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1 The Entrepreneurial Life

LEARNING OBJECTIVES

1 Discuss the availability of entrepreneurial opportunities and give examples of successful businesses started by entrepreneurs.

An entrepreneurial opportunity is a desirable and timely innovation that creates value for customers.

Successful entrepreneurs pursue opportunities by first identifying value-creating innovations with market potential.

SLR Contracting and Service Company in Buffalo, NY, was started by a 21-year-old woman who learned the family business. Seven years later, it was ranked No. 4 among Inc. Magazine’s fastest growing inner-city companies.

Flavor X in Bethesda, MD, was started by a pharmacy technician as a flavorful additive to make children’s medicines taste better.

Auntie Ann’s, an example of a successful franchise, grew from humble beginnings to provide business opportunities to hundreds of others.

No matter what a person’s background may be, opportunities for successful entrepreneurial ventures must be recognized and grasped with enthusiasm.

2 Explain the nature of entrepreneurship and how it is related to small business.

Entrepreneurs are individuals who discover market needs and launch new firms to meet those needs.

The term “entrepreneur” applies not only to company founders but also to second-generation owners of family-owned firms, franchisees, and owner-managers who bought out the founders of firms.

A small business usually is financed by a small group, is geographically localized, smaller than competitors usually employs fewer than 100 people, and is finance by a small number of individuals.

The Small Business Administration (SBA) reports that small firms: 1) represent more than 99.7% of all employers; 2) employ more than half of all private-sector employees; 3) Pay 44.5% of total U.S. private payroll; 4) generate 60-80% of net new jobs annually; and 5) produce 13-14 times more patents per employee than large patenting firms.

2 Part 1 Entrepreneurship: A World of Opportunity

3 Identify some motivators or rewards of entrepreneurial careers.

Entrepreneurs are pulled by powerful incentives, including:

Profit : Expecting that a return will not only pay them for the time and money they invest but also reward them with profits.

Independence : Operating independently and to be one’s own boss.

Freedom : Escaping a bad situation, such as a stressful corporate job.

Personal satisfaction : Enjoying what one does for a living.

Personal fulfillment : Contributing beneficial products or services to the community.

4 Describe the various types of entrepreneurs and entrepreneurial ventures.

There are many different types of entrepreneurs who have different motivations and backgrounds.

Founders are entrepreneurs who initiate a business on the basis of a new or improved product or service.

Franchisees are entrepreneurs who own franchise-based businesses but are limited by the contractual relationship with the franchising organization.

High-potential ventures are small firms that have great prospects for growth.

Attractive small firms offer substantial profits to their owners.

Microbusinesses are small firms that provide minimal profits to their owners.

Lifestyle businesses are microbusinesses that permit the owner to follow a desired pattern of living.

Entrepreneurial teams involve two or more people who work together as entrepreneurs.

Artisan entrepreneurs have technical skills but little business knowledge or experience. They are often paternalistic and reluctant to delegate authority.

Opportunistic entrepreneurs are people with both sophisticated managerial skills and technical knowledge who start a business.

Women entrepreneurship is faster growing than male entrepreneurship because financing opportunities and general acceptance have improved in the last few years.

5 Identify five potential advantages of small entrepreneurial firms.

The five potential advantages of small entrepreneurial firms are customer focus, quality performance, integrity and responsibility, innovation, and special niche.

Customer focus: Small firms are better able to focus on serving each individual customer.

Chapter 1 The Entrepreneurial Life 3

Quality performance: Small firms can produce quality goods and services because there are fewer employees to manage.

Integrity and responsibility: Current business founders and owners cite high ethical standards as the single most important factor in entrepreneurial success.

Innovation: A large percentage of innovations come from small firms.

Special niche: Small firms can offer low-cost advantages to a smaller customer base.

6 Discuss factors related to readiness for entrepreneurship and getting started in an entrepreneurial career.

The ideal age for entrepreneurship seems to lie between the mid-20s and the mid-30s when there is a balance between preparatory experiences and family obligations.

