Chapter 5: Entrepreneurship

Rewards and Challenges of Entrepreneurship

Entrepreneurship

• An entrepreneur is a person who recognizes a business opportunity and organizes, manages, and assumes the risks of starting and operating a business.
• Entrepreneurship is the process of recognizing an opportunity, testing it in the market, and gathering the resources necessary to go into business.
• Creating and running a business venture requires a variety of skills.
    * A venture is a new business undertaking that involves risk.
• Most entrepreneurs have similar characteristics.
    * These traits include leadership, decision-making, self- discipline, planning, and people skills.
• The SBA is a U.S. government agency that protects the interests of small businesses.
• It defines a $small business$ as an independently owned business that usually has the owner as its manager.
    * A small business serves a limited geographic area and employs fewer than 500 people.
• Many entrepreneurs open virtual businesses.
    * A $virtual business$ or $dot-com company$ is a business that operates on the Internet.
• Online businesses have the potential to attract a huge number of customers

Rewards of Entrepreneurship

• People become entrepreneurs for a number of reasons besides making money.
    * Being the boss, doing what they enjoy, and using their creativity are just a few.
• Many successful entrepreneurs work in a related business before starting their own company.
• Most U.S. businesses are sole proprietorships, which means they are owned and operated by one person.
• Another form of business is a partnership.
    * A partnership is owned and run by two or more people.
• A corporation has many owners.
    * Corporations are run by a chief executive officer, who answers to a board of directors.

Challenges of Entrepreneurship

• One of the biggest obstacles in starting a business is obtaining financing.
• Business owners are responsible for more than just decision making.
• Duties include handling financial records as well as training employees.
• Entrepreneurs also face the challenge of feeling alone and insecure about making the right decisions

The Impact of Small Businesses

• More than 99 percent of U.S. firms are small businesses.
• Small businesses employ more than 50 percent of the U.S. workforce.
• A majority of them are one-person operations that generate more than half the nation’s income.
• Small businesses are also the principal source of new jobs.
• Some estimate that two-thirds of all new jobs are generated by small businesses.

The Business Plan

Initial Steps in Setting up a Business

• If your market research shows that your business has the potential to succeed, then develop a business plan.
    * A business plan is a written description of a new business venture that describes all aspects of the business
• A checklist is a good way to organize your thinking when you begin planning your own business.
• Entrepreneurs should keep these questions and their answers in mind as they develop and write their business plan.
    * What will I produce?
    * Who are my main competitors?
    * Why is my product or service needed?
    * How much will my product or service cost to produce?
    * How many people will I need to run the business?
    * What physical facilities will I need?
    * What licenses, permits, or other legal documents do I need?
    * How much money will I need to get started?

Parts of a Business Plan

• There are 16 essential parts of a business plan
    * The $executive summary$ is a brief account of the key points contained in a business plan
    * The management team plan presents your qualifications and those of any partners you might have.
    * The description of the firm provides an outline of the business.
    * Describe the product or service you want to offer.
      * You should note the unique features of the product or service and possible spin-offs.
    * The vision and mission statements section states the guiding principles by which a business functions
      * A $vision statement$ establishes the scope and purpose of a company and reflects its values and beliefs.
      * A mission statement expresses the specific aspirations of a company, the major goals it will try to reach.
    * The industry overview presents your research of the industry.
    * Market analysis presents research about your customer profile
    * Competitive analysis indicates how the proposed business has an advantage over its competitors.
    * A marketing plan discusses how a company makes its customers aware of its products or services
    * The operational plan includes the business processes that result in production and delivery of the product or service.
    * Organizational plan looks at the people who will run the firm as well as management’s philosophy
    * Financial plan presents forecasts for the business.
      * Data are usually shown in financial statements.
    * The growth plan looks at how the business will expand in the future.
    * The contingency plan looks at likely