive changes in your community and around the world. If you are interested in launching a business of your own, Essentials of Entrepreneurship and Small Business Manage- mentt is the ideal book for you! This eighth edition of Essentials of Entrepreneurship and Small Business Management introduces you to the process of creating a new venture and provides you with the knowledge you need to launch a business that has the greatest chance for success. One of the hallmarks of every edition of this book has been a very practical, “hands-on” approach to entrepreneurship. We strive to equip you with the tools you will need for entrepreneurial success. By combining this textbook with your professor’s expertise, you will be equipped to follow your dream of becoming a successful entrepreneur. 14 PREFACE Other Text Features This edition once again emphasizes the importance of conducting a feasibility analysis and creating a business plan for a successful new venture. Chapter 4 offers comprehensive coverage of how to conduct a feasibility study for a business idea and then how to create a sound business model for the ideas that pass the feasibility test. This edition features an updated, attractive, full-color design and a user-friendly layout that includes an in-margin glossary and learning objectives. Each chapter begins with learning objectives, which are repeated as in-margin markers within the chapter to guide you as you study. Chapter 3, “Inside the Entrepreneurial Mind: From Ideas to Reality,” explains the creative process entrepreneurs use to generate business ideas and to recognize entrepreneurial opportunities. This chapter helps you learn to think like an entrepreneur. Chapter 9, “E-Commerce and the Entrepreneur,” serves as a practical guide to using the Internet as a marketing and business tool and offers helpful advice for engaging success- fully in mobile commerce. Chapter 13, “Sources of Financing: Equity and Debt,” gives you a useful overview of the various financing sources that are available to entrepreneurs with plenty of practical advice for landing the financing you need to start or grow your business. Given the changes that have resulted from recent turmoil in the financial industry, this is a particularly important chapter. Instructor Resources At the Instructor Resource Center, www.pearsonglobaleditions.com/scarborough, instructors can easily register to gain access to a variety of instructor resources available with this text in down- loadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user support phone numbers. The following supplements are available with this text: Instructor’s Resource Manual Test Bank TestGen® Computerized Test Bank PowerPoint Presentations Essentials of Entrepreneurship and Small Business Managementt contains a multitude of both student- and instructor-friendly features. We trust that this edition will help you, the next generation of entrepreneurs, to reach your full potential and achieve your dreams of success as independent business owners. It is your dedication, perseverance, and creativity that keep the world’s economy moving forward. Acknowledgments Supporting every author is a staff of professionals who work extremely hard to bring a book to life. They handle the thousands of details involved in transforming a rough manuscript into the finished product you see before you. Their contributions are immeasurable, and we appreciate all  PREFACE 15 they do to make this book successful. We have been blessed to work with the following outstand- ing publishing professionals: Dan Tylman, acquisitions editor, who has assisted us in many ways as we developed a revi- sion plan for this edition. His input and vision proved to be a valuable resource. Claudia Fernandes, our exceptionally capable program manager, who was always just an e-mail away when we needed her help with a seemingly endless number of details. She did a masterful job of coordinating the many aspects of this project. Her ability to juggle many aspects of multiple projects at once is amazing! Kelly Warsak, project manager, who skillfully guided the book through the long and some- times difficult production process with a smile and a “can-do” attitude. She is always a pleasure to work with and a good friend. Nancy Moudry, photo researcher, who took our ideas for photos and transformed them into the meaningful images you see on these pages. Her job demands many hours of research and hard work, which she did with aplomb. Lenny Ann Rapper, marketing manager, whose input helped focus this edition in an evolv- ing market. We also extend a big “Thank You” to the corps of Pearson sales representatives, who work so hard to get our books into customers’ hands and who represent the front line in our effort to serve our customers’ needs. They are the unsung heroes of the publishing industry. Special thanks to the following academic reviewers, whose ideas, suggestions, and thought- provoking input have helped to shape this and previous editions of our two books, Essentials of Entrepreneurship and Small Business Managementt and Entrepreneurship and Effective Small Business Management. We always welcome feedback from customers! Lon Addams, Weber State University Robert M. Donnelly, St. Peter’s College Sol Ahiarah, Buffalo State College Steve Dunphy, Indiana University Northwest Professor M. Ala, California State