Starting Your Own Business: The Entrepreneurship Alternative

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Chapter 6 Starting Your Own Business The
Entrepreneurship Alternative
Learning Goals
Discuss conditions that encourage opportunities
for entrepreneurs. Identify personality traits
that typically characterize successful
entrepreneurs. Summarize the process of starting
a new venture. Explain how organizations promote
intrapreneurship.
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Define the term entrepreneur and distinguish
among entrepreneurs, small-business owners, and
managers. Identify four different types of
entrepreneurs. Explain why people choose to
become entrepreneurs.
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WHAT IS AN ENTREPRENEUR? Entrepreneur 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 sue the
resources of the organization to accomplish their
goals. Willing to take risks.
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CATEGORIES OF ENTREPRENEURS
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REASONS TO CHOOSE ENTREPRENEURSHIP AS A CAREER
PATH  More than 11 percent of Americans run
their own business.  In an average month,
Americans start approximately 550,000 new
businesses. Motivated by dissatisfaction with
organizational work world.  May believe their
ideas are opportunities to meet customer needs.
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Being Your Own Boss  Example Liz Lange, founder
and CEO of Liz Lange Maternity.  Had idea for
upscale maternity wear. Borrowed 50,000 and
opened an office to sell her designs.  Now has
annual sales exceeding 10 million. Financial
Success  Two-thirds of all millionaires are
self-employed.  Path to riches is uncertain due
to high failure rate.
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Job Security  Over last decade, large companies
have downsized, eliminating more jobs than they
created. Key difference from traditional job is
that an entrepreneurs job depends on the
decisions of customers and investors and
cooperation of ones own employees. Quality of
Life Lifestyle Entrepreneur Person who starts a
business to reduce work hours and create a more
relaxed lifestyle. Yet, most entrepreneurs work
long hours and at the whims of their customers.
Many define quality of life by their ability to
fulfill social objectives.
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THE ENVIRONMENT FOR ENTREPRENEURS
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Globalization  Market products abroad and hire
international talent. Growing internationally.
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Education  One hundred U.S. colleges and
universities offer entrepreneurship majors, 73
offer an emphasis in entrepreneurship, hundreds
of others offer courses. Universities are
helping students launch businesses. Some
programs teach entrepreneurship to young
people. Students who graduate from
entrepreneurship programs are three times as
likely as others to be self-employed and to help
start new businesses.
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Information Technology  Helps entrepreneurs work
quickly and efficiently, provide attentive
customer service, increase sales, and project
professional images.  Entrepreneurs also produce
and market products that apply new information
technology.  Internet also presents a challenge
because customers can check prices and buy online
from large or small companies anywhere in the
world. Demographic and Economic Trends  New
opportunities  Aging of U.S.
population.  Emergence of Hispanics as nations
largest ethnic group. Growth of two-income
families.
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CHARACTERISTICS OF ENTREPRENEURS
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Vision An overall idea for how to make their
business a success. High Energy Level Hard work
of the entrepreneur compensates for small staff
and limited resources available. Need to
achieve Enjoy the challenge of reaching
personal goals and are dedicated to personal
success.
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Self-confidence and Optimism Believe in their
own ability to succeed and instill optimism in
others. Tolerance for Failure Try and try again
when others would give up and view setbacks and
failures as learning experiences. Creativity
Typically conceive new ideas for products and
services and devise innovative ways to overcome
difficult problems and situations.
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Tolerance for Ambiguity Take uncertainty in
stride but not reckless gamblers. Internal Locus
of Control Believe they control their own fates
and take personal responsibility for success and
failure.
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STARTING A NEW VENTURE Selecting a Business
Idea Two most important considerations
Finding something you love to do and are good
at. Determining whether your idea can satisfy
a need in the marketplace. Guidelines for
selecting an idea that is a good entrepreneurial
opportunity List your interests and
abilities. List the types of businesses that
match your interests and abilities. Identify
future needs for products that no one yet offers.
Evaluate existing goods and services and ways
you can improve them. Choose a business that
offers profit potential. Conduct marketing
research to determine potential profitability.
Learn as much as you can about the
appropriate industry.
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Buying an Existing Business Advantages
Employees already in place serve established
customers and deal with familiar suppliers.
Good or service is known in the marketplace.
Necessary permits and licenses secured. May be
easier to get financing.  Some buy successful
businesses to build on their success.  Turnaround
entrepreneurs buy struggling businesses and
improve them to generate profits. Buying a
Franchise Less risky than starting a new firm,
but requires careful and energetic preparation.
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Creating a Business Plan Forty-seven percent of
the most recent Inc. 500 CEOs did not create a
formal written plan.  Still advisable because it
helps an entrepreneur prepare enough resources
and stay focused on key objectives.
AllBusiness.com  Kaufman eVenturing  MoreBusin
ess.com
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Finding Financing Seed capital Initial funding
needed to launch a new venture.  Average amount
of seed money is 1.5 million, but median is
50,000. Fifty-four percent of entrepreneurs
started with 50,000 or less. Debt Financing
Debt financing Borrowed funds that entrepreneurs
must repay. When business fails, owner must
often declare bankruptcy. Can be difficult to
get bank loan for start-up.
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Equity Financing Equity financing Funds invested
in new ventures in exchange for part
ownership. May benefit entrepreneur with a
good idea and skills but little or no
money. Venture capitalists Business firms or
groups of individuals that invest in new and
growing firms in exchange for an ownership
share. Angel investors Wealthy individuals who
invest directly in a new venture in exchange for
an equity stake. Angel networks match business
angels with entrepreneurs.  Isabella Capital
and Springboard Enterprises focus on women.
U.S. Hispanic Chamber of Commerce aids
minority-owned businesses.
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INTRAPRENEURSHIP Intrapreneurship Process of
promoting innovation within the structure of an
existing organization. Example 3M
Researchers spend 15 percent of their time
working on their own ideas without approval from
management. A skunkworks project is initiated
by an employee who conceives an idea and then
recruits resources from within to turn it into a
commercial product. Pacing programs are
company-initiated projects that focus on a few
products and technologies in which company sees
potential for rapid marketplace winners. Helps
firms retain valuable employees.