Management 11e John Schermerhorn Chapter 6 Entrepreneurship and New Ventures

Planning Ahead – Chapter 6 Study Questions 1.What is entrepreneurship? 2.What is special about small business entrepreneurship? 3.How do entrepreneurs start and finance new ventures?

Study Question 1: What is entrepreneurship?  Entrepreneurship Risk-taking behavior that results in new opportunities  Serial entrepreneur Starts and runs business and nonprofits over and over again  First-mover advantage First to exploit a niche or enter a market  Entrepreneurs  Display entrepreneurial behavior as employees of larger firms

Study Question 1: What is entrepreneurship?  Characteristics of entrepreneurs Internal locus of control High energy level High need for achievement Tolerance for ambiguity Self- confidence Passion and action orientation

Study Question 1: What is entrepreneurship?  Diversity and Entrepreneurship  Women and minority entrepreneurs are growing in numbers  Necessity-based entrepreneurship  People start a business because no other employment opportunities exist  Social entrepreneurship  Unique form of ethical entrepreneurship that seeks new ways to solve pressing social problems  Social entrepreneurs  Take risks to find new ways to solve pressing social problems such as poverty, literacy, illness,homelessness

Study Question 2: What is special about small business entrepreneurship? Small business have fewer than 500 employees Small business statistics Employ some 52 percent of private workers Provide 51 percent of private-sector output Receive 35 percent of federal government contract dollars Provide as many as 7 out of every 10 new jobs in the economy

Study Question 2: What is special about small business entrepreneurship?  Starting a small business  Startup  New and temporary venture that is trying to establish a profitable business model  Franchise  One business owner sells to another the right to operate the same business in another location  Lean startups  Use free software and web services while staying small and keeping operations simple

Study Question 2: What is special about small business entrepreneurship?  Options for starting a small business Startup New and temporary venture that is trying to establish a profitable business model Franchise One business owner sells to another the right to operate the same business in another location Lean startups Use free software and web services while staying small and keeping operations simple

Study Question 2: What is special about small business entrepreneurship? Internet Entrepreneurship Advertising model Subscription model Intermediary model Transaction model Types of internet business models

Study Question 2: What is special about small business entrepreneurship?  Family owned businesses  Largest percentage of businesses worldwide  Feuds result when family members disagree over how the business is run  Possible succession problems  Who will run the business when the current head leaves?  Succession plan outlines leadership transition and financial matters

 Why small businesses fail  SBA reports as many as 60 – 80% fail Study Question 2: What is special about small business entrepreneurship?

 Small business development  Business incubator  Offers space, shared services and advice to get small businesses started  Small Business Development Centers  Founded with U.S. Small Business Administration to provide advice to new and existing small businesses

Study Question 3: How do entrepreneurs start and finance new ventures?  Life cycles of entrepreneurial firms

Study Question 3: How do entrepreneurs start and finance new ventures?  Business plan  Describes goals, operating plans and financing for a new business  Banks want to see a well-developed business plan before loaning money  Forms of ownership  Sole Proprietorship  An individual or married couple pursuing business for a profit

Study Question 3: How do entrepreneurs start and finance new ventures?  Forms of ownership  Partnership  Two or more people agree to contribute resources to start and operate a business together General Partnership The owners share management responsibilities Limited Partnership General partner manages the business Limited partners share profit but losses are limited to the amount of their investment

Study Question 3: How do entrepreneurs start and finance new ventures?  Forms of ownership  Corporation  A legal entity that exists separately from its owners  Limited Liability Company (LLC)  A combination of sole proprietorship, partnership, and corporation  Protects owners against personal loss other than what is invested in the company  Treated as a proprietorship or partnership for tax purposes

Study Question 3: How do entrepreneurs start and finance new ventures?  Financing  Debt Financing  involves borrowing money from another person, a bank, or a financial institution  Equity Financing  involves exchanging ownership shares for outside investment monies  Venture Capitalists  Involves making large investments in new ventures in return for an equity stake in the business  Financing  Angel Investor  A wealthy individual willing to invest in return for equity in a new venture  Initial Public Offering (IPO)  An initial selling of shares of stock to the public at large

Chapter 6 Case  Sprinkles: Leading a sweet trend