business discussion

CHAPTER

1 The Entrepreneurial

Life

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LEARNING OBJECTIVES

By studying this chapter, you should be able to… 1-1 Explain the importance of small businesses and

entrepreneurship in our society. 1-2 Describe what it means to be a small

entrepreneurial firm. 1-3 Identify how small businesses can compete against

the giants. 1-4 Understand what might motivate you to be a small

business owner with all its risks and uncertainties. 1-5 Discuss ways to build a successful business as a

part of your life legacy.

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1-1 SMALL SIZE, GREAT SIGNIFICANCE

• Entrepreneurs who start and lead small businesses make a significant contribution to the economy and to quality of life.

• There are 27.8 million businesses in the United States with fewer than 500 employees, accounting for 99.7 percent of all businesses—and 90 percent have fewer than 20 employees!

• Fifty-five million people work in small businesses, representing 49 percent of all employees and 42 percent of all salaries paid to employees.

• Small enterprises hire 43 percent of all high-tech employees (scientists, engineers, computer programmers, and others).

• Many small companies have gone global, representing 97 percent of all exporters.

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1-2 SMALL BUSINESS AND ENTREPRENEURSHIP GO TOGETHER

• It is important to understand the terms small business and entrepreneurship.

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1-2a What Is a Small Business? (slide 1 of 3)

• Definitions of small business are usually arbitrary, based on some predetermined numerical measurement, such as the amount of revenue or profit or the number of employees. • The criteria often depend on the purpose for

identifying small companies.

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1-2a What Is a Small Business? (slide 2 of 3)

• Small firms also differ depending on the amount of growth potential they have.

• There are three types of small companies, based on their growth potential: 1. Microbusinesses (lifestyle businesses) – A small

firm that provides minimal profits to its owner. 2. Attractive small firms – A small firm that provides

substantial profits to its owner. 3. High-potential ventures (gazelles) – A small firm

that has great prospects for growth.

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1-2a What Is a Small Business? (slide 3 of 3)

• Small business – A business with growth potential that is small compared to large companies in an industry, has geographically localized operations, is financed by only a few individuals, and has a small management team.

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1-2b What Is Entrepreneurship? (slide 1 of 2)

• Entrepreneur – A person willing to create value, in either a new or an existing business, while assuming both the risks and the rewards for his or her efforts.

• Entrepreneurship – A four-stage process that involves the relentless pursuit of an opportunity without regard to owning all the resources needed to capture the opportunity.

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1-2b What Is Entrepreneurship? (slide 2 of 2)

• From beginning to end, entrepreneurship involves four stages: 1. Identifying an attractive opportunity. 2. Acquiring the critical resources needed for growing

the business. • Entrepreneurs generally think differently about resources

than do employee-managers. • Bootstrap – Doing more with less in terms of resources

invested in a business, and, where possible, controlling the resources without owning them.

3. Executing the plan. 4. Harvesting the business.

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1.1 The Entrepreneurial Process

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1-2c Entrepreneurs: Born or Made? (slide 1 of 2)

• Desirable and acquirable attitudes and behaviors of entrepreneurs: • Leadership abilities. • Opportunity obsession. • Commitment and determination. • Motivation to excel. • Courage. • Tolerance of risk, ambiguity, and uncertainty. • Creativity, self-reliance, and adaptability.

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1-2c Entrepreneurs: Born or Made? (slide 2 of 2)

• An almost certain way to fail as an entrepreneur is to do the following: • Overestimate what you can do. • Lack an understanding of the market. • Hire mediocre people. • Fail to be a team player (usually the result of taking

oneself too seriously). • Be a domineering manager. • Fail to share ownership in the business in an

equitable way.

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1-2d Types of Entrepreneurs (slide 1 of 3)

SECOND-STAGE ENTREPRENEURS • At some point after a new firm is established, it may be purchased

or taken over by a second-generation family member or another individual who may have been managing the company.

FRANCHISEES • Franchisee – An entrepreneur whose power is limited by a

contractual relationship with a franchising organization. • The franchisee is authorized to market the company’s products or

services and expects the franchisor to provide support in operating the business. • Such support will usually include operating systems, training,

financing, advertising, and other services. • In addition to paying an annual franchising fee, the franchisee will

usually pay a portion of the company’s profits to the franchisor.