University– Art Elkins, University of Massachusetts Los Angeles W. Bruce Erickson, University of Minnesota Annamary Allen, Broome Community College Frances Fabian, University of Memphis Tammy Yates Arthur, Mississippi College Jan Feldbauer, Austin Community College Jay Azriel, York College of Pennsylvania George J. Foegen, Metropolitan State College Bruce Bachenheimer, Pace University of Denver Kevin Banning, University of Florida Caroline E. W. Glackin, Delaware State Jeffrey Bell, Dominican University University Tom Bergman, Northeastern State University Stephen O. Handley, University of Nancy Bowman, Baylor University Washington–Bothell Jeff Brice, Texas Southern University Charles Hubbard, University of Arkansas Michael S. Broida, Miami University Fred Hughes, Faulkner University James Browne, University of Southern Samira B. Hussein, Johnson County Colorado Community College Rochelle Brunson, Alvin Community College Ralph Jagodka, Mt. San Antonio College John E. Butler, University of Washington Theresa Janeczek, Manchester Community R. D. Butler, Trenton State College College Pamela Clark, Angelo State University Robert Keimer, Florida Institute of Richard Cuba, University of Baltimore Technology Kathy J. Daruty, Los Angeles Pierce College E. L. (Betty) Kinarski, Seattle University Gita DeSouza, Pennsylvania State University Kyoung-Nan Kwon, Michigan State Stuart Devlin, New Mexico State University University John deYoung, Cumberland Community Dick LaBarre, Ferris State University College Paul Lamberson, Riverton, Wyoming Michael Dickson, Columbus State Community Mary Lou Lockerby, College of DuPage College Martin K. Marsh, California State Judy Dietert, Southwest Texas State University University–Bakersfield 16 PREFACE Charles H. Matthews, University of Cincinnati Thomas Schramko, University of Toledo John McMahon, Mississippi County Peter Mark Shaw, Tidewater Community Community College College Michael L. Menefee, Purdue University Jack Sheeks, Broward Community College Julie Messing, Kent State University Lakshmy Sivaratnam, Johnson Community William Meyer, TRICOMP College Milton Miller, Carteret Community College Bill Snider, Cuesta College John Moonen, Daytona Beach Community Deborah Streeter, Cornell University College Ethné Swartz, Fairleigh Dickinson University Linda Newell, Saddleback College Yvette Swint-Blakely, Lancing Community Marcella Norwood, University of Houston College David O’Dell, McPherson State College John Todd, University of Arkansas John Phillips, University of San Francisco Charles Toftoy, George Washington University Louis D. Ponthieu, University of North Texas Barry L. Van Hook, Arizona State University Ben Powell, University of Alabama Ina Kay Van Loo, West Virginia University Frank Real, St. Joseph’s University Institute of Technology William J. Riffe, Kettering University William Vincent, Mercer University Matthew W. Rutherford, Virginia Jim Walker, Moorhead State University Commonwealth University Bernard W. Weinrich, St. Louis Community Joseph Salamone, State University of College New York at Buffalo Donald Wilkinson, East Tennessee State Manhula Salinath, University of North Texas University Nick Sarantakes, Austin Community College Gregory Worosz, Schoolcraft College Khaled Sartawi, Fort Valley State University Bernard Zannini, Northern Essex Community Terry J. Schindler, University of Indianapolis College We also are grateful to our colleagues who support us in the often grueling process of writ- ing a book: Foard Tarbert, Sam Howell, Jerry Slice, Suzanne Smith, Jody Lipford, Tobin Turner, Cindy Lucking, and Uma Sridharan of Presbyterian College and Mark Schenkel, Mark Phillips, Matthew Wilson, and Jose Gonzalez of Belmont University. Finally, we thank Cindy Scarborough and Ann Cornwall for their love, support, and under- standing while we worked many long hours to complete this book. For them, this project repre- sents a labor of love. Pearson would like to thank and acknowledge Anushia Chelvarayan (Multimedia University) for her contribution to the Global Edition, and Chin Hock Lim (Tunku Abdul Rahman University College) and Stephen Ko (Hong Kong Polytechnic University) for reviewing the Global Edition. Special Note to Students We trust that this edition of Essentials of Entrepreneurship and Small Business Managementt will encourage and challenge you to fulfill your aspirations as an entrepreneur and to make the most of your talents, experience, and abilities. We hope that you find this book to be of such value that it becomes a permanent addition to your personal library. We look forward to the day when we can write about your entrepreneurial success story on these pages. Norman M. Scarborough William Henry Scott III Associate Professor of Entrepreneurship Presbyterian College Clinton, South Carolina [email protected] Jeffrey R. Cornwall Jack C. Massey Chair and Professor of Entrepreneurship Belmont University Nashville, Tennessee [email protected]  SECTION I The Challenge of Entrepreneurship 1 The Foundations of Entrepreneurship Hero Images / Getty Images, Inc. Learning Objectives 4. Explain the forces that are driving the growth of entrepreneurship. On completion of this chapter, you will be able to: 5. Explain the cultural diversity of entrepreneurship. 1. Define the role of the entrepreneur in business in 6. Describe the important role that small businesses the United States and around the world. play in our nation’s economy. 