Chapter 6 - Higher Ed eBooks & Digital Learning … · Web viewEntrepreneurship: Starting and Managing Your Own Business LEARNING GOALS Why do people become entrepreneurs, and what

Chapter 5

Entrepreneurship: Starting and Managing Your Own Business

LEARNING GOALS

Why do people become entrepreneurs, and what are the different types of entrepreneurs?

Entrepreneurship involves taking the risk of starting and managing a business to make a profit. Entrepreneurs are innovators who start firms either to have a certain lifestyle or to develop a company that will grow into a major corporation. People become entrepreneurs for four main reasons: the opportunity for profit, independence, personal satisfaction, and lifestyle. Classic entrepreneurs may be micropreneurs, who plan to keep their businesses small, or growth-oriented entrepreneurs. Multipreneurs start multiple companies, while intrapreneurs work within large corporations.

Which characteristics do successful entrepreneurs share?

Successful entrepreneurs are ambitious, independent, self-confident, creative, energetic, passionate, and committed. They have a high need for achievement and a willingness to take moderate risks. They have good interpersonal and communication skills. Managerial skills and technical knowledge are also important for entrepreneurial success.

How do small businesses contribute to the U.S. economy?

Small businesses play an important role in the economy. They account for over 99 percent of all employers and produce 51 percent of private-sector output. Most new private-sector jobs created in the United States over the past decade were in small firms. A small business is independently owned and operated, has a local base of operations, and is not dominant in its field. The Small Business Administration further defines small business by size, according to the industry. About 98 percent of U.S. businesses have fewer than 100 employees. Small businesses are found in every field, but they dominate the construction, wholesale, and retail categories.

What are the advantages and disadvantages facing owners of small businesses?

Small businesses have flexibility to respond to changing market conditions. Because of their streamlined staffing and structure, they can be efficiently operated. Small firms can serve specialized markets more profitably than large firms and provide a higher level of personal service. Disadvantages include limited managerial skill, difficulty in raising the capital needed for start-up and

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Chapter 5 Entrepreneurship: Starting and Managing Your Own Business

expansion, the burden of complying with increasing levels of government regulation, and the major personal commitment required on the part of the owner.

How does the Small Business Administration help small businesses?

The Small Business Administration is the main federal agency serving small businesses. It provides guarantees of private lender loans for small businesses. The SBA also offers a wide range of management assistance services, including courses, publications, and consulting. It has special programs for veterans, minorities, and women.

What are the first steps to take if you are starting your own firm?

After finding an idea that satisfies a market need, the small business owner should choose a form of business organization. The process of developing a formal business plan helps the business owner to analyze the feasibility of his or her idea. This written plan describes in detail the idea for the business and how it will be implemented. The plan also helps the owner obtain both debt and equity financing for the new business.

Why does managing a small business present special challenges for the owner?

At first, small business owners are involved in all aspects of the firm’s operations. Wise use of outside consultants can free up the owner’s time to focus on planning and strategy in addition to day-to-day operations. Other key management responsibilities are finding and retaining good employees and monitoring market conditions. Expanding into global markets can be a profitable growth strategy for small businesses.

What trends are shaping the small-business environment?

The tougher business climate has made many people more cautious about starting businesses. Today’s entrepreneurs have reasonable expectations about the time and effort it takes to build a company. Funding is harder to secure, and investors want to see a fully developed feasibility plan. The mountain states are now the top area for entrepreneurial companies. Opportunities continue to exist for entrepreneurs of all ages and backgrounds. The numbers of women and minority business owners continue to increase. The number of start-ups in the technology sector has declined, but Internet technology is creating numerous opportunities for new types of small businesses and fueling small-business growth by making it easier to open Web-based businesses.

MULTIPLE-CHOICE QUESTIONS

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Study Guide, The Future of Business, The Essentials, 2e

Directions: Place the letter of the response that best completes the questions that follow in the blank space at the left.


____ 1. Entrepreneurs are individuals who are said to possess:

a. the ability to innovateb. large families to assist themc. moneyd. all of the above are correct

____ 2. The difference between small business owners and entrepreneurs is that small business owners:

a. possess less individual driveb. do not have flexibility in planning for financingc. are more likely to accept the status quod. take a longer term view than do entrepreneurs

____ 3. Micropreneurs generally:

a. seek to start small and plan to enlarge their operations greatlyb. plan to start small and stay smallc. start their business without regard to their personal satisfactiond. have the same goals as growth-oriented entrepreneurs

____ 4. Entrepreneurs who start a series of companies are known as:

a. macropreneursb. intrapreneursc. multipreneursd. none of these answers is correct

