1. The Foundations of Entrepreneurship businesses. An estimated 10% of the U.S.

population is actively involved in

Introduction trying to start new ventures.
Growing numbers of people are realizing their dreams of owning and operating An estimated 9.5% of the people in 42 Global Entrepreneurship Monitor
their own business. Entrepreneurship is thriving in the U.S. and throughout the (GEM) countries are involved in starting a new business.
world. The dramatic impact of the entrepreneurial spirit influences multiple
aspects of business: 1.2 WHAT IS AN ENTREPRENEUR?
 Entrepreneurs come from diverse backgrounds and strive to realize the  An entrepreneur is one who creates a new business in the face of risk
Great American Dream of owning and operating their own businesses. and uncertainty for achieving profit and growth opportunities and
assembles the necessary resources to capitalize on those opportunities.
 Entrepreneurs have introduced innovative products and services,
 The profile of an entrepreneur is one who creates a new business in the
pushed back technological frontiers, created new jobs, and opened
face of risk and uncertainty for the purpose of achieving profit and
foreign markets and sparked the U.S. economy into regaining its
growth by identifying opportunities and assembling the necessary
competitive edge.
resources to capitalize on those opportunities.
 Entrepreneurial growth is impressive. In 1969, entrepreneurs created  It demand long hours to work for yourself.
274,000 new corporations; today, the number of new incorporations
exceeds 600,000 per year. Characteristics of an Entrepreneur
 According to the Global Entrepreneurship Monitor (GEM), a study of Common characteristics of entrepreneurs include:
entrepreneurial activity across the globe, 10.5 percent of the U.S.  Willingness to take initiative. Entrepreneurs prefer to be in control of
population aged 18 to 64 is engaged in entrepreneurial activity. their resources and to use those resources to achieve self-determined
 The study also found that 12 percent of people in the 37 GEM countries goals.
analyzed are involved in starting a new business  Preference for moderate risk. Entrepreneurs are not wild risk takers,
The past two decades have seen record numbers of entrepreneurs launch new but are instead calculating risk-takers.
businesses.  Confidence in their ability to succeed. Entrepreneurs need to be
 Productivity gains in recent years have made it possible for companies optimistic about the chances for success—or they may never take a risk
to accomplish more with fewer people. As a result, people who once at all.
saw launching a business as being too risky, now see it as the ideal way  Self-reliance. Entrepreneurs do not shy from the responsibility in
to create their own job security. making their business succeed.
 Perseverance. Entrepreneurs don’t give up, even when things don’t’
 Although launching a business is never easy, the resources available
work out as planned Desire for immediate feedback. Entrepreneurs
today make the job much simpler today than ever before since
like to know how they are doing and are constantly looking for
thousands of colleges and universities offer courses in
reinforcement.
entrepreneurship.
 High level or energy. Entrepreneurs have a higher level of energy and
 Internet hosts a sea of information on launching a business including are more energetic than the average person. Typically, entrepreneurs
sources of capital. work long hours—often 60 to 80 hours each week.
 Another significant shift in growth of small companies is due to  Competitiveness. Entrepreneurs tend to demonstrate competitive
significant shifts in our nation’s economic structure (rapidly moving behavior, often early in life.
away from an industrial economy to a knowledge-based one).  Future orientation. . Entrepreneurs tend to dream big and then
 A knowledge-based economy favors small businesses because the costs formulate plans to transfer those dreams into reality.
are very low for managing, transmitting knowledge, information, and  Skilled at organizing. Entrepreneurs know how to put the right people
computer- and information-technology are driving these costs even and resources together to accomplish a task.
lower.  Value achievement over money. Entrepreneurs are motivated by
achievement. This a sense of achievement seems to be their primary
1.1 The World of the Entrepreneur motivating force—money is simply a way to “keep score” of their
Every year, entrepreneurs in the United States launch nearly 6 million accomplishments.

