Essentials of Entrepreneurship and Small Business Management

Learning Objectives (1 of 2)
1.1 Define the role of the entrepreneur in business in the United States and around the world.
1.2 Describe the entrepreneurial profile.
1.3 Describe the benefits and drawbacks of entrepreneurship.
1.4 Explain the forces that are driving the growth of entrepreneurship.
1.5 Explain the cultural diversity of entrepreneurship.
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Learning Objectives (2 of 2)
1.6 Describe the important role that small businesses play in our nation’s economy.
1.7 Put failure into the proper perspective.
1.8 Explain how an entrepreneur can avoid becoming another failure statistic.
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The World of the Entrepreneur (1 of 2)
• Every month U.S. entrepreneurs launch 565,000
new businesses.
• Entrepreneurial spirit – the most significant
economic development in recent history.
• G E M study: 12.3% of adult population in the U.S.
is actively involved in trying to start a new
business.
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The World of the Entrepreneur (2 of 2)
• Global Entrepreneurship Monitor (G E M) study
reports:
– Men are twice as likely to start a business as women.
– Most entrepreneurs turn to family members and friends
for capital.
– Entrepreneurs are most likely to launch businesses
when they are between the ages of 35 and 44.
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Figure 1.1: Entrepreneurial Activity Across the Globe
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Entrepreneurship-Friendly Nations
Which nations provide the best environment for cultivating entrepreneurship? A
recent study by the Small Business Administration ranked 71 countries on the
quality of the entrepreneurial environment using the Global Entrepreneurship
and Development Index (G D E I), an index that includes a variety of factors that
range from the availability of capital and workforce quality to attitudes toward
entrepreneurs and technology available. The maximum G E D I score is 1.0.
G E D I Score, Top Five Countries G E D I Score, Bottom Five Countries
1. Denmark .76
2. Canada .74
3. United States .72
4. Sweden .69
5. New Zealand .68
67. Bolivia .16
68. Syria .16
69. Guatemala .15
70. Philippines .13
71. Uganda .10
Source: Zoltan J. Acs and Laszlo Szerb, Global Entrepreneurship in the United
States, U.S. Small Business Administration, Office of Advocacy, September
2010, pp. 11, 16.
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What Is an Entrepreneur?
One who creates a new business in the face of risk
and uncertainty for the purpose of achieving profit
and growth by identifying opportunities and
assembling the necessary resources to capitalize
on them.
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Characteristics of Entrepreneurs (1 of 2)
• Desire for responsibility
• Preference for moderate levels of risk – risk eliminators
• Confidence in their ability to succeed
• Determination
• Desire for immediate feedback
• High level of energy
• Future orientation – opportunity, necessity, and serial
entrepreneurs
• Skilled at organizing
• Value achievement over money
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Characteristics of Entrepreneurs (2 of 2)
• Entrepreneurs tend to exhibit:
– A high degree of commitment
– Tolerance for ambiguity
– Flexibility
– A willingness to work hard
– Tenacity
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Figure 1.2: Sources of Entrepreneurial Success
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Entrepreneurship
• One characteristic of entrepreneurs stands out:
Diversity!
• Anyone – regardless of age, race, gender, color,
national origin, or any other characteristic – can
become an entrepreneur (although not everyone
should).
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Benefits of Entrepreneurship
The opportunity to:
• Create your own destiny
• Make a difference
• Reach your full potential
• Reap impressive profits
• Contribute to society and to
be recognized for your efforts
• Do what you enjoy and to have fun at it
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Drawbacks of Entrepreneurship
• Uncertainty of income
• Risk of losing your entire investment
• Long hours and hard work
• Lower quality of life until the business gets
established
• High levels of stress
• Complete responsibility
• Discouragement
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Feeding the Entrepreneurial Fire (1 of 2)
• Entrepreneurs as heroes
• Entrepreneurial education
• Demographic and economic factors
• Shift to a service economy
• Technology advancements
• Independent lifestyle
• The Internet and cloud computing
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Feeding the Entrepreneurial Fire (2 of 2)
• Entrepreneurs as heroes
• Entrepreneurial education
• Demographic and economic factors
• Shift to a service economy
• Technology advancements
• Independent lifestyles
• The Internet and cloud computing
• International opportunities
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Figure 1.3: U.S. Retail E-Commerce Revenues
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Figure 1.4: Growth in Minority–Owned Businesses since
2002
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Figure 1.5: Entrepreneurial Activity by Age Group
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The Cultural Diversity of
Entrepreneurship (1 of 4)
• Young entrepreneurs
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The Cultural Diversity of
Entrepreneurship (2 of 4)
• Young entrepreneurs
• Women entrepreneurs
• Minority-owned enterprises
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The Cultural Diversity of
Entrepreneurship (3 of 4)
• Young entrepreneurs
• Women entrepreneurs
• Minority-owned enterprises
• Immigrant entrepreneurs
• Part-time entrepreneurs
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The Cultural Diversity of
Entrepreneurship (4 of 4)
• Home-based businesses
• Family businesses
• Copreneurs
• Corporate castoffs
• Corporate dropouts
• Social entrepreneurs
• Retiring baby boomers
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Small Businesses (1 of 2)
• Make up 99.7% of the 27.9 million businesses in
the U.S.
