Entrepreneurship and small business management chapter 01
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Entrepreneurship and
Small Business
Management
Chapter 1
Entrepreneurs Recognize
Opportunities
Ch. 1 Performance
Objectives
Explain what entrepreneurs do.
Describe how free-enterprise
economies work and how
entrepreneurs fit into them.
Find and evaluate opportunities to
start your own business.
Explain how profit works as a signal
to the entrepreneur.
Entrepreneurship and Small Business
Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
What Is Business?
Business—buying and selling products and services
Product—something tangible that exists in nature or is made by people
Service—intangible work that provides time, skills, or expertise
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
What Is an Entrepreneur?
Employees work for someone else’s business.
Entrepreneurs start their own businesses and work for themselves.
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Entrepreneurs Add Value
to Scarce Resources
A scarce (limited) resource is something of value that can be used to make
something else or fill a need.
Entrepreneurs add value to scarce resources by what they do with those
resources.
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
The Economic Questions
What should be produced?
When will it be produced?
How will it be produced?
Who will produce it?
Who gets to have what is produced?
An economy is a country’s financial structure. It
is the system that produces and distributes
wealth.
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Free-Enterprise System
Economic system in which businesses can be privately owned and operated
Based on voluntary exchange
Encourages competition between entrepreneurs
Can lead to a loss of jobs and capital if a company fails
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
What Is a “Small”
Business?
Less than 500 employees
About 99.9% of the 27.2 million U.S. businesses are small.
Small businesses employ about 50% of the U.S. private workforce.
Annual sales under $5 million
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Why Be an Entrepreneur?
Control over time
Fulfillment
Creation/ownership
Control over compensation
Control over working conditions
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Benefits and Costs
of Becoming an Entrepreneur
Costs
Benefits
Business failure
Independence
Obstacles
Satisfaction
Loneliness
Financial reward
Financial insecurity
Self-esteem
Long hours/hard work
Contribution to
Strain on personal
society
relationships
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Benefit/Cost Analysis
Benefit/Cost Analysis—a decisionmaking process in which the costs of taking
an action are compared to the benefits
Benefits—money, knowledge, and
experience you will gain
Costs—money and time you must invest
Opportunity Cost—the value of what
must be given up in order to obtain
something else
For a benefit/cost analysis to be accurate,
opportunity cost must be included.
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Keys to Avoiding Missteps
Explore options thoughtfully and systematically
Research
Educational courses and workshops
Learn from the experience of others
Formal mentors
Informal advisors
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Entrepreneurial Options
Traditional for-profit enterprise
Social entrepreneurship—for-profit enterprise with dual goals of profitability
and social returns
Venture philanthropy
Green entrepreneurship
Not-for-profit organization
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Shumpeter’s
Sources of Opportunity
Use a new technology to produce a
new product.
Use an existing technology to produce
a new product.
Use an existing technology to produce
an old product in a new way.
Find a new source of resources to
produce more efficiently.
Develop a new market for an existing
product.
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Not All Ideas are
Opportunities
An opportunity is an idea that is
based on what consumers need or
want and are willing to buy
sufficiently often at a high enough
price to sustain a business.
Opportunity is situational: dependent
on variable circumstances.
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Timmons’ Business
Opportunity =
Idea + Four Characteristics
1.
Attractive to customers
2.
Will work in the business environment
3.
Can be executed in an existing window of opportunity
4.
Available resources and skills needed to create the business
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Use SWOT Analysis
to Evaluate Business Ideas
Strengths
Weaknesses
Opportunities
Threats
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
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Five Roots of Opportunity
1.
Problems
2.
Changes
3.
Inventions
4.
Competition
5.
Technological advances
The best business opportunities often
combine both internal and external
factors.
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Management, 1/e
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07458.
Components of Porter’s
Generic Strategies
Product uniqueness—ability to differentiate the product/service from those
of the market’s competitors
Low cost—ability to reduce costs and sustain a price advantage
Focus—targeting a particular market segment or group
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Pathways to
Entrepreneurship
Start and build a new business
Inherit a business
Secure franchise rights
Buy an existing business
License or purchase technology
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Types of Business Ventures
Full-time enterprises
“Gazelles”
Microenterprises including lifestyle businesses
Mainstream small firms
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Profit Is a Sign of Success
Profit—amount remaining after costs are deducted from the firm’s income
Profit signals that an entrepreneur is adding value to scarce resources.
Entrepreneurs try to make choices (trade-offs) that will increase profit.
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
Seven Rules for Building
a Successful Business
1.
2.
3.
4.
5.
6.
7.
Recognize an opportunity
Evaluate it with critical thinking
(SWOT)
Build a team
Write a realistic business plan
Gather resources
Decide ownership
Create wealth
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Management, 1/e
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© 2012 Pearson Education, Upper Saddle River, NJ
07458.
