Chapter 6 Starting Your Own Business: The Entrepreneurship Alternative Learning Goals 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. 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. 1 2 3 5 6 7 4
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.
REASONS TO CHOOSE ENTRE-PRENEURSHIP AS A CAREER PATH
Being Your Own Boss • Example: Liz Lange, founder and CEO of Liz Lange Maternity . • 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. Job Security • Downsizing by large companies has eliminated more jobs than they created. Quality of Life Lifestyle Entrepreneur Person who starts a business to reduce work hours and create a more relaxed lifestyle. • Many define quality of life by their ability to fulfill social objectives.
Globalization • Market products abroad and hire international talent. • Growing internationally.
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.
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 nation’s largest ethnic group. • Growth of two-income families.
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. Buying an Existing Business • Employees already in place serve established customers and deal with familiar suppliers. • Good or service is known in the marketplace. Buying a Franchise • Less risky than starting a new firm, but requires careful and energetic preparation.
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 • MoreBusiness .com
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 Borrowed funds that entrepreneurs must repay. 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.
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.