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Entrepreneurship Drawback of Small Business Ownership
Entrepreneurs are diverse in every respect. Studies indicate that anyone, There are potential drawbacks in the entrepreneurial experience. The
regardless of age, race, gender, national origin can be a successful entrepreneur. drawbacks of small business ownership may include the following:
You will see entrepreneurial diversity in the many text examples and  Uncertainty of income. The entrepreneur is the last one to be paid!
throughout our class discussion  Risk of losing your entire investment. Entrepreneurs face risk.
The National Federation of Independent Businesses (NFIB)
HOW TO SPOT ENTREPRENEURIAL OPPORTUNITIES estimates that 35 percent of the new businesses fail within two
Entrepreneurs are able to identify opportunities and know the years, and 54 percent shit down within four years. Within six years,
difference between creativity and innovation. 64 percent of the new businesses will have folded.
 Look for creative ways to use existing resources.  Long hours and hard work. The schedule of most entrepreneurs is
Alaska Glacial Mud Company: This entrepreneur sells facial mud for rigorous working 10- to 12-hour days six or seven days a week
beauty products featuring natural an organic ingredients. without paid vacations.
 Realize that others have the same problem.  Lower quality of life until the business gets established. The
Stroller Strides: Group exercises classes targeted to mothers with workload can take a toll on the entrepreneur’s personal life and
infants launched a franchise that uses strollers for exercise and fun. family. Most launch their business when they are between 25 and
34 years of age when starting a family may be a major influence in
Notice what is missing. their lives.
Dogs on Wheels: With the absence of a hot dog stand, this entrepreneur  High levels of stress. The task and uncertainty of running a
launched a New York style cart in Greenville, South Carolina. business is stressful. Failure can mean financial ruin.
 Complete responsibility. The buck stops with the entrepreneur.
1.3 THE BENEFITS OF OWNING A SMALL BUSINESS They take on issues with which they are not fully knowledgeable.
 Discouragement. The entrepreneurial lifestyle requires
Benefits of Small Business Ownership dedication, discipline and tenacity. Discourage and disillusionment
The benefits of small business ownership are what cause people to be can become factors.
interested in entrepreneurship. These benefits include: 1.5 WHY THE BOOM: THE FUEL FEEDING THE ENTREPRENEURIAL FIRE
 Control your own destiny. Entrepreneurs have the rewards of knowing Feeding the Entrepreneurial Fire
they are the driving force behind their business and their future. Factors that feed the entrepreneurial fire include:
 Make a difference. Entrepreneurs have the opportunity to do what is  Entrepreneurs as heroes. People in America and throughout the
important to them in whatever way they define. world have a positive attitude toward entrepreneurs.
 Reach your full potential. Entrepreneurs can escape from  Entrepreneurial education. People with more education are more
unchallenging work and their business can be a self-expression of who likely to start businesses then those with less education. More colleges
they are. and universities are offering courses and students consider
 Reap impressive profits. Entrepreneurs can find that owning a entrepreneurship as an attractive career option than ever before.
business is a great way to create wealth.  Demographic and economic factors. Most start their business
 Contribute to society and to be recognized from your efforts. between the ages of 25 to 44.
Entrepreneurs can contribute to society and be recognized for these  Shift to a service economy. The service sector, now accounting for
efforts. about 80 percent of the jobs in the United States, is growing and has
 Do what you enjoy and to have fun at it. Entrepreneurs do now provided entrepreneurs with many business opportunities.
consider their work as traditional work—it is an avocation that is now  Technological advancements. Technology of all kinds has provided
a vocation. additional options and resources for entrepreneurs.
 Independent lifestyles. Entrepreneurship allows and independence
1.4 THE POTENTIAL DRAWBACKS OF ENTREPRENEURSHIP and self-sufficiency that many find ideal.
 E-Commerce and the World Wide Web. The Internet is a tremendous
asset for entrepreneurs. In some instances, the Web has leveled the