____ 5. Entrepreneurs who don’t own their own companies but apply their creativity, vision, and risk-taking within a large corporation are known as:

a. macropreneursb. intrapreneursc. multipreneursd. micropreneurs

Which characteristics do successful entrepreneurs share? ____ 6. Entrepreneurs:

a. have less personal drive than small business ownersb. have more time to take vacations

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c. succeed based upon having a great concept for a product or serviced. are the company ____ 7. Studies of entrepreneurs have shown them to be:

a. ambitiousb. willing to take risksc. passionated. all of the above are correct

____ 8. The distinguishing characteristic of entrepreneurs is:

a. their ability to manage the company that implements the ideab. having operational strategies that they can implementc. delegating responsibility and being able to work fewer hours than other

company managersd. the belief that they can learn many of the technical skills needed to operate

their businesses

____ 9. By being self-confident, entrepreneurs are said to be able to:

a. spot trendsb. be competitive c. act in a decisive manner and have faith in their ability to resolve problemsd. make personal sacrifices to achieve their goals

____ 10. By being committed, entrepreneurs are said to be able to:

a. spot trendsb. be competitivec. act in a decisive manner and have faith in their ability to resolve problemsd. make personal sacrifices to achieve their goals


___ 11. The percentage of small businesses in the United States that have fewer than 100 employees is:

a. 20%b. 98%c. 50%d. 37.5%____ 12. A major reason for the increase in small business formation is:

a. corporate greed b. corporate fraudc. corporate downsizingsd. all of the above are correct

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____ 13. A major characteristic that is used when classifying a business as being “small” is:

a. it has a strong influence in its industryb. it is nationally basedc. it employs less than 500 peopled. its management can be controlled by a large conglomerate


____ 14. Small businesses are able to thrive because:

a. they provide great satisfaction for their ownersb. large corporations continue to fail at exceedingly high ratesc. the world wide web has been a major failured. sales do not represent an important element in the success of entrepreneurs

____ 15. Small businesses owners must recognize that their size makes them:

a. less flexibleb. unable to react to market forcesc. able to develop innovative product ideasd. leads them to be inefficient and more costly to operate

____ 16. Small business owners often:

a. have a fairly easy time finding investment fundsb. pay interest rates that are lower than larger firms c. find complying with government regulations more expensive than large

firmsd. find that technical skills are easily converted into management expertise


____ 17. The Small Business Administration:

a. is designed to only provide financial assistance to startup firmsb. is a private organization which operates for a profitc. returns all profits from operations to local small businessesd. assists small businesses in the areas of starting, managing, winning federal

contracts, and speaking on their behalf when needed

____ 18. Small Business Investment Companies:

a. are government operated investment companies that assist small businessesb. are SBA licensed and provide long-term financing for small businesses

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c. operate as not-for-profit organizations which make loans to small businesses

d. lend money to the SBA which then channels the funds to small businesses

____ 19. The Service Corps of Retired Executives and the Active Corps of Executives:

a. invest directly in small businessesb. operate small businesses when owners lack the proper training and skillsc. provide free management consulting for small business ownersd. have been prevented by the courts from counseling small business owners


____ 20. The first step in starting a business is:

a. self assessmentb. finding the ideac. selecting the form of business organizationd. business planning

____ 21. The written document that details the idea for a new business is known as a(n):

a. self assessmentb. business planc. idea and problem diaryd. organization form

____ 22. Writing a business plan:

a. allows you to immediately get caught up in the day-to-day operations of the business

b. will eliminate the need for an analysis that forces you to make marketing decisions

c. can reduce the need to take a critical look at operationsd. helps the business owner to take a critical look at their business venture

____ 23. The most common use of business plans is to:

a. outline day-to-day business operationsb. state marketing strategiesc. persuade lenders and investors to finance the ventured. provide a description of operations to potential retailers or wholesalers

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____ 24. Equity is:

a. money raised through the sale of stock in a businessb. borrowed money that must be repaid with interest over a stated period of

timec. synonymous with debtd. repaid with interest to stockholders

____ 25. Debt is:

a. money raised through the sale of stock in a businessb. borrowed money that must be repaid with interest over a stated time periodc. synonymous with ownershipd. repaid with interest to stockholders

____ 26. Angel investors are:

a. investment firms that specialize in financing small high-growth firms in return for an ownership interest and a voice in management

b. individuals or groups of experienced investors who provide funding for start-up businesses

c. companies that handle the sale of equity instrumentsd. companies that handle the sale of debt instruments

