Entrepreneurship and

New Business Ventures

ADA UNIVERSITY
EMIN ILYAS & ELNUR ISAZADE
BOOKKEEPING
About me
Book: ENTREPRENEURSHIP: Starting and Operating a Small Business
Syllabus: check blackboard!
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CASE STUDY
CHAPTER 1
ENTREPRENEURS
RECOGNIZE
OPPORTUNITIES

Learning Objectives:
1-1. Summarize what entrepreneurs do.
1-2. Examine how free-enterprise economies work and how
entrepreneurs fit into them.
1-3. Identify and evaluate opportunities to start your own business.
1-4. Explain how profit works as a signal to the entrepreneur.
ENTREPRENEURS RECOGNIZE
OPPORTUNITIES
What Is an Entrepreneur?
A person who recognizes an opportunity and organizes and
manages a business, assuming the risk for the sake of potential
return.
They are somehow engaged in the buying and selling of products
or services in order to earn money.

• A product is something that exists in nature or is made by

human beings. It is tangible, meaning that it can be physically
touched.

• A service is labor or expertise exchanged for money. It is

intangible. It cannot physically be touched.
ENTREPRENEURSHIP
What Do Entrepreneurs Do?

• The French word entrepreneur began to take on its present-day meaning in the seventeenth
century.

• It was used to describe someone who undertook any project that entailed risk—military, legal, or
political, as well as economic.

• Entrepreneurs may have different reasons to start and continue their businesses, but they share the
common focus of creating sustained-value.

• For example, Debbi Fields, founder of Mrs. Fields Cookies, took resources; eggs, butter, flour,
sugar, chocolate chips—and turned them into cookies. She added value to the resources she had.
FREE-ENTERPRISE SYSTEM
Entrepreneurs seek opportunities that they envision as
generators of incremental income, or wealth.

• Free-enterprise system - economic system in which

businesses are privately owned and operate relatively free of
government interference.

• Capitalism - the free-market system, characterized by

individuals and companies competing for economic gains,
ownership of private property and wealth, and price
determination through free-market forces.
 CAPITALISM

The free-market system, which is Capital - money or property Voluntary Exchange - a

also called capitalism, typifies the owned or used in business. transaction between two parties
following attributes: who agree to trade money for a
product or service.
Individuals and companies may compete for
their own economic gains.
Private wealth and property ownership are
permissible.
Free-market forces primarily determine
prices.
BENEFITS AND CHALLENGES OF FREE
ENTERPRISE
Global Impact…
Free Trade:
• For much of recorded history, international trade was difficult and hazardous. To sell products in
another country often required long and dangerous journeys over land or by ship.
• Many countries were closed to outside trade.
• Governments also used their power to give their own business people competitive advantages over
those from other countries by establishing trade barriers, such as imposing taxes (tariffs) on foreign
goods that made them very expensive.
• Today, trade barriers have fallen in many parts of the world.
• The North American Free Trade Agreement (NAFTA) of 1994 eliminated trade barriers between the
United States, Mexico, and Canada.
 WHAT IS A SMALL BUSINESS? (1 OF 2)
Small Business - A small business is defined by the U.S. Small Business
Administration’s Office of Advocacy as having fewer than 500 employees
and selling less than $5 million worth of products or services annually.

• The core principles involved in running a large company like

Microsoft—and a corner deli are the same.

• This is why entrepreneurship is often called the engine of an economy. It

drives economic creativity, giving rise to wealth and jobs and improving
the standard of living.
WHAT IS A SMALL BUSINESS? (2 OF 2)
BizFacts
There are 27.3 million businesses in the United States; approximately 99.9 percent of them are small
companies with fewer than 500 employees.

Small businesses in America employed 49.2 percent of the country’s private (non-government) workforce,
hired 43 percent of high-tech workers, and created 64 percent of net new jobs annually over the last decade.

Home-based businesses make up 52 percent and franchises 2 percent of all small firms.

Small businesses represent 99.7 percent of all companies with employees.

DEFINITIONS OF SUCCESS—MONETARY
AND OTHER
Starting a business is an opportunity, and like any opportunity, it should be evaluated by taking a careful
look at all aspects of it.

One thing is certain, though: The desire to make money, alone, is not a good enough reason to start
one’s own business.

The financial rewards of owning your own business may not occur until you have put in years of hard
work.

