1. Copyright 2017 John Wiley & Sons, Inc.
Starting Your Own Business: The Entrepreneurship Alternative
Copyright 2017 John Wiley & Sons, Inc.
Chapter Six

2. Learning Objectives Define entrepreneur2 1
Define entrepreneur
Identify the different categories of entrepreneurs
Explain why people choose entrepreneurship as a career path
Discuss the environment for entrepreneurs 5
Identify the characteristics of entrepreneurs
Summarize the process of starting a new venture
Explain intrapreneurship 2 6 3 7
The chapter’s focus is entrepreneurship, which has become a topic well deserving of international attention and media coverage.
It is a particularly interesting time for students, who read almost daily, about peers or those within their own age range, innovating and starting companies. 4
Copyright ©2017 John Wiley & Sons, Inc.

3. What is an Entrepreneur?3
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
Resources: and
Entrepreneurs, risk takers in the private enterprise system, differ from managers. Entrepreneurs have a strong desire to grow and expand their business while using organizational resources.
The following magazines -- and are excellent resources for entrepreneurs.
Lecture Enhancer: How might entrepreneurs view risk differently than those who choose to work for a large corporation?
Class Activity: Ask students to share examples of friends or family members who operate their own businesses. Class Activity: Compare and contrast the difference between a small business owner and an entrepreneur by evaluating the types of products and services offered by each
Copyright ©2017 John Wiley & Sons, Inc.

4. Categories of Entrepreneurs4
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
Entrepreneurs range from classic entrepreneurs and serial entrepreneurs to social and lifestyle 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. Lifestyle entrepreneurs are most concerned with gaining flexibility in work hours to maintain a certain independence, freedom and control.
Click on the Revolution Foods logo to learn more about its founders, Kristin Richmond and Kirsten Tobey.
Lecture Enhancer: What type of entrepreneur was Steve Jobs? Could he be considered a combination of one or more of the categories of entrepreneurs?
Class Activity: Name a few companies which were started with the intent of using business principles to solve a societal problem. To date, what have the results been like for these companies?
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5. Entrepreneurship as a Career5
A recent report finds that 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 entrepreneurship for many reasons:
Dissatisfaction with traditional work
To fill a gap in goods or services they could use themselves
Financial necessity
Heightened publicity surrounding celebrity entrepreneurs
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.
Lecture Enhancer: Share an example of a celebrity entrepreneur. Some hints: Magic Johnson (Starbucks, Burger Kind, 24 Hour Fitness), Russell Simmons (Def Jam and Phat Farm), the late Paul Newman (Newman’s Own), Dr. Dre (Beats)
Class Activity: Discuss the unique stresses and challenges being your own boss might present.
Copyright ©2017 John Wiley & Sons, Inc.

6. Entrepreneurship as a Career
While in college, Jessica Matthews started Uncharted Play, whose main product is a soccer ball called SOCCKET, which stores energy that can be used later to power electrical appliances and lamps.
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.
Lecture Enhancer: Share an example of a celebrity entrepreneur. Some hints: Magic Johnson (Starbucks, Burger Kind, 24 Hour Fitness), Russell Simmons (Def Jam and Phat Farm), the late Paul Newman (Newman’s Own), Dr. Dre (Beats)
Class Activity: Discuss the unique stresses and challenges being your own boss might present.
Copyright ©2017 John Wiley & Sons, Inc.

7. Why People Become Entrepreneurs7
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
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 have laid off employees, entrepreneurs find their own sort of 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: Many have chosen to be their own boss when they realized that the job they dreamed of does not exist.
Class Activity: Discuss whether the pros of being your own boss outweigh the cons.
Copyright ©2017 John Wiley & Sons, Inc.

8. The Environment for Entrepreneurship8
Globalization
Education
Demographic & Economic Trends
Information Technology
Globalization, education, information technology, and demographic and economic trends create many opportunities for entrepreneurs. Growth in entrepreneurship is a worldwide phenomenon. The next few slides outline each further.
Copyright ©2017 John Wiley & Sons, Inc.

9. Globalization 9
Figure 6.3 shows the levels of entrepreneurship activity in various countries
Factor Driven Economies
Cameroon, Uganda, Botswana
Efficiency Driven Economies
Ecuador, Peru, Chile, and Thailand
Innovation-Driven Economies
Qatar, Trinidad and Tobago, USA, and Australia
Entrepreneurship activity across the world continues to grow. Entrepreneurs are the key to economic growth for many lesser-developed nations.
Lecture Enhancer: Information technology has contributed to the global environment for entrepreneurship.
Class Activity: Have students study Figure 6.3 to determine the highest levels of entrepreneurial activity worldwide. What assumptions, if any, can be made about each country’s economy?
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10. The Environment for Entrepreneurs (cont.)10
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
Educational opportunities for entrepreneurs continue to proliferate -- and information technology has provided a big boost for entrepreneurs as well. Trends like the aging population (Baby Boomers), an increasingly diverse population, 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.
Lecture Enhancer: What role does education play in encouraging students to start new businesses? Lecture Enhancer: Name as many “dorm room” businesses as possible started by then-college students. Did any finish college? How is the business doing today?
Class Activity: Survey the class to see how many students have taken at least one course focusing on entrepreneurship. Do any students plan to major in entrepreneurship?
Class Activity: List ways technology has provided entrepreneurs tools to compete.
Copyright ©2017 John Wiley & Sons, Inc.