Successful entrepreneurs usually have strong commitment and determination, leadership qualities, an obsession for opportunity, tolerance of risk and uncertainty, creativity, self-reliance, and adaptability.

Entrepreneurs have a higher internal locus of control than does the general population.

Precipitating events, such as job termination, job dissatisfaction, or an unexpected opportunity, often cause individuals to become entrepreneurs.

7 Explain the concept of an entrepreneurial legacy and the challenges involved in crafting a worthy legacy.

An entrepreneur’s legacy includes not only money and assets but also personal relationships and values.

A good legacy has a good balance of values and principles that are important to the entrepreneur.

Building a legacy is an ongoing process that begins at the founding of the business and continues throughout its operating life.

QUICK IDENTIFICATION AND EXPLANATION


1. entrepreneurial opportunity: a value-creating innovation with market potential


2. entrepreneur: a person who starts and/or operates a business



3. reluctant entrepreneur: a person who becomes an entrepreneur as a result of some severe hardship

4. refugee: a person who becomes an entrepreneur to escape an undesirable situation


5. founder: an entrepreneur who brings a new firm into existence

6. franchisee: an entrepreneur whose power is limited by a contractual relationship with a franchising organization

7. high-potential venture (gazelle): a small firm that has great prospects for growth

8. attractive small firm: a small firm that provides substantial profits to its owner

9. microbusiness: a small firm that provides minimal profits to its owner

10. lifestyle business: a microbusiness that permits the owner to follow a desired pattern of living

11. entrepreneurial team: two or more people who work together as entrepreneurs on one endeavor

12. artisan entrepreneur: a person with primarily technical skills and little business knowledge who starts a business

13. opportunistic entrepreneur: a person with both sophisticated managerial skills and technical knowledge who starts a business


14. internal locus of control: a belief that one’s success depends on one’s own efforts

15. external locus of control: a belief that one’s life is controlled more by luck or fate than by one’s own efforts

16. precipitating event: an event, such as losing a job, that moves an individual to become an entrepreneur


17. entrepreneurial legacy: material assets and intangible qualities passed on to both heirs and society


TRUE/FALSE QUESTIONS

Mark each statement with a T, if it is true, or with an F, if it is false.


_____ 1. Some individuals begin their entrepreneurial careers because of disappointing experiences as employees.

_____ 2. A successful entrepreneur must be able to recognize opportunity and act on it.


_____ 3. Entrepreneurs are generally risk-averse.

_____ 4. Small business has little economic impact on employment in the United States.

_____ 5. Small business is usually financed by a small group of owners.

_____ 6. The marketing function of a small business is usually geographically localized.

_____ 7. Typically, the number of employees in a small business is fewer than 100.


_____ 8. A significant number of entrepreneurs are highly motivated by potential profits.

_____ 9. Many entrepreneurs use their independence to achieve flexibility in their personal lives and work habits.

_____ 10. Individuals who have entered business ownership as a result of financial hardship are called corporate refugees.


_____ 11. Founders may be inventors who initiate a business on the basis of new or improved products or services.

_____ 12. Franchisees have more freedom to run a business than other types of business owners.

_____ 13. Firms that have great prospects for growth are called gazelles.

_____ 14. Microbusinesses provide very large profit returns to their owners.

_____ 15. Entrepreneurial teams are declining in popularity in ventures of substantial size.

_____ 16. The education of the artisan entrepreneur is limited to technical training.

_____ 17. The opportunistic entrepreneur has supplemented technical education by also studying nontechnical subjects.


_____ 18. The number of women becoming entrepreneurs has declined during the last decade.


_____ 19. Small firms have great potential for providing good customer service.

_____ 20. If a small business is consistently ethical, it can earn the loyalty of a skeptical public.

_____ 21. One-third of the companies that are serial innovators are small businesses.


_____ 22. The ideal age for entrepreneurship appears to be the late 40s when individuals are financially well established.