• Employ 50% of the nation’s private sector
workforce.
• Create more jobs than big businesses.
– 65% of net new jobs over the last decade
• 3% of small companies create 70% of
net new jobs in the economy.
– Gazelles
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Small Businesses (2 of 2)
• Produce 51% of the nation’s private G D P.
• Account for 47% of business sales.
• Create 13 times more patents per employees than
large companies.
– Zipper, light bulb, FM radio, laser, air conditioning,
escalator, personal computer, automatic transmission,
and many more!
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Figure 1.6: Small Businesses by Industry
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Putting Failure Into Perspective
• Entrepreneurs are not paralyzed by the prospect
of failure.
• Failure – a natural part of the creative process.
• Successful entrepreneurs learn to fail intelligently.
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Figure 1.7: Business Starts and Closures
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Avoiding the Pitfalls of Small Business
Failure
• Know your business in depth
• Develop a solid business plan
• Manage financial resources
• Understand financial statements
• Learn to manage people effectively
• Set your business apart from the competition
• Maintain a positive attitude
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Conclusion
• Entrepreneurs:
– Are an important part of the free enterprise system
– Are a diverse and talented group of people
– Represent a cross-section of society as a whole
– Are able to enhance the profitability of their
businesses through acquiring additional knowledge
and experience
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What Is Ahead?
Section 1: The Challenge of Entrepreneurship
Section 2: Building a Business Plan:
Beginning Considerations
Section 3: Building a Business Plan:
Marketing Considerations
Section 4: Building a Business Plan:
Financial Matters
Section 5: Putting the Business Plan to Work:
Making the New Venture a Success
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Essentials of Entrepreneurship and Small
Business Management, Seventh Edition
Chapter 2
Inside the
Entrepreneurial Mind:
From Ideas to Reality
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Learning Objectives (1 of 2)
2.1 Explain the differences among creativity, innovation,
and entrepreneurship.
2.2 Describe why creativity and innovation are such an
integral part of entrepreneurship.
2.3 Understand how the two hemispheres of the human
brain function and what role they play in creativity.
2.4 Explain the 10 “mental locks” that limit individual
creativity.
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Learning Objectives (2 of 2)
2.5 Understand how entrepreneurs can enhance the
creativity of their employees as well as their own
creativity.
2.6 Describe the steps in the creative process.
2.7 Discuss techniques for improving the creative process.
2.8 Describe the protection of intellectual property through
patents, trademarks, and copyrights.
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Creativity and Innovation
• Creativity – the ability to develop new ideas and to
discover new ways of looking at problems and
opportunities; thinking new things.
• Innovation – the ability to apply creative solutions
to problems or opportunities to enhance or to
enrich people’s lives; doing new things.
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Entrepreneurship
• Entrepreneurship – the result of a disciplined,
systematic process of applying creativity and
innovation to the needs and opportunities in the
marketplace.
• Entrepreneurs connect their creative ideas with
the purposeful action and structure of a business.
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Failure: Part of the Creative Process!
• For every 3,000 new product ideas:
– Four make it to the development stage
– Two are actually launched
– One becomes a success in the market
• On average, new products account for 40% of
companies’ sales!!
• Creativity is an important source of building a
competitive advantage.
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Can We Learn to Be Creative?
YES!!
By overcoming paradigms and by suspending
conventional thinking long enough to
consider new and different alternatives!
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Figure 2.1: How Creative Are You? (1 of 2)
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Figure 2.1: How Creative Are You? (2 of 2)
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Right-Brained, Creative Thinkers (1 of 3)
• Always ask: “Is there a better way?”
• Challenge custom, routine, and tradition.
• Are reflective.
• Are prolific thinkers.
• Play mental games.
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Right-Brained, Creative Thinkers (2 of 3)
• Realize that there may be more than one “right”
answer.