11. Characteristics of Entrepreneurs11
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: Poll students for their opinion of the top three (most important) characteristics. Class Activity: Ask students why optimism is an important trait for potential entrepreneurs.
Lecture Enhancer: What are some personal-life issues that might hinder an entrepreneur’s success?
Copyright ©2017 John Wiley & Sons, Inc.

12. Entrepreneurial Characteristics12
Tolerance for Failure - not easily discouraged
Creativity –overcoming difficult problems and situations
Tolerance for Ambiguity – uncertainties taken in stride
Internal Locus of Control - control of their own destiny
Vision - how to make business ideas successful
High Energy Level - a willingness to work long and hard
Need to Achieve competitive drive and desire to excel
Self-Confidence – optimism and fearlessness
The combination of the above characteristics is important to an entrepreneur, willing to take risks. These eight traits are especially important for people who want to succeed as entrepreneurs.
Lecture Enhancer: What type of ambiguity might an entrepreneur face in the fashion retail industry? How might this ambiguity differ at a technology company?
Classroom Activity: Have students choose the top three characteristics for financial success.
Copyright ©2017 John Wiley & Sons, Inc.

13. Entrepreneurial Characteristics
Entrepreneurs need to have a vision—how to make their business idea a success. Russell Simmons is one of the top African-American entrepreneurs in the country. His Rush Communications entertainment empire includes music, film, fashion, and even financial services.
Copyright ©2017 John Wiley & Sons, Inc.

14. Figure 6.5 Quiz for Small-Business Success14
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.
Remember that there are no right or wrong answers.
Lecture Enhancer: As the quiz indicates, there are many different aspects of running a business (marketing, customer service, employee relations, and finance).
Class Activity: Have students study each of the quiz questions to determine which are based upon personal opinions.
Copyright ©2017 John Wiley & Sons, Inc.

15. Starting a New Venture 15
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
There are a lot of ways to think about who you are, what you love, and how your passions might translate into a business idea. Almost as importantly, is there a need in the marketplace which coincides with your passion or what you love to do?
Lecture Enhancer: Many students wish to start a business, but remain uncertain about the type of business to start. How is this finally resolved?
What do you love? Knitting, photography, jewelry making, gardening, ice hockey, or woodworking?
Class Activity: Have students write down something they love to do, and/or something they’re really good at doing. Collect the pieces of paper and read each aloud for the class to decide whether there is a need in the marketplace for each passion.
Copyright ©2017 John Wiley & Sons, Inc.

16. Choosing a Business Idea16
Consider the following guidelines:
List your interests and abilities, values, beliefs, goals and dreams
List the types of businesses which match your interests and abilities
Read, Read, Read to identify trends and ideas of future needs for products
Evaluate ways to improve existing goods and services
Conduct market research to determine customer interest in your idea or venture
Become an industry expert by reading about your industry
There are some guidelines to consider when choosing a business idea. Coming up with lists of interests, abilities, values, beliefs, and goals is a good start.
Matching your interests with abilities is prudent. Reading and learning helps identify trends and business ideas. Market research is always a good place to start in order to see if your idea has traction.
Lecture Enhancer: Is there always a way to create a business from one’s passion?
Class Activity: Ask students to think about a basic service or product needed in their immediate community. Then obtain their comments and discuss their ideas.
Class activity: Go online and look at two popular small business magazines, Inc.com and entrepreneur.com – bring in an article from either to discuss in class.
Copyright ©2017 John Wiley & Sons, Inc.

17. Buying an Existing Business17
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
There are many advantages to purchasing an existing business. Financing may be easier, as the businesses has a “track record,” and hopefully, some financial success. The seller of the business may set up an installment sale. To find businesses for sale, contact a business broker or search online. The other benefits of purchasing an existing business include established employee, customer, and supplier relationships.
Lecture Enhancer: What are the possible downsides of buying an existing business?
Class Activity: What are some of the reasons someone might want to sell an existing business?
Copyright ©2017 John Wiley & Sons, Inc.