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 playing field for entrepreneurs when they compete with larger, more  Construction – General construction with annual receipts not
established businesses. exceeding $17 million.
 International opportunities. The shift to a global economy has  Special Trade Construction – Annual receipts not exceeding
opened the door to tremendous opportunities for entrepreneurs to $7 million.
access international markets  Manufacturing – Maximum number of employees may range
from 500 to 1,500 depending on the industry.
THE CONTRIBUTIONS OF SMALL BUSINESS
Small Businesses … The most common measure of small business is the number of employees
Small businesses are a dominant and powerful force in the U.S. economy. on a firm’s payroll. The White House Conference on Small Business
 Make up 99.7% of all the 29.2 million businesses in the U.S. definition for small business is: “A firm employing 500 people or fewer.”
 Employ 52% of the nations’ private sector workforce The Committee for Economic Development states that a small business
 Pay 45% of total private payroll must meet at least two of the four stated criteria:
 Create more jobs than big businesses a. Management is independent.
b. Capital is supplied and ownership is held by an individual or a
1.6 THE CULTURAL DIVERSITY IN ENTREPRENEURSHIP LO 5 small group.
Entrepreneurs are found virtually every walk of life. This includes: c. Area of operation is mainly local; markets need not be local.
 Young Entrepreneurs d. Size is small when compared to the biggest unit in the field.
 Women Entrepreneurs
 Minority Enterprises 1.8 THE TEN DEADLY MISTAKES OF ENTREPRENEURSHIP
 Immigrant Entrepreneurs Studies have indicated that there are common reasons for new business
 Part–time Entrepreneurs ventures to fail. These causes of small business failure may include:
 Home–Based Businesses a. Management mistakes
 Family Businesses b. Lack of experience
c. Poor financial control
 Copreneurs
d. Weak marketing efforts
 Corporate Castoffs
e. Failure to develop a strategic plan
 Corporate Dropouts
f. Uncontrolled growth
There is not a set “profile” for entrepreneurs. This is a group that is diverse
g. Poor location
in every way and appreciating these types of entrepreneurs illustrates this
h. Improper inventory control
variety of people and lifestyles.
i. Incorrect pricing
j. Inability to make the “entrepreneurial transition”
1.7 THE POWER OF “SMALL” BUSINESS
Because big business is more visible than small business, most people
1.9 PUTTING FAILURE INTO PERSPECTIVE LO 7
underestimate the role of the small firm in the U.S. economy.
Entrepreneurs don’t fail—the venture fails.
The definition of a “Small Business” is:
 There are no such things as failures, only results.
a. One which is independently owned and operated and not dominant
 Always look to turn a negative situation into a positive opportunity.
in its field.
b. Eligibility requirements are based on the specific industry.  Have no fear of failure and be sure to have a contingency plan.
 Retailing – Annual sales/receipts not exceeding $3.5 to $13.5  The only people who never fail are those who never do anything or
million. never attempt anything new.
The successful entrepreneur understands the meaning of these clichés and
 Services – Annual receipts not exceeding $2.5 to $14.5 million.
knows how to deal with adversity in a proactive and positive manner.
 Wholesaling – Yearly sales must not be over $9.5 to $22
million.
 Agriculture – Annual receipts not exceeding $1.0 to $3.5
million.

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  Drive
 Tenacity
 Commitment
1.10 HOW TO AVOID THE PITFALLS  Future orientation and vision
Avoiding the Pitfalls of Small Business Failure  Willingness to take calculated risks
Addition knowledge and experience can be beneficial to entrepreneurs.
Avoiding the pitfalls of small business failure includes: 2. Have you encountered a “stress point” recently or talked with
 Know your business in depth someone who has? If so, is there a potential business opportunity
- Educate yourself present? How would you describe the opportunity?
- Gain experience before you start. Expect students to discuss an experience that illustrates a “stress point”
 Prepare a business plan similar to that of Kroger’s. Encourage them to assess the business potential
- Planning replaces “I think” with “I know.” behind that stress point and describe the potential opportunity.
- Build a business plan on valid assumptions.
 Manage financial resources 3. What benefits do these entrepreneurs reap from owning their own
- Develop a practical information system and use it to make businesses? What disadvantages do they face?
decisions. These entrepreneurs reap the benefits of creating their own destiny, the
- To have adequate startup capital. opportunity to realize their potential, and a chance to work at what they
- Estimate capital needed then double it. enjoy doing while reaping the profits from the business.
- Cash is your most valuable resource. These entrepreneurs face several potential disadvantages including
uncertainty, financial risk, long work hours with minimal compensation,
 Understand financial statements
discouragement, and stress.
- These documents are reliable indicators of the small business’s health.
Know them.
4. What career lessons can you learn from these entrepreneurs?
Know the financial danger signs to look for Career lessons from these entrepreneurial examples may include:
 Learn to manage people effectively
 Be creative
- Your hires will determine where your company will go.
 Follow your passion
- Share information.
 Be persistent
- Successful entrepreneurs value their employees and constantly  Assess the risk
find ways to show it.  Know your market
 Set your business apart from the competition
- Differentiate your company and products.
- Convince your customers that you are different from competitors. 1. In addition to the normal obstacles of starting a business, what
- For small companies, that basis often is customer service, other barriers do collegiate entrepreneurs face?
convenience, speed, quality, or whatever else is important to One of the most significant barriers college students face is their
attracting and keeping happy customers. inexperience. The learning curve these college students face may be
 Maintain a positive attitude challenging. In addition, their youth may not be taken seriously when
- Requires lots of energy and enthusiasm. working with older business people and engaging in business
- Manage yourself. transactions. Securing financing may prove to be an example of this.
Keep your passion.
2. What advantages do collegiate entrepreneurs have when
launching a business?
Part 3: Chapter Exercises These young entrepreneurs also have advantages. Many young
1. Explain how these entrepreneurs exhibit the entrepreneurial spirit. entrepreneurs are technically proficient, are energetic, have an
The entrepreneurial spirit is exhibited through Susan Gregg Kroger’s: intimate understanding of their peer market, and may be highly
 Confidence