2. Describe the entrepreneurial profile. 7. Put failure into the proper perspective. 3A. Describe the benefits of entrepreneurship. 8. Explain how an entrepreneur can avoid becoming another failure statistic. 3B. Describe the drawbacks of entrepreneurship. 17 18 SECTION I THE CHALLENGE OF ENTREPRENEURSHIP LO1 The World of the Entrepreneur Define the role of the entrepreneur in business Welcome to the world of the entrepreneur! Around the world, growing numbers of people are in the United States and realizing their dreams of owning and operating their own businesses. Entrepreneurship con- around the world. tinues to thrive in nearly every corner of the world. Globally, one in eight adults is actively engaged in launching a business.1 Research by the Kauffman Foundation shows that in the United States alone, entrepreneurs launch 476,000 businesses each month.2 This entrepreneurial spirit is the most significant economic development in recent business history. In the United States and around the globe, these heroes of the new economy are reshaping the business environment and creating a world in which their companies play an important role in the vitality of the global economy. With amazing vigor, their businesses have introduced innovative products and services, pushed back technological frontiers, created new jobs, opened foreign markets, and, in the pro- cess, provided their founders with the opportunity to do what they enjoy most. “Small businesses have been at the core of our economy’s growth over the last few years,” says Winslow Sargeant, chief counsel of the U.S. Small Business Administration’s Office of Advocacy.3 Entrepreneurial activity is essential to a strong global economy. Many of the world’s largest companies continue to engage in massive downsizing campaigns, dramatically cutting the num- ber of employees on their payrolls. This flurry of “pink slips” has spawned a new population of entrepreneurs: “castoffs” from large corporations (in which many of these individuals thought they would be lifetime ladder climbers) with solid management experience and many productive years left before retirement. According to the Small Business Administration, during a recent one-year period, the largest companies in the United States (those with 500 or more employees) shedd 1.7 million net jobs; during the same period, small businesses with fewer than 20 employees createdd 287,000 net jobs!4 One casualty of this downsizing has been the long-standing notion of job security in large corporations. As a result, many people no longer see launching a business as a risky career path. Having been victims of downsizing or having witnessed large companies execute layoffs with detached precision, these people see entrepreneurship as the ideal way to create their own job security and success. Rather than pursue corporate careers after graduation, many college stu- dents are choosing to launch companies of their own. They prefer to control their own destinies by building their own businesses. ENTREPRENEURIAL PROFILE: Christopher Kelley: Badd Newz BBQ For years, Christopher Kelley had dreamed of becoming a mobile restaurateur by launching a food truck that specialized in barbecue but was hesitant to give up the security of his job at the com- pany where he had worked in maintenance for 14 years. Like many entrepreneurs, Kelley refused to give up on his dream, bought a food truck, outfitted it, and started Bad Newz BBQ as a part- time business, catering local school events, church gatherings, and fundraisers in Huntsville, Alabama. Two months later, Kelley’s employer announced a massive layoff, and Kelley’s job was eliminated. The layoff prompted Kelley to transform Bad Newz BBQ into a full-time business, and he began marketing his food truck via social and traditional media, even landing a regular spot at a nearby army post. Kelly, who is 43 years old and has lost three jobs over the last 20 years to layoffs, decided it was time to take control of his own destiny by starting a business. He advises other entrepreneurs to believe in their abilities even when others do not and to devote all of their energy into building a successful business.5 The downsizing trend among large companies has created a more significant philosophical change. It has ushered in an age in which “small is beautiful.” Twenty-five years ago, competitive conditions favored large companies with their hierarchies and layers of management; today, with the pace of change constantly accelerating, fleet-footed, agile, small companies have the compet- itive advantage. These nimble competitors can dart into and out of niche markets as they emerge and recede, they can move faster to exploit market opportunities, and they can use modern tech- nology to create, within a matter of weeks or months, products and services that once took years and all the resources a giant corporation could muster. The balance has tipped in favor of small, entrepreneurial companies. Howard Stevenson, Harvard’s chaired professor of entrepreneurship, says, “Why is it so easy [for small companies] to compete against giant corporations? Because while they [the giants] are studying the consequences, [entrepreneurs] are changing the world.”6  CHAPTER 1 THE FOUNDATIONS OF ENTREPRENEURSHIP 19 