____ 27. Venture capital is:

a. financing obtained from investment firms that specialize in financing small high-growth companies in return for an ownership interest and a voice in management

b. individuals or groups of experienced investors who provide funding for startup businesses

c. a city or locality that handles the sale of equity instrumentsd. none of these answers is correct


____ 28. The main job of a small business owner is to:

a. obtain financing for operationsb. find a prime location to place the physical operations of the businessc. carry out the business plan through all areas of the businessd. seek out markets for the product or service

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____ 29. Some aspects of a small business can be outsourced. This means that:

a. outside sources of raw materials can be obtained to maintain manufacturing processes

b. sales of products can be made to outside firms when business is slowc. some aspects of the business can be contracted out to specialists in one or

more areasd. sources of outside funding can be obtained from venture capitalists


____ 30. A major factor motivating women to start their own businesses is:

a. the success of affirmative action programsb. the glass ceilingc. the low cost of technologyd. frustration with their work environment

____ 31. Of the businesses that were considered start-ups:

a. most were high-techb. the majority were in biotechnologyc. telecommunications businesses were predominantd. most were involved with better ways to make things or provide services

TRUE/FALSE QUESTIONS

Directions: Place a T or an F in the space provided to the left of each question to indicate whether it is True or False.


____ 1. Approximately 13 percent of all nonagricultural workers in the U.S. are involved in either full- or part-time entrepreneurial activities.

____ 2. All small business owners are considered to be entrepreneurs since both take risks to create a new business or greatly change the scope and direction of an existing firm.

____ 3. Small business owners generally take a long-term view of a business while entrepreneurs are more likely to deal with the status quo.

____ 4. Classic entrepreneurs can also be micropreneurs, in that they start their own companies based upon innovative ideas but plan to limit the size of their operations.

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____ 5. Growth oriented entrepreneurs want to limit the growth of their businesses so that they don’t rival major corporations.

____ 6. Multipreneurs are entrepreneurs who start a series of companies.

____ 7. Entrepreneurs who expand their business operations to global markets are known as intrapreneurs.

____ 8. Corporations that create supportive environments for intrapreneurship retain their most innovative employees along with ownership of products that they develop.

____ 9. The desire to control one’s own destiny has been cited as a major reason for the popularity of entrepreneurship.

Which characteristics do successful entrepreneurs share?

____ 10. Most entrepreneurs are typically indecisive and lack confidence in their ability to resolve problems.

____ 11. The ability to follow trends set by other firms and copy their product designs is a significant trait of entrepreneurs.

____ 12. Despite being entrepreneurial, an individual must possess the business skills to run a successful business.

____ 13. Once a new venture demonstrates significant growth, it is important for entrepreneurs to broaden their roles rather than hire others to do the additional tasks.


____ 14. Although there has been growth in small business in the U.S., the overwhelming majority employ more than 100 people.

____ 15. The Small Business Administration classifies all companies with under 500 employees as a small business.

____ 16. Among the characteristics that would classify a business as “small” is that it is based locally and it is not a dominant company in its industry.


____ 17. As a result of their small size, small businesses are not able to react quickly to changing market forces.

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____ 18. Owner-managers of small businesses, through their direct relationship with customers, get feedback on how well their firms are meeting customer needs.

____ 19. Limited managerial skills are more than offset by small company size when small businesses attempt to respond quickly to changes in the marketplace.

____ 20. The efficient operations of small businesses can keep costs down.


____ 21. The SBA offers financial assistance to qualified small businesses that cannot obtain financing on reasonable terms through normal lending channels.

____ 22. Small Business Investment Companies are owned and operated by the federal government hoping to provide long-term funding for small businesses.


____ 23. Self-assessment is the first step that an individual should take when considering whether to go into a business of their own.

____ 24. Starting a firm in a field or industry other than the one in which an individual has experience is recommended, since the transfer of knowledge from one field to another is common.

____ 25. It is more important to get a business up and running than to select whether it should be a sole proprietorship, partnership, or corporation.

____ 26. A business plan helps business owners take an objective and critical look at their business venture and set goals that will help them manage its growth and performance.

____ 27. Getting involved in day-to-day business operations does away with the need for a business plan since the plan has little to do with actual operations.

____ 28. Once a business is up and running, the business plan becomes a little used document whose primary purpose was to convince investors to provide funding for the business.

___ 29. A significant factor that can be a source of difficulty for a small business is rapid growth, which can place a strain on finances.

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____ 30. The main job of a small business owner is to carry out the business plan through all areas of the business – from personnel to production and maintenance.

____ 31. Outsourcing involves the use of outside employment firms to locate new full-time employees to perform tasks that cannot be done by the current workforce.

____ 32. The availability of workers interested in joining small firms has grown to the extent that they are willing to forego comfortable working conditions, flexible hours, etc.