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 creative in identifying market needs and solutions. This group also  Desire for immediate feedback
brings a fresh viewpoint and an ability to see beyond obstacles.  High level of energy
 Future orientation (serial entrepreneurs)
 Skill in organization
3. What advice would you offer a fellow college student about to start  Value of achievement over money
a business? In addition, other characteristics of an entrepreneurial profile include:
Areas of advice student may offer include:  High degree of commitment
 Take action to build credibility.  Tolerance for ambiguity
 Identify areas of need.  Flexibility
 Leverage resources to build understanding.  Tenacity
 Conduct thorough research and demonstrate an understanding
of the critical needs of the market and the business. 3. Inc. Magazine claims, “Entrepreneurship is more mundane than it’s
 Seek counsel from more experienced entrepreneurs. sometimes portrayed … you don’t need to be a person of mythical
proportions to be very, very successful in building a company.” Do you
4. Work with a team of your classmates to develop ideas about what agree? Explain.
you college or university could do to create a culture of Anyone can become an entrepreneur. There are no limitations to this form
entrepreneurship on you campus or in your community. of economic expression and the skills of entrepreneurship and innovation
Encourage students to list ideas that may help to build entrepreneurial can be learned. There are thousands of examples where people have
resources. This list might include: become highly successful with ordinary businesses. This combination of
 Bring guest speakers to campus skills, desire, passion and drive and an understanding of the market
 Create an entrepreneurial mentor program opportunity may result in entrepreneurial success.
 Establish an entrepreneur club
 Host a business plan competition 4. What are the major benefits of business ownership?
 Explore options to expand entrepreneur courses offered Major benefits of business ownership include the opportunity to:
 Gain control over your own destiny
Part 4: Chapter Discussion Questions  Make a difference
1. What forces have led to the boom in entrepreneurship in the U.S. and  Reach your full potential
across the globe?  Realize unlimited profits
Forces that have influenced the U.S. entrepreneurial boom include:  Contribute to society and be recognized for your efforts
 The dream of owning and operating a business  Do what you enjoy
 The effect of downsizing
 The belief that “small is beautiful” 5. Which of the potential drawbacks to business ownership are most
 The opportunity to enter profitable niche markets crucial?
 The growing international and e–commerce markets The most crucial drawbacks to business ownership may include the:
 Uncertainty of income
2. What is an entrepreneur? Give a brief description of the  Risk of losing invested capital
entrepreneurial profile.  Long hours and hard work without guarantee of return
An entrepreneur is one who creates a new business in the face of risk and  Quality of life until the business gets established
uncertainty for the purpose of achieving profits and growth by identifying  High levels of stress
opportunities and assembling the necessary resources to capitalize on  Complete responsibility of the business – its success or failure
them. The entrepreneur has a:
 Desire for responsibility 5. Briefly describe the role of the following groups in entrepreneurship:
 Preference for moderate risk (risk eliminators) women, minorities, immigrants, part–timers, home–based business
 Confidence in their ability to succeed owners, family business owners, copreneurs, corporate castoffs and
 Determination corporate dropouts.
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 These entrepreneurial groups may face challenges in the following areas: 2. Capital is supplied and ownership is held by an individual or a
 Young people can apply their knowledge and skills to take small group.
advantage of the Internet, new technology and market 3. Area of operation is mainly local; markets need not be local.
opportunities. 4. Size is small when compared to the biggest unit in the field.
 Women often face discrimination in the workplace. There are 28 million businesses in the United States and 99.7 percent of
Entrepreneurship offers women opportunities for economic these ventures are considered small businesses. The economic contribution
growth. of small business is significant. Small businesses:
 Minorities also face discrimination in the workplace and can  Produce 51 percent of the country’s private GDP
benefit from entrepreneurship.  Account for 44.5 percent of business sales
 Immigrant entrepreneurs arrive with more education and  Represent 65 percent of new jobs between 1993 and 2009
experience. Their dedication and desire to succeed enables them to  Create 13 times more patents per employee than large companies.
achieve their dreams.
 Part–timers have the best of both worlds and can ease into a 8. Describe the small business failure rate.
business without sacrificing a steady paycheck and benefits. Many small businesses have inexperienced management and lack financial
 Home–based businesses are booming. Technology and this stability. These businesses suffer a mortality rate significantly higher than
“Homecoming” support nearly 44 percent of US households with that of larger, more established businesses because of managerial
some form of home office activity. inexperience and the limited resources available to support the business
 Family businesses are an integral part of our economy. 90 percent when it is in need of cash.
of U.S businesses are family owned.
 Copreneurs are entrepreneurial couples that work together. They 9. Outline the causes of small business failure. Which issues cause most
represent the fastest growing business sector. business failures?
 Corporate Castoffs have extensive on–the–job experience and are  Poor operations management – The manager lacks the ability to
dislocated workers due primarily to corporate downsizing. operate a small business.
 Corporate Dropouts leave organizations to pursue a better way of  Lack of experience – Many owners start businesses in industries in
life spearheaded by the “trust gap” over job security. which they have no experience.
 Social Entrepreneurs address social problem and apply  Poor financial management – Many owners start with too little money
entrepreneurial principles to organize, create and manage a social and with little or no understanding of financial spreadsheet
venture to achieve a desired social change to further broaden applications.
social, cultural, and environmental goals.  Over–investing in fixed assets – Owners who over–invest in fixed
 Retired Baby Boomers are often experienced business people and assets may find themselves with no access to funds for working capital
remain active and the level of entrepreneurial activity among or expansion.
people ages 55 to 64 is higher that people between 20 to 34.  Poor credit practices – Owners often sell on credit to meet (or beat)
the competition and find that they lack the additional working capital
required or the ability to collect on accounts.
7. What is a small business? What contributions do they make to our  Failure to plan – The lack of a strategic plan to guide the business in
economy? the long run.
A small business is “one which is independently owned and operated and  Unplanned and uncontrolled growth – Growth is natural and healthy,
not dominant in its field of operation.” One of the most common measure of but unplanned growth can be fatal to a business.
small business is the number of employees on a firm’s payroll. The White  Inappropriate location – Owners who choose a business location
House Conference on Small Business definition for small business is: “A firm without proper analysis, investigation, and planning often fail. Too
employing 500 people or fewer.” often, owners seek “cheap” sites and locate themselves straight into
The Committee for Economic Development states that a small business failure.
must meet at least two of the four stated criteria:  Lack of inventory control – Although inventory is typically the largest
1. Management is independent. investment for the owner, inventory control is one of the most
neglected duties.