• Know that mistakes are pit stops on the way to
success.
• Recognize that problems are springboards for
new ideas.
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Right-Brained, Creative Thinkers (3 of 3)
• Understand that failure is a natural part of the
creative process.
• Relate seemingly unrelated ideas to a problem.
• Have “helicopter skills.”
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Left-Brained or Right-Brained?
Entrepreneurship requires both left- and rightbrained thinking.
• Right-brained thinking draws on divergent
reasoning, the ability to create a multitude of
original, diverse ideas.
• Left-brained thinking counts on convergent
reasoning, the ability to evaluate multiple ideas
and to choose the best solution to a problem.
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Barriers to Creativity (1 of 2)
• Searching for the one “right” answer
• Focusing on “being logical”
• Blindly following the rules
• Constantly being practical
• Viewing play as frivolous
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Barriers to Creativity (2 of 2)
• Becoming overly specialized
• Avoiding ambiguity
• Fearing looking foolish
• Fearing mistakes and failure
• Believing that “I’m not creative”
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Questions to Spur the Imagination (1 of 3)
• Is there a new way to do it?
• Can you borrow or adapt it?
• Can you give it a new twist?
• Do you merely need more of the same?
• Do you need less of the same?
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Questions to Spur the Imagination (2 of 3)
• Is there a substitute?
• Can you rearrange the parts?
• What if you do just the opposite?
• Can you combine ideas?
• Can you put it to other uses?
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Questions to Spur the Imagination (3 of 3)
• What else could you make from this?
• Are there other markets for it?
• Can you reverse it?
• Can you eliminate it?
• Can you put it to another use?
• What idea seems impossible, but if executed,
would revolutionize your business?
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Tips for Enhancing Organizational
Creativity (1 of 4)
• Include creativity as a core company value
• Embrace diversity
• Expect creativity
• Expect and tolerate failure
• Create an organizational structure that nourishes
creativity
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Tips for Enhancing Organizational
Creativity (2 of 4)
• Encourage curiosity
• Create a change of scenery periodically
• View problems as opportunities
• Provide creativity training
• Provide support
• Develop a procedure for capturing ideas
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Tips for Enhancing Organizational
Creativity (3 of 4)
• Talk and interact with customers
• Reward creativity
• Model creative behavior
• Monitor emerging trends and identify ways your
company can capitalize on them
• Hire for creativity
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Tips for Enhancing Organizational
Creativity (4 of 4)
• View problems as opportunities
• Incorporate fun into the work environment
• Design a work space that encourages creativity
• Look for uses for your company’s products or
services in other markets
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Tips for Enhancing Individual Creativity
(1 of 4)
• Allow yourself to be creative
• Give your mind fresh input every day
• Observe the products and services of other
companies, especially those in completely
different markets
• Recognize the creative power of mistakes
• Notice what is missing
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Tips for Enhancing Individual Creativity
(2 of 4)
• Keep a journal to record your thoughts and ideas
• Listen to other people
• Listen to customers
• Talk to a child
• Do something ordinary in an unusual way
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Tips for Enhancing Individual Creativity
(3 of 4)
• Keep a toy box in your office
• Do not throw away seemingly “bad” ideas
• Take some time off
• Be persistent
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Tips for Enhancing Individual Creativity
(4 of 4)
• Forget the “rules”
• Take note of your “pain points”
• Read books on stimulating creativity or take a
class on creativity
• Travel – and observe
• Watch a movie
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Seven Steps in the Creative Process
• Preparation
• Investigation
• Transformation
• Incubation
• Illumination
• Verification
• Implementation
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Preparation (1 of 2)
Get your mind ready for creative thinking.
• Adopt the attitude of a lifelong student.
• Read … a lot … and not just in your field of
expertise.
• Clip articles of interest to you and save them.
• Develop your listening skills.
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Preparation (2 of 2)
Get your mind ready for creative thinking.
• Join professional or trade associations and attend
their meetings.
• Eliminate creative distractions.
• Take time to discuss your ideas with other people.
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Transformation (1 of 2)
• Involves viewing both the similarities and the
differences among the information collected.
• Two types of thinking are required:
– Convergent – the ability to see the similarities and the
connections among various and often diverse data and
events.
– Divergent – the ability to see the differences among
various data and events.
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Transformation (2 of 2)
• How can you transform information into purposeful
ideas?
– Grasp the “big picture” by looking for patterns that
emerge.
– Rearrange the elements of the situation.
– Use synectics, taking two seemingly nonsensical ideas
and combining them.
– Remember that several approaches can be successful.
If one fails, jump to another.