Most successful companies have been founded by an entrepreneur with a powerful and motivating
vision and passion, balanced by a strong work ethic and dedication.
TAKING THE LONG VIEW
Successful entrepreneurs know it is important to begin with the end in mind. As you
consider an entrepreneurial path, consider these questions:

• Are you planning to be active in the business until retirement? At what age will you
retire? Who will take over then? A family member? A new owner?

• Do you plan to grow the business to a certain size or level of maturity and then sell it? If
so, what is the target level?

• Are you looking at an initial public offering or a small private sale? Would you stay with
the business after it was sold?

• Would you want to stay active for a given number of years? Then what would you do?
BENEFITS AND COSTS OF BECOMING
AN ENTREPRENEUR (1 OF 3)
Potential Benefits of Entrepreneurship:

1. Control over Time

2. Fulfillment
3. Independence/Autonomy
4. Creation/Ownership
5. Financial Reward/Control over Compensation
6. Control over Working Conditions
7. Self-esteem
8. Contribution to Society
BENEFITS AND COSTS OF BECOMING
AN ENTREPRENEUR (2 OF 3)
Entrepreneurs choose how and when they are paid. As owner of your
company, when funds permit, you can decide to:
1. Pay yourself a salary - A fixed amount of money paid to an employee
at regular intervals.
2. Pay yourself a wage - A fixed payment per hour for work performed.
3. Take a share of the company’s profit in Dividends - each
stockholder’s portion of the profit-per-share paid out by a
corporation.
4. Take a commission on every sale you make - a percentage of a sale
paid to a salesperson
POTENTIAL COSTS OF
ENTREPRENEURSHIP

While there are many potential benefits of entrepreneurship,

entrepreneurs also face numerous possible costs:
• Business Failure
• Obstacles
• Loneliness/Isolation
• Financial Insecurity
• Long Hours/Hard Work
• Strain on Personal Relationships
 BENEFITS AND COSTS OF BECOMING
AN ENTREPRENEUR (3 OF 3)

To turn an opportunity into a business, Entrepreneurs have to be able to tolerate a

entrepreneurs invest both time and higher degree of risk and uncertainty than
money. Before making this kind of people who work steady jobs for established
investment, think carefully about: employers:
• Costs. The money, energy, and time
• This higher risk, however, comes the
you will have to invest, as well as the
opportunities you will be giving up, to potential of higher rewards.
operate the business.
• Cost/benefit analysis a
• Benefits. The wealth you will accrue decision-making process in which the
and the knowledge, skills, self esteem, costs of taking an action are compared to
and experience you will gain. the benefits.
 NEXT-BEST INVESTMENT

Cost/benefit analysis is Seeking Advice and

incomplete without considering Information to Succeed
opportunity cost. • Mentor - a trusted advisor with whom a
• Opportunity cost - the value of what person forms a developmental partnership
must be given up in order to obtain through which information, insight, skills,
something else. and knowledge are shared to promote
personal and/or professional growth.
TERRACYCLE
ENTREPRENEURIAL OPTIONS
(1 OF 4)
Social entrepreneurship has multiple definitions and forms, but it is
commonly thought of as a for-profit enterprise with the dual goals of
achieving profitability and attaining beneficial returns for society.

Social entrepreneurs play the role of change agents in the

social sector by:
•Adopting a mission to create and sustain social value (not just
private value),
•Recognizing and relentlessly pursuing new opportunities to serve
that mission,
•Engaging in a process of continuous innovation, adaptation, and
learning,
ENTREPRENEURIAL Acting boldly without being limited by resources currently in hand, and
OPTIONS (2 OF 4)

Exhibiting heightened accountability to the constituencies served and

for the outcomes created.

Social entrepreneurship is less about profit than it is about social

impact.

social business - a company created to achieve a social objective while

generating a modest profit to expand its reach, improve the product or
service, and subsidize the social mission.
ENTREPRENEURIAL
OPTIONS (3 OF 4)
• venture philanthropy - a subset or segment of social
entrepreneurship wherein financial and human capital
is invested in not-for-profits by individuals and
for-profit enterprises, with the intention of generating
social rather than financial returns on their
investments.