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  Inability to make the “Entrepreneurial Transition” – Can we learn to
empower others to make decisions and act independently?

10. How does the typical entrepreneur view the possibility of business
failure?
Although failure is a possibility, it is not a deterrent to the entrepreneur.
The entrepreneur views failure as the unacceptable results of actions taken
that provide a valuable lesson for the future.

11. How can the small business owner avoid the common pitfalls that lead
to business failure?
A small business owner can avoid common pitfalls by:
 Knowing the business in depth
 Developing a solid business plan
 Managing financial resources
 Understanding financial statements
 Learning to manage people effectively

12. Why is it important to study the small business failure rate and the
causes of small business failures?
It is important to know what the major causes of small business failures are
so that the prospective entrepreneur can avoid those pitfalls.
Understanding these causes of failure may enable entrepreneurs to learn
and avoid these mistakes and improve their chance for business success.

13. Explain the typical entrepreneur’s attitude toward risk.

Risk is inherent to all future actions. Entrepreneurs are not necessarily
high–risk takers, but rather prefer, and are willing to accept and manage,
low–to–moderate risk situations. Some consider entrepreneurs as
“calculated” risk takers.

14. Are you interested in launching a small business? If so, when? What
kind of business? Describe it. What can you do to ensure its success?
This set of questions may provide an opportunity for dialog with students
in your class. Encourage them to talk about their business concept and
insights they gained from the chapter to improve the opportunity for
success.

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