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1-2d Types of Entrepreneurs (slide 2 of 3)

SOCIAL ENTREPRENEURS • Social entrepreneurship – Entrepreneurial

activity whose goal is to find innovative solutions to social needs, problems, and opportunities.

ENTREPRENEURIAL TEAMS • Entrepreneurial teams – Two or more people

who work together as entrepreneurs on one endeavor.

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1-2d Types of Entrepreneurs (slide 3 of 3)

INTRAPRENEURS • Intrapreneurship – A process within an existing corporation

involving an employee who assumes the responsibility for taking a new idea and converting it into a profitable product, service, or a process. • Thus, an intrapreneur mostly creates value for the company, rather

than starting his or her own new business. • A primary benefit for an intrapreneur is having access to corporate

resources, combined with the economies of scale enjoyed by a large corporation.

• A drawback is that employees who exhibit an entrepreneurial spirit can become frustrated by the bureaucracy within large corporations.

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1-3 CAN A SMALL COMPANY COMPETE WITH BIG COMPANIES?

• Any business that can make its product or service cheaper, faster, and better can be competitive.

• Ways small firms can gain a competitive advantage over larger competitors include: • Building an internal culture based on integrity. • Focusing on customers. • Emphasizing quality in operations. • Being innovative. • Finding a distinct market segment—a niche market.

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1-3a Integrity and Responsibility

• The starting point of any competitive advantage is having a commitment to integrity.

• Consistently operating with integrity can set a small business apart, with a reputation of being trustworthy. • Trust is the foundation of all relationships, including

those in business. • Above all else, the core values of the

entrepreneur, as reflected in what she or he says and does, determine the culture within a business.

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1-3b Customer Focus

• Small businesses have a greater potential to provide good customer service than larger firms do. • They have the advantage of being able to serve

customers directly and effectively, avoiding the layers of bureaucracy and corporate policies that tend to stifle employee initiative.

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1-3c Quality Performance

• Small business owners are often able to insist on high levels of quality without experiencing the frustration of a large-company CEO who may have to push a quality philosophy through layers of bureaucracy.

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1-3d Innovation

• Innovation, both in products or services and in competitive strategies, is within the reach of the small business in ways that were not thought possible a few years ago. • Access to technology has helped smaller firms

compete and, in many cases, has clearly leveled the playing field with larger companies.

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1-3e Niche Markets

• Numerous small businesses are uniquely positioned to capture niche markets. • Niche market – A specific group of customers with

an identifiable but narrow range of product or service interests.

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1-4 MOTIVATIONS FOR OWNING A BUSINESS

• Understanding clearly why you want to own a small business and what motivates you are vital to eventually achieving fulfillment through your business.

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1-4a Types of Entrepreneurial Motivations (slide 1 of 4)

• Four fundamental reasons for owning a company: 1. Personal fulfillment. 2. Personal satisfaction. 3. Independence. 4. Financial rewards.

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1.2 Entrepreneurial Motivations

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1-4a Types of Entrepreneurial Motivations (slide 2 of 4)

PERSONAL FULFILLMENT • Only when your company is about something more significant

than yourself will you have a sense that what you are doing is meaningful and well worth the effort.

• Business owners outrank all other occupational groups in terms of overall contentment based on the following six criteria: 1. Emotional health. 2. Physical health. 3. Job satisfaction. 4. Healthy behavior. 5. Access to basic needs. 6. Self-reporting of overall life quality.

• Personal fulfillment extends to employees of small companies as well. • Working as a team provides a sense of belonging for both owner-

managers and employees.

© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1-4a Types of Entrepreneurial Motivations (slide 3 of 4)

PERSONAL SATISFACTION • Small business owners feel rewarded in working with a product or

providing a service and being good at it. • Entrepreneurs are energized by enjoyable associations within

their businesses. • Entrepreneurs enjoy friendships with other business owners,

frequently learning from one another. • If they are visible within the community, small business owners

can garner the respect of those who live there.

INDEPENDENCE • Many people have a strong desire to make their own decisions,

take risks, and reap the rewards.