• green entrepreneurship - business activities that

avoid harm to the environment or help to protect it in
some way.
ENTREPRENEURIAL OPTIONS (4 OF 4)
According to the Corporation for Enterprise Development (CFED),
green entrepreneurship can:
•create jobs and offer entrepreneurship opportunities,
•increase energy efficiency, thus conserving natural resources and saving money,
•decrease harm to workers’ health,
•enable businesses to tap into new sources of local, state, and federal funding,
•take advantage of consumer preference for environmentally friendly goods, and
•preserve limited natural assets on which businesses and communities depend for
business and quality of life.
HOW DO ENTREPRENEURS
FIND OPPORTUNITIES TO
START NEW BUSINESSES?
Schumpeter’s definition describes five basic ways that entrepreneurs find
opportunities to create new businesses:

1. Using a new technology to produce a new product

2. Using an existing technology to produce a new product
3. Using an existing technology to produce an old product in a new
way
4. Finding a new supply of resources (that might enable the
entrepreneur to produce a product more economically)
5. Developing a new market for an existing product
MIRRAVIZ CASE
ENTREPRENEURS CREATIVELY EXPLOIT
CHANGES IN OUR WORLD (1 OF 3)

This is in alignment with Schumpeter’s definition of

entrepreneurship but explicitly takes it a step
further—to take advantage of circumstances.

Nothing changes faster than technology.

These changes can be technological, like the Not so many years ago, there were no bar
explosion in computer technology that led codes and no electronic scanners, hardly
Bill Gates and Paul Allen to start Microsoft. anyone used e-mail, and “smart phones”
didn’t exist.
ENTREPRENEURS CREATIVELY EXPLOIT
CHANGES IN OUR WORLD (2 OF 3)

To learn about what’s new in

technology, read current
business and trade magazines
and visit such Web sites as:

Tech Crunch Startup Digest

http://www.techcrunch.com http://www.startupdigest.com
ENTREPRENEURS CREATIVELY EXPLOIT
CHANGES IN OUR WORLD (3 OF 3)
How Do Entrepreneurs Create Business Ideas?

1. Listen. By listening to others, entrepreneurs get ideas about improving a business or creating a
new one. Create one business idea by listening. Describe how you got the idea.
2. Observe. By constantly keeping their eyes and ears open, entrepreneurs get ideas about how to
help society, about what kind of businesses they could start, and about what consumers need.
Create a business idea by observing. Describe how you got the idea.
3. Analyze. When entrepreneurs analyze a problem, they think about what product or service
could solve it. Create a business idea by thinking up a solution to a problem. Describe how you
arrived at the idea.
Peter Drucker defined an entrepreneur as someone who “always searches for change, responds to it, and
exploits it as an opportunity.” Entrepreneurs are always on the lookout for ways to create businesses
from the opportunity of change.
WHERE OTHERS SEE
PROBLEMS,
ENTREPRENEURS
RECOGNIZE
OPPORTUNITIES
An entrepreneur recognized that the
problem was actually an opportunity.
Where there are dissatisfied consumers,
there are likely opportunities for
entrepreneurs!
TRAIN YOUR MIND
TO RECOGNIZE
BUSINESS
OPPORTUNITIES (1
OF 2)
A further step is to let your creativity fly.
Consider developing your entrepreneurial
instincts by asking yourself:
 TRAIN YOUR MIND TO RECOGNIZE
BUSINESS OPPORTUNITIES (2 OF 2)
BizFacts

• Entrepreneurship has proven to be an effective way for minorities and women to enter the business world.

• More than 6.1 million businesses were minority-owned in 2007, and they generated $871 billion in revenues.

• There were more than 12.4 million non-farm businesses owned by women (or co-owned equally with men),
accounting for 45.4 percent of all U.S. companies.

Source: U.S. Small Business Administration, accessed March 9, 2014, http://www.sba.gov.

ENTREPRENEURS USE THEIR
IMAGINATIONS
What is the one thing I would like to have more than anything else?
Jump-start
your What would it look like? What would its other attributes be like?

imagination
by asking What would it do?

