6 Chapter Starting Your Own Business: The Entrepreneurship Alternative http://www.wileybusinessupdates.com

Learning Goals Define the term entrepreneur and distinguish among entrepreneurs, small- business owners, and managers. Identify the different types of entrepreneurs. Explain why people choose to become entrepreneurs. Discuss factors that support and expand opportunities for entrepreneurs. Identify personality traits that typically characterize successful entrepreneurs. Summarize the process of starting a new venture. Explain how organizations promote intrapreneurship. 1 5 2 6 3 7 4

What is Entrepreneurship? An entrepreneur is a person who seeks a profitable opportunity and takes the necessary risks to set up and operate a business. Differ from many small-business owners in their strong desire to make their business grow. Differ from managers through their overriding responsibility to use the resources of the organization to accomplish their goals. Willing to take risks. Entrepreneurs differ from managers as they are willing to assume risk (financial, social, career). Entrepreneur.com is an excellent resource (click on link). Class Activity: Ask students to share examples of friends or family members who operate their own businesses.

Categories of Entrepreneurs Classic Entrepreneurs Serial Entrepreneurs Social Entrepreneurs Entrepreneurs range from classic entrepreneurs and serial entrepreneurs to social entrepreneurs. A classic entrepreneur pursues business opportunities and allocates resources. A serial entrepreneur starts one business, runs it, and then runs additional businesses in succession. Social entrepreneurs focus on solving society’s challenges through their businesses. Click on the Honest Tea logo to access the company’s mission statement that discusses its social responsibility. Lecture Enhancer: Think of a hypothetical example for each type of entrepreneur.

Entrepreneurship as a Career More than 11% of Americans run their own businesses. In an average month, Americans start approximately 465,000 new businesses. The past two decades have shown a heightened interest in entrepreneurial careers. People choose entrepreneurship for many reasons: Dissatisfaction with traditional work Their ideas fulfill customer needs The number of Americans choosing entrepreneurship as a career is growing. People decide to become entrepreneurs for a variety of reasons. See how many students want to become entrepreneurs, and discuss the types of businesses they want to start and their reasons for wanting to become entrepreneurs.

Why People Become Entrepreneurs Many entrepreneurs want to be their own bosses, and self-management is their motivation. Entrepreneurs are wealth creators. Many entrepreneurs start ventures with the specific goal of creating a profitable business to reap financial rewards. As large companies continue to lay off employees, entrepreneurs find job security in their own ventures. Finally, quality of life (lifestyle entrepreneur) provides an attractive option for people to gain independence, freedom, and control. Lecture Enhancer: Discuss the unique stresses and challenges being your own boss might present.

Why Entrepreneurship? Being Your Own Boss Financial Success Self-management is the motivation that drives many entrepreneurs. Financial Success Entrepreneurs are wealth creators. Job Security Over the past ten years, large companies have eliminated more jobs than they have created. Quality of Life Starting a business gives the founder some choice over when, where, and how to work. People have always wanted to be their own bosses and be rewarded for their efforts by keeping profits. As companies continue to restructure and downsize, many people consider entrepreneurship rather than seeking employment with a company. Lifestyle entrepreneurs are trying to achieve a balance between work and their other interests. Lecture Enhancer: Why do many people choose entrepreneurship when considering job security?

The Environment for Entrepreneurship Globalization, education, information technology, and demographic and economic trends create many opportunities for entrepreneurs. Growth in entrepreneurship is a worldwide phenomenon.

Globalization Entrepreneurship activity across the world is growing. Entrepreneurs are the key to economic growth for many lesser-developed nations. Lecture Enhancer: What factors may have contributed to the increased globalization of entrepreneurship? The rapid globalization of business has created many opportunities for entrepreneurs.

Education / IT / Demographic and Economic Trends 100 U.S. colleges and universities offer entrepreneurship majors. Universities are helping students launch businesses. Many programs teach entrepreneurship to young people. Information Technology Technology has given entrepreneurs tools that help them compete. Entrepreneurs have used information technology to revolutionize industries. Demographic and Economic Trends Aging of U.S. population. Emergence of Hispanics as nation’s largest ethnic group. Growth of two-income families. Educational opportunities have grown for entrepreneurs, and information technology has provided a big boost for entrepreneurs. Trends like the aging population (Baby Boomers), the emergence of Hispanics, and the growth of two-income families create abundant opportunities for entrepreneurs. The link to census data can show the current demographic and economic data. Class Activity: Survey the class to see how many students have taken at least one specialized course focusing on entrepreneurship.

