Chapter 6

Starting Your Own Business: The

Entrepreneurship Alternative
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.
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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.
CATEGORIES OF ENTREPRENEURS

REASONS TO CHOOSE
ENTREPRENEURSHIP
AS A CAREER PATH
More than 11 percent of Americans run their own
business.
In an average month, Americans start approximately
550,000 new businesses.
Motivated by dissatisfaction with organizational work world.
May believe their ideas are opportunities to meet customer needs.

Being Your Own Boss
Example: Liz Lange, founder and CEO of Liz Lange Maternity.
Had idea for upscale maternity wear.
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
Over last decade, large companies have downsized, eliminating more jobs than
they created.
Key difference from traditional job is that an entrepreneurs job depends on the
decisions of customers and investors and cooperation of ones own employees.
Quality of Life
Lifestyle Entrepreneur Person who starts a business to reduce work hours and
create a more relaxed lifestyle.
Yet, most entrepreneurs work long hours and at the whims of their customers.
Many define quality of life by their ability to fulfill social objectives.
THE ENVIRONMENT FOR
ENTREPRENEURS
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 nations largest ethnic group.
Growth of two-income families.
CHARACTERISTICS OF
ENTREPRENEURS
Vision
An overall idea for how to make their business a success.
High Energy Level
Hard work of the entrepreneur compensates for small staff and limited resources
available.
Need to achieve
Enjoy the challenge of reaching personal goals and
are dedicated to personal success.
Self-confidence and Optimism
Believe in their own ability to succeed and instill
optimism in others.
Tolerance for Failure
Try and try again when others would give up and
view setbacks and failures as learning experiences.
Creativity
Typically conceive new ideas for products and services and devise innovative
ways to overcome difficult problems and situations.
Tolerance for Ambiguity
Take uncertainty in stride but not reckless gamblers.
Internal Locus of Control
Believe they control their own fates and take personal responsibility for success
and failure.

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.
Guidelines for selecting an idea that is a good entrepreneurial opportunity:
List your interests and abilities.
List the types of businesses that match your interests and abilities.
Identify future needs for products that no one yet offers.
Evaluate existing goods and services and ways you can improve them.
Choose a business that offers profit potential.
Conduct marketing research to determine potential profitability.
Learn as much as you can about the appropriate industry.
Buying an Existing Business
Advantages:
Employees already in place serve established customers and deal with
familiar suppliers.
Good or service is known in the marketplace.
Necessary permits and licenses secured.
May be easier to get financing.
Some buy successful businesses to build on their success.
Turnaround entrepreneurs buy struggling businesses and improve them to
generate profits.
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
Debt financing Borrowed funds that entrepreneurs must repay.
When business fails, owner must often declare bankruptcy.
Can be difficult to get bank loan for start-up.
Equity Financing
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.
Angel networks match business angels with entrepreneurs.
Isabella Capital and Springboard Enterprises focus on women.
U.S. Hispanic Chamber of Commerce aids minority-owned businesses.
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.