yourself such What innovative product or service idea have I been mulling over in my mind?
questions as:
What problem have I encountered in everyday life and thought: “There has to be a
better way to do this?”
AN IDEA IS NOT NECESSARILY
AN OPPORTUNITY
An opportunity is an idea that 1. It is attractive to customers
is based on what consumers because it creates or adds value
need or want and are willing to for its customers.
buy sufficiently often at a high
enough price to sustain a
2. It will work in the business
environment.
business.
3. It can be executed in a defined
Timmons’s definition of a window of opportunity.
business opportunity includes
these four characteristics: 4. It can be implemented with
the right team to make it
durable.
SWOT ANALYSIS
Entrepreneurial Wisdom…
A useful way to evaluate a business idea is to look at its strengths, weaknesses, opportunities, and
threats (SWOT). This is called SWOT analysis.
• Strengths - All the capabilities and positive points the company has, from experience to
contacts. These are internal to the organization.
• Weaknesses - All the negatives the company faces, such as lack of capital or training or
failure to set up a workable accounting system. These are internal to the organization.
• Opportunities - Any positive external event or circumstance that can help the
entrepreneur get ahead of the competition
• Threats - Any external factor, event, or circumstance that can harm the business, such as
competitors, legal issues, or declining economies.
THE FIVE ROOTS OF
OPPORTUNITY IN THE
MARKETPLACE
Entrepreneurs can exploit “five roots of opportunity.” Notice how similar these are to
Schumpeter’s definition of entrepreneurship.

1. Problems your business can solve

2. Changes in laws, situations, or trends

3. Inventions of new products or services

4. Competitive advantage in price, location, quality, reputation, reliability, speed, or

other attributes of importance to customers

5. Technological advances that entrepreneurs take from the laboratory to the

marketplace
 INTEGRATING INTERNAL AND EXTERNAL
OPPORTUNITIES
Opportunities fall into two classes:

• An internal opportunity is one that comes from inside you—from a personal hobby,
interest, or even a passion—or inside your organization.
• An external opportunity, in contrast, is generated by an outside circumstance.
ESTABLISHING
STRATEGIES
Figure 1-1 Porter’s Generic Strategies

Scope of Target Market Strategic Advantage Strategic Advantage for

for Product Uniqueness Low Cost
Industry-Wide Differentiation Strategy Cost Leadership Strategy
(Broad)
Market Segment Focus Strategy Focus Strategy (Low Cost)
(Narrow) (Differentiation)
Source: Adapted from Michael Porter, Competitive Strategy: Techniques for
Analyzing Industries and Competitors, Free Press, 1998.

• Strategy - a plan for how an organization or individual plans to proceed with

business operations and outperform that of its competitors.
PATHS TO SMALL There are pros and cons to each approach, and it is
worthwhile to give thought to each option. Note
BUSINESS the possibilities in Exhibit 1-2.

OWNERSHIP Exhibit 1-2 Selected Business Entry Options

Business Start a Buy an Existing Secure a Franchise or License Licensing

Aspects Business Business Technology
Customers None Established None—but may have name recognition None

Location Needed In place Assistance possible Needed

Management Owner Owner Owner within terms of license Owner within terms of
Control license
Operational Owner Owner Owner within terms of license Owner
Control Jerome A. Katz and Richard P. Green, Entrepreneurial Small Business, New York: McGraw-Hill/Irwin, 2008.

Marketing Needed In place (+/−) Assistance possible. Rules absolutely. Needed

Reputation None In place (+/−) Should exist. If not, why license? Possible
Royalties/Fees Not usual Maybe Ongoing Likely
Financing Needed Prior owner may Assistance possible Needed
provide
Disclosures None Buyer beware FDD and contracts Agreement
 TYPES OF BUSINESS OWNERSHIP
Securing Franchise Rights
• franchise a business that markets a product or service developed by a franchisor, typically in
the manner specified by that franchisor.
Buying an Existing Business
• acquisition a business purchase.
• due diligence the exercise of reasonable care in the evaluation of a business opportunity.
Licensing Technology
One way to potentially shorten the product-development cycle and to access innovative
technology is to identify and license that technology— that is, to enter into a contract to use it
without purchasing the rights to own it.
 THE MANY FACES OF
ENTREPRENEURSHIP

Gazelle - a company that achieves an Microenterprise - a firm with five or Lifestyle business - a microenterprise
annual growth rate of 20 percent or fewer employees, initial capitalization that permits its owners to follow a
greater, typically measures by the requirements of under $35,000, and the desired pattern of living, such as
increase of sales revenue. regular operational involvement of the supporting college costs or taking
owner. vacations.
MAKING THE BUSINESS WORK
PERSONALLY AND PROFESSIONALLY
A Business Must Make a Profit to Stay in Business:

• Profit - amount of money remaining after all costs are

deducted from the income of a business.

• Profit is the sign that the entrepreneur is adding value.

• Profit results from the entrepreneur’s choices.

• Trade-off - the act of giving up one thing for another.

SEVEN RULES FOR
BUILDING A SUCCESSFUL
BUSINESS