Characteristics of Entrepreneurs There are key characteristics that make up the entrepreneurial personality. Many entrepreneurs had parent role models and/or always wanted to be entrepreneurs. These traits may increase a person’s chances of being a successful entrepreneur. Class Activity: Ask students why optimism is an important trait for potential entrepreneurs.

Entrepreneurial Characteristics Vision - entrepreneurs begin with an overall idea for how to make their business ideas successful High Energy Level - a willingness to work hard Need to Achieve - entrepreneurs work hard because they want to excel Self-Confidence - fearlessness in the face of difficult odds Tolerance for Failure - entrepreneurs are not easily discouraged Creativity - entrepreneurs devise innovative ways to overcome difficult problems and situations Tolerance for Ambiguity - entrepreneurs take in stride uncertainties Internal Locus of Control - entrepreneurs believe they can control their own fates The combination of these characteristics is important to an entrepreneur who is willing to take risks. These eight traits are especially important for people who want to succeed as entrepreneurs.

Entrepreneurial Quiz Are you ready to be an entrepreneur? This quiz will assess if the student has the personality traits to be an entrepreneur. This is an excellent class assignment and discussion topic.

Starting a New Venture Selecting a Business Idea Find something you love to do and are good at doing Can your idea satisfy a need in the marketplace? Entrepreneurs must be sure that the idea they choose has interest in the marketplace. Business Plan There are a lot of ways to think about who you are and how that might translate into a business. You will also want to think about buying an existing business or operating a franchise. Lecture Enhancer: Share an example of a successful business that was started by a student.

Buying an Existing Business Advantages: Established customers Deal with familiar suppliers Good/service known in marketplace Necessary permits and licenses are already secured Financing may be easier Seller financing There are many advantages to purchasing an existing business. Financing may be easier as the businesses has a “track record” and financial data. The seller of the business may set up an installment sale. To find businesses for sale, contact a business broker.

Creating a Business Plan 58% of the most recent Inc. CEOs did not create a formal written plan. But business plans do help entrepreneurs prepare enough resources and stay focused on key objectives. The SBA offers resources to develop a business plan. There may be workshops in your area put on by SCORE, the SBDC, economic development agencies, colleges, and private businesses that cover the development of a business plan. Class Activity: Discuss the benefits of developing a business plan, even if funds are already available.

Finding Financing Debt Financing Equity Financing Credit Cards Family and Friends Bank Loans (SBA backed) Equity Financing Venture Capitalists Angel Investors You need to assess your start-up and initial operating costs and identify how you will obtain funding. Debt financing is a “debt” (contractual obligation) in which you incur a liability to pay someone back. Equity financing is the sale of ownership in which you have sold investors a piece of your firm. They are invested in your success and expect to be rewarded accordingly. Angel investors focus more on start-up businesses than venture capitalists. Each group invests directly in a business for an equity stake. Lecture Enhancer: What are the drawbacks to depending upon debt financing to start a business? Class Activity: Lead a discussion of possible pitfalls of having friends or family invest in your business.

Government Support for New Ventures Business Incubators are a key way government supports new ventures Clean Energy Incubator (CEI) Enterprise Zones Encourage entrepreneurship in specific geographic areas Government Legislation Immigration Act of 1990 In addition to the SBA and state/local agencies, the government makes a variety of efforts to support new ventures. Business incubators help build new ventures. Enterprise zones help build entrepreneurship in specific localities. Government legislation serves to address specific issues that have an impact on new ventures. Lecture Enhancer: What are some advantages to starting a business in an enterprise zone?

Intrapreneurship Promoting innovation within organizational structures An idea to promote creativity Companies promote in a variety of ways Skunkworks Pacing Programs Many companies want to retain entrepreneurial spirit within their organizations. Many organizations encourage intrapreneurship and can benefit from the practice. 3M and the Post-it note is a great example. 3M encourages creativity in its employees. Lecture Enhancer: What is another possible reason for companies to support rather than discourage intrapreneurship?