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1-4a Types of Entrepreneurial Motivations (slide 4 of 4)

FINANCIAL REWARDS • In general, self-employed individuals are more likely to create

greater personal wealth than persons who work for others. • Ideally, the owner should be compensated for two basic activities:

1. Payment for personal time in managing the company, coming in the form of a salary.

2. A return for investing personal money in the business, which should relate to the amount invested and the riskiness of the business, coming in the form of cash dividends and any increase in the value of the business as it grows.

• A majority of entrepreneurs do not become rich quickly. • A more realistic goal is to “get rich slowly.”

© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1-4b Influencers in Deciding to Owning a Business (slide 1 of 2)

• Family and friends and the desire to leave a difficult work situation are common influencers when making the decision to own a business.

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1-4b Influencers in Deciding to Owning a Business (slide 2 of 2)

FAMILY AND FRIENDS • Not surprisingly, many small business owners worked

in their family’s business before founding their own ventures.

THE DESIRE TO LEAVE A DIFFICULT SITUATION • Reluctant entrepreneurs – A person who becomes

an entrepreneur because of some severe hardship. • Corporate refugees – A person who becomes an

entrepreneur to escape an undesirable job situation.

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1-4c Why Your Perceptions Matter? (slide 1 of 5)

• Knowing your motivations is important in starting a business. • But that is not enough.

• You also need to understand if your perceptions of what it takes to be successful in business are accurate.

• Paradigm shift – A change in how we fundamentally see a situation.

• The question for someone wanting to start a business is, “What will it take for me to create a successful business?” • Your answer will depend largely on your past experiences,

which influence how you see the situation.

© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1-4c Why Your Perceptions Matter? (slide 2 of 5)

• According to Michael Gerber, three personalities come into play when a person is starting a business: 1. The technician personality. 2. The manager personality. 3. The entrepreneur personality.

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1.3 Understanding Your Business Personalities

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1-4c Why Your Perceptions Matter? (slide 3 of 5)

THE TECHNICIAN PERSONALITY • Technician personality – A personality that focuses on an

already developed technical skill, wants to be left alone to get the job done, and is primarily concerned about the present.

• A technician personality tends to do the following: • Use short-term thinking with little planning for future growth and

change. • Be paternalistic (he or she guides the businesses much as he or she

might guide family members). • Define marketing strategy in terms of the traditional components of

price, quality, and company reputation. • Be reluctant to delegate. • Focus on sales efforts that are primarily personal.

© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1-4c Why Your Perceptions Matter? (slide 4 of 5)

THE MANAGER PERSONALITY • Manager personality – A personality that is pragmatic

and likes order and planning operations. • A manager personality tends to do the following:

• Avoid paternalism. • Delegate authority as necessary for growth. • Employ diverse marketing strategies. • Use different types of sales approaches. • Obtain original financing from more than two sources.

© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1-4c Why Your Perceptions Matter? (slide 5 of 5)

THE ENTREPRENEUR PERSONALITY • Entrepreneur personality – A personality that

focuses on the business and providing results for customers.

• The entrepreneurial personality tends to do the following: • Ask the question, “How must the business work?” • See the business as a system for producing outside results for

the customer and, in so doing, producing profits. • Start with a picture of a well-defined future, and then attempt

to change the present to match the vision. • Develop strategies for the business by first seeing the whole

picture.

© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1-5 WHAT DO YOU WANT YOUR LEGACY TO BE?

• Entrepreneurial legacy – Material assets and intangible qualities passed on to both heirs and society. • Includes:

• Money. • Good or bad family relationships. • A record of integrity or greed.

• Building a legacy is an ongoing process that begins with the launch of the firm and continues throughout its operating life.

• Part of the legacy is the company’s contribution to the community.

• A worthy legacy includes a good balance of values and principles important to the entrepreneur.

© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Key Terms attractive small firm bootstrap corporate refugees entrepreneur entrepreneur personality entrepreneurial legacy entrepreneurial teams entrepreneurship franchisee high-potential venture (gazelles)

intrapreneurship lifestyle business manager personality microbusiness niche market paradigm shift reluctant entrepreneurs small business social entrepreneurship technician personality