18. Buying a Franchise 18
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, tutoring, and security
Franchise fees can be costly
Although purchasing a franchise comes with certain risks (refer back to Chapter 5), it is still a less risky business endeavor than establishing an entirely new firm. Particular franchises, such as fast food and fitness, or those that cater to the needs of the elderly, children, and their parents, demonstrate growth.
Lecture Enhancer: Poll students on whether Starbucks is a franchise. (It is not a franchise, though some stores in the UK are sold as franchises.)
Class Activity: What types of business formats lend themselves to franchising? Is this an option you would consider if you were to start a business?
Class Activity: What does it take to open a McDonald’s franchise? Go to the McDonald’s website to learn more about what the company looks for in a franchisee.
Copyright ©2017 John Wiley & Sons, Inc.

19. Buying a Franchise
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 ©2017 John Wiley & Sons, Inc.

20. Creating a Business Plan20
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
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, community 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 readily available.
Lecture Enhancer: Some believe that the key flaw in the time invested researching and developing a business plan is the risk of discovering wrong assumptions once you finally go out and test. Many believe that testing a business model is far more important than writing a business plan. Do you agree?
Copyright ©2017 John Wiley & Sons, Inc.

21. Business Plan Resources21
There are many online and offline resources for developing a business plan, including software called Business Plan Pro by Palo Alto software.
Lecture enhancer: A website called presents a wide variety of business plans in every type of industry imaginable.
Copyright ©2017 John Wiley & Sons, Inc.

22. Finding Financing 22
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
Seed capital, funds used to launch a company, depend on the nature of the business. 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 of 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.
Copyright ©2017 John Wiley & Sons, Inc.

23. Startup Funding Sources23
Table 6.2 shows common startup funding sources, the most common of which is personal savings.
Lecture Enhancer: Why do you suppose personal savings is the most common source of financing used by entrepreneurs?
Class Activity: Ask students to evaluate Table 6.2 to determine what makes certain funding choices more prudent than others.
Copyright ©2017 John Wiley & Sons, Inc.

24. Debt Financing Money borrowed that must be repaid24
Money borrowed that must be repaid
Sources include: 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
Debt financing is money that is borrowed that must be repaid. Common sources for debt financing include banks, finance companies, families & friends, and credit cards.
Financing with a loan from a bank has become increasingly difficult without a previous track record of financial success (i.e., profits).
Lecture Enhancer: Something not emphasized nearly enough is the importance of good credit for an entrepreneur who wishes to raise funding for a startup. Discuss why having some “skin-in-the-game” is important.
Class activity: You’ve heard stories of entrepreneurs who have started their businesses using credit cards. Discuss the reasoning behind this approach.
Copyright ©2017 John Wiley & Sons, Inc.

25. Equity Financing 25
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
Business organizations or groups of private individuals that invest in early-stage, high-potential growth companies
Angel Investors
Wealthy individuals who invest money directly in new ventures in exchange for equity, are a larger source of investment capital for start-up firms
Entrepreneurs exchange a percentage or share of their business ownership in exchange for financing. This is called equity financing, and a benefit is that it doesn’t need to be repaid.
Sources of equity financing include family, friends, business people, venture capital firms, and private or angel investors.
Lecture enhancer: What is the difference between an angel investor and a family member who loans you money for your startup?
Class Activity: Discuss the implications of crowdsourcing (sites like Kickstarter) as a funding option. Under which type of financing is crowdsourcing?
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26. Equity Financing
Some entrepreneurs find creative ways to obtain equity financing. Gavin McClurg’s venture, Offshore Odysseys, is a sailing expedition aboard a catamaran named Discovery. Investors buy timeshare segments for between $20,000 and $80,000 on the journey, during which they might swim, snorkel, kite surf, or paraglide in beautiful, remote parts of the world.
Copyright ©2017 John Wiley & Sons, Inc.

27. Government Support for New Ventures27
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
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. The Immigration Act of 1990 (IMMACT 90), provides visas for new immigrants who wish to invest money in a new venture in a targeted employment area.
Lecture Enhancer: What are some advantages and disadvantage to starting a business in an enterprise zone? Has gentrification been more pervasive in enterprise zones?
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28. Intrapreneurship 28
Promoting innovation within the organizational structures of established companies
An idea to promote creativity and innovation in order to maintain a competitive advantage in a fast-changing business climate
Skunkworks is a form of intrapreneurship whereby an employee conceives of an idea and convinces management to provide resources for potential commercialization
30 percent of large firms now allocate funds toward intrapreneurship
Many companies work diligently to retain entrepreneurial spirit within their organizations. Many organizations, particularly more established ones, 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?
Class Activity: Discuss the acquisitions trend of tech giants like Google, Yahoo, and Facebook. Does purchasing a firm for its engineering talent and innovation make more sense for these giants? Why?
Copyright ©2017 John Wiley & Sons, Inc.