_____ 23. There is a negative correlation between the need for achievement and entrepreneurial activity.

_____ 24. Entrepreneurs must be willing to take risks.

_____ 25. Entrepreneurs who believe that their success depends on their own efforts have an external locus of control.

_____ 26. Some entrepreneurs decide to launch their own businesses because of precipitating events, such as job termination, job dissatisfaction, or unexpected opportunities.


_____ 27. An entrepreneurial legacy basically passes the business down to the entrepreneur’s children.

_____ 28. An entrepreneurial legacy includes not only the transfer of assets but also the transfer of the business values.

_____ 29. One of the biggest mistakes that beginning entrepreneurs make is to spend too little time starting up their businesses.

_____ 30. A worthy entrepreneurial legacy begins at the birth of the small business.


MULTIPLE-CHOICE QUESTIONS

Circle the letter that appears in front of the correct response.


1. An entrepreneurial opportunity: a. exists for those who can produce products or services desired by customers.b. is a desirable and timely innovation that creates value for interested buyers.c. exists for an entrepreneur who has the interest, resources, and capabilities required to

succeed.d. has all the above qualities.


2. The term entrepreneur:a. only includes founders of business firms.b. includes all active owner-managers, members of family-owned firms, and owner-

managers who buy out founders of existing firms.c. includes all managers of giant corporations.d. includes all foreign businesspeople.

3. Which is NOT a criterion for small business in the textbook?a. financed by a large group of investorsb. is geographically localizedc. in relation to competitors, is considered smalld. usually employs fewer than 100 people


4. In a recent survey of business owners, 38 percent of those who left jobs at other companies said the main reason was that they wanted a. to be their own boss.b. more free time.c. higher financial rewards.d. a better life-style.

5. Which of the following is NOT a reward of entrepreneurship?a. profitb. less workc. independenced. personal fulfillment


6. The __________ entrepreneur goes into business as a result of financial hardship or other negative condition.a. refugeeb. corporatec. reluctantd. educated

7. Some people are drawn into entrepreneurship by their desire to do good or to make some positive contribution to society. These entrepreneurs are trying to achieve:a. freedomb. personal fulfillmentc. integrityd. independence


8. Which of the following is NOT a classification for entrepreneurs?a. foundersb. administrative entrepreneursc. franchiseesd. corporate executives

9. Which of the following produce modest returns to their owners?a. microbusinessesb. gazellesc. attractive small firmsd. high-potential ventures

10. ______________ combine the resources and talents of two or more individuals to concentrateon one endeavor.a. Administrative managersb. Entrepreneurial teamsc. Opportunistic entrepreneursd. Artisan entrepreneurs

11. Which of the following types of entrepreneurs has a good balance of technical knowledge and good managerial skills?a. opportunisticb. franchiseec. general managerd. artisan

12. Which of the following is NOT a characteristic of artisan entrepreneurs?a. They are paternalistic.b. They delegate authority well.c. Their sales efforts are personal.d. Their time orientation is short.


13. During the last decade, the number of women-owned businesses a. decreased.b. increased.c. stayed about the same.d. increased in traditional industries.

14. Which of the following is NOT an area in which small firms have the potential for advantage over large firms?a. financingb. servicec. radical product/service innovationsd. integrity and responsibility


15. The optimal age for beginning entrepreneurship isa. the mid-20s to mid-30s.b. the mid-30s to mid-40s.c. the mid-40s to mid-50s.d. over 50.

16. Which of the following is NOT a characteristic of entrepreneurs?a. a high need for achievementb. extremely high willingness to take risksc. strong self-confidenced. a passion for the business

17. Entrepreneurs who believe their success depends on their own efforts have ana. external locus of control.b. excellent ability to delegate.c. internal locus of control.d. excessive amount of confidence.

18. Which of the following is NOT usually a precipitating event?a. job promotionb. job terminationc. job dissatisfactiond. unexpected opportunities




19. An entrepreneurial legacy:a. is a succession plan to hand the business over to new ownership.b. ensures that the entrepreneur has a place in history.c. is a contractual agreement to pass the business down to heirs.d. passes on material assets and intangible qualities to both heirs and society.