Entrepreneurial Activity across the Globe Persons per 100 Adults, 18–64 Years Old Engaged in Entrepreneurial Activity 45 TEA Index Global TEA Average 40 35 Total Entrepreneurial Activity (TEA) Index 30 25 Global Average = 13.0 20 15 10 5 0 Algeria Angola Botswana Egypt Ethiopia Ghana Iran Malawi Nigeria Pakistan Palestine Uganda Zambia Argentina Barbados Bosnia/Herzegovina Brazil Chile China Colombia Costa Rica Croatia Estonia Hungary Latvia Lithuania Macedonia Malaysia Mexico Namibia Panama Peru Poland Romania Russia South Africa Thailand Trinidad/Tobago Tunisia Turkey Uruguay Austria Belgium Denmark Finland France Germany Greece Ireland Israel Italy Japan Rep of Korea Netherlands Norway Portugal Singapore Slovakia Slovenia Spain Sweden Switzerland Taiwan United Kingdom United States Ecuador El Salvador Factor-driven economies Efficiency-driven economies Innovation-driven economies Country FIGURE 1.1 Entrepreneurial Activity Across the Globe Source: Based on data from José Ernesto and Neils Bosma, Global Entrepreneurship Monitor 2013 Global Report, Babson College, Universidad del Desarrollo, Universiti Tun Abdul Razak, and London Business School, 2014, pp. 30–31. One of the most comprehensive studies of global entrepreneurship conducted by the Global Entrepreneurship Monitor (GEM) shows significant variation in the rate of new business forma- tion among the nations of the world when measured by total entrepreneurial activity or TEA (see Figure 1.1). The most recent edition of the study reports that 12.7 percent of the adult population in the United States—one in eight people—is working to start a business. The GEM study also reports that globally men are nearly twice as likely to start a business as women; that entrepreneurs are most likely to launch their companies between the ages of 35 and 44; and that the majority of people in the world see entrepreneurship as a good career choice.7 The health of the global economy and the level of entrepreneurial activity are intertwined. “The world economy needs entrepreneurs,” says GEM researcher Kent Jones, “and increasingly, entrepreneurs depend on an open and expanding world economy for new opportunities and growth—through trade, foreign investment, and finance.”8 The United States and many other nations are benefiting from this surge in global entre- preneurial activity. Eastern European countries, China, Vietnam, and many other nations whose economies were state controlled and centrally planned are now fertile ground for growing small businesses. Table 1.1 shows some of the results from a recent study that ranks 118 nations according to the quality of the entrepreneurial environment they exhibit. Although troubled by corruption, a poor “ease of doing business” ranking, and a low quality entrepreneurial environ- ment, Kenya is home to entrepreneurs of all ages who are hard at work solving problems that range from healthcare and electricity shortages to providing clean water and fashionable clothing to the nation’s 41 million residents. 20 SECTION I THE CHALLENGE OF ENTREPRENEURSHIP TABLE 1.1 Entrepreneurship-Friendly Nations Which nations provide the best environment for cultivating entrepreneurship? A recent study ranked 121 countries on the quality of the entrepreneurial environment using the Global Entrepreneurship and Development Index (GEDI), which includes a variety of factors that range from the availability of capital and workforce quality to attitudes toward entrepreneurs and technology available. The maximum GEDI score is 100. GEDI Score, Top Ten Countries GEDI Score, Bottom Ten Countries 1. United States 82.5 109. Madagascar 19.6 2. Canada 81.7 110. Ivory Coast 19.4 3. Australia 77.9 111. Uganda 19.3 4. Sweden 73.7 112. Mali 18.8 5. Denmark 72.5 113. Pakistan 18.7 6. Switzerland 70.9 114. Mauritania 18.5 7. Taiwan 69.5 115. Sierra Leone 17.6 8. Finland 69.3 116. Burundi 15.5 9. Netherlands 69.0 117. Chad 15.0 10. United Kingdom 68.6 118. Bangladesh 13.8 Source: “GEDIndex 2014,” The Global Entrepreneurship and Development Institute, 2013, http://www.thegedi.org/. ENTREPRENEURIAL PROFILE: Eric Muthomi: Stawi Foods and Fruits Eric Muthomi grew up in Meru, Kenya, and studied law at the Catholic University of East Africa. While Muthomi was earning his law degree, his goal was to start his own business. After graduating in 2010, Muthomi, just 26 years old, launched Stawi Foods and Fruits, a company that makes a unique banana flour that is used for baking, making baby food, and preparing ugali, a staple dish in Kenya. Muthomi, who also studied entrepreneurship and banana processing, says that coming up with his business idea was simple because his hometown of Meru is a center for Courtesy of Stawi Foods and banana growers and processors. Stawi Foods and Fruits benefited from the publicity and rec- Fruits ognition that came after Muthomi won Jitihada, Kenya’s national business plan competition, beating out 3,439 other business ideas. Getting into business in Kenya was not easy, however; Muthomi says getting necessary permits and licenses for a food business from various govern- ment entities is time-consuming and “tiresome.” Despite facing challenges, Stawi Foods and Fruits, which employs five people, reached its breakeven point in less than one year, and Muthomi is reinvesting profits into the company to fuel its growth. The determined entrepre-