____ 33. Export managing companies serve the needs of small businesses that wish to sell their goods abroad by purchasing goods at a discount from the firm and then reselling them abroad.


____ 34. The Internet is creating numerous opportunities for new types of small businesses.

____ 35. Firms owned by minorities are a high growth sector of the small business field.

ENHANCE YOUR VOCABULARY

Comprise Complying Nostalgia Nurture Resilient Revert Rosters Self-assessment Sluggish Toll Uniqueness

Include; involve; containObey; submit; meet the termsReminiscence; homesicknessCare for; cultivateElastic; hard-wearing; toughGo back to your old waysSchedule; listTo evaluate oneselfSlow; listlessFee; charge; taxDistinctiveness; exclusivity

Directions: Select a word from the above list that best completes each of the following sentences:

1. _____ with federal regulations is more expensive for smaller firms.

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2. Intrapreneurs enjoy the freedom to _____ their ideas and develop new products.3. Women business owners _____ one of the most dynamic small-business segments.4. The _____ economy in the United States has not stopped people from starting new

companies.5. Small businesses are _____ and can respond to changing economic conditions by

refocusing their efforts on personal service.6. Businesses will be successful if they focus on their _____ of the business and why it

attracts customers.7. The stress of managing a business can take its _____.8. Small service firms are adding international clients to their _____.

REVIEW YOUR KEY TERMS

Directions: Select the best definition in Column B that best defines the word in Column A.

Column A Column B

____ 1. Intrapreneurs a. Individual investors or groups of experienced investors who provide funding for start-up businesses.

____ 2. Small Business Administration b. A business that is independently owned, (SBA) is owned by an individual or a small group of

(although it may serve a larger market), and is not a dominant company in its industry.

____ 3. Business plan c. People with vision, drive, and creativity who are willing to take the risk of starting a new business or of greatly changing the scope and direction of an existing firm.

____ 4. Small business d Financing obtained from investment firms that specialize in financing small, high-growth companies and receive an ownership interest and a voice in management in return for their money.

____ 5. Entrepreneurs e. A form of business financing consisting of borrowed funds that must be repaid with interest over a stated time period.

____ 6. Small Business Investment f. Entrepreneurs who apply their creativity, Companies (SBICs) vision, and risk-taking within a large

corporation, rather than starting a company of their own. They enjoy a high degree of autonomy while receiving a regular salary and financial backing from their employer.

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____ 7. Venture capital g. A government agency that helps people start and manage small businesses, helps small business owners win federal contracts, and speaks on behalf of small business.

____ 8. Angel investors h. Privately owned and managed investment companies that are licensed by the Small Business Administration and provide long-term financing for small businesses.

____ 9. Debt i. A form of business financing consisting of funds raised through the sale of stock in a business.

____ 10. Equity j. A formal written statement that describes in detail the idea for a new business and how it will be carried out; includes a general description of the company, the qualifications of the owner(s), a description of the product, an analysis of the market, and a financial plan.

CRITICAL THINKING EXERCISES

1. P. O. V. (Point of View)

Directions: In this exercise you will be asked to provide your personal opinion regarding some of the topics in the chapter. At the completion of this exercise, your instructor may wish to poll the class regarding their responses.

a. Your brother is disenchanted with his position as and advertising artist and has told you that he plans to leave his job to open a small business. He knows that he has an excellent reputation and is known as an outstanding artist. He also has a friend in the advertising industry who will provide him with a loan to start the business. These three factors (reputation, talent, and start-up financing) are most important if he is to succeed at his new venture. He has asked you for your opinion regarding his plans.

Agree _______ Disagree _______

b. The distinction between small business owners and entrepreneurs is not clearly understood. Small business owners typically remain so because the industries in which they operate are not open to change and innovation, while entrepreneurs are well-versed in technical fields that are constantly changing.

Agree _______ Disagree _______

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2. Using the Internet

Directions: Creating a business plan is crucial for the success of a new business. It is a formal document that is used to guide management towards achieving specific goals. Assuming that you have an idea for a new business that will sell either a product or service, go to http://www.bplans.com and click on Sample plans; then click on Sample Business Plans and review at least three plans.

a. Click through the executive summary for each plan and read the mission statement for each company that you have chosen. List the factors that are common to each plan.

b. Write a brief executive summary for the business plan for your business.

c. Write a management summary for your business.

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http://www.bplans.com/

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Chapter 6 - Higher Ed eBooks & Digital Learning … · Web viewEntrepreneurship: Starting and Managing Your Own Business LEARNING GOALS Why do people become entrepreneurs, and what