20. The best time to start an entrepreneurial legacy is:a. at the beginning of the business.b. when the business is growing rapidly.c. when the business is well established and mature.d. a few months before the owner is ready to retire.

FILL-IN-THE-BLANK QUESTIONS

Write the correct word in the blank provided.


1. ___________________________ exist for those who can produce products or services desired by customers.


2. ___________________________ are founders of business firms, active owner-managers, members of family-owned firms, and owner-managers who buy out founders of existing firms.

3. Entrepreneurs are ___________________________ who provide impetus for change, innovation, and progress in economic life.

4. ___________________________ are the principal source of new jobs in the country, more than 20 million since 1993.

5. The number of employees in a small business is usually fewer than ___________________.3 Identify some motivators or rewards of entrepreneurial careers.

6. The three basic rewards of entrepreneurship are ___________________________, ___________________________, freedom, personal satisfaction, and personal fulfillment.

7. Some ___________________________ is necessary for a firm’s survival.

8. Entrepreneurs frequently speak of the ___________________________ they experience in their own business.


9. Some entrepreneurs go into business as a result of hardship or other negative circumstances; these individuals are called ___________________________ entrepreneurs.

10. Individuals who flee the bureaucratic environment of big firms are called corporate ___________________________.


11. ___________________________ may be inventors who initiate businesses on the basis of new or improved products or services.

12. ___________________________ are entrepreneurs whose power is limited by a contractual agreement with a franchising organization.

13. A few businesses called ___________________________, or _________________________, have glowing prospects for growth.

14. Similarly, ___________________________ offer substantial financial rewards for their owners.

15. Some small firms provide minimal profits to owners. These are called ___________________________.

16. A microbusiness that permits its owner to follow a desired pattern of living is called a ___________________________.

17. An entrepreneurial ___________________________ is formed by bringing together two or more individuals to function in the capacity of entrepreneurs.

18. The education of the ___________________________entrepreneur is limited to technical training.

19. The ___________________________ entrepreneur has both sophisticated managerial skills and technical knowledge.

20. The number of women becoming entrepreneurs has ___________________________ during the last decade.

21. Lack of access to ___________________________ has been a problem frequently cited by women entrepreneurs.

5 Identify five potential advantages to small entrepreneurial firms.

22. Small firms have ___________________________ potential for good customer service than do larger firms.

23. In small service businesses ___________________________ is closely linked to customer service.

24. Operating a business with ___________________________ can set a small business apart of being trustworthy.


25. Approximately 94 percent of all radical innovations since World War II have come from ___________________________ firms.



26. The ideal time for entrepreneurship is somewhere between the ages of _______________, when there is a balance between having enough experience and not having too many family obligations.

27. People who feel that their lives are controlled to a great extent by luck or fate have a(n) ___________________________ locus of control.

28. Successful entrepreneurs have a feeling that success depends on one’s own efforts, otherwise known as a(n) ___________________________ locus of control.

29. Some entrepreneurs are stimulated by ____________________________ events, such as job termination, job dissatisfaction, or unexpected opportunities.


30. Entrepreneurs who pass on material assets as well as intangible qualities to their heirs and to society are creating a(n) ____________________________.

ESSAY QUESTIONS

Write your answers in the space provided.


1. How does an individual discover an entrepreneurial opportunity?



2. Define the term entrepreneur.

3. Define small business in the context of the textbook.


4. List five reasons that pull individuals into entrepreneurship.


5. What is the difference between a founder and a franchisee?


6. List the three potential types of business ventures. What are some advantages and disadvantages to each type of business venture?

7. What is the basic difference between opportunistic entrepreneurs and artisan entrepreneurs?

8. Discuss the major obstacles that women entrepreneurs face that their male counterparts are less likely to face.



9. List five potential advantages of small businesses and briefly explain each one.


10. List five characteristics of successful entrepreneurs.


11. How can an entrepreneur ensure that he or she has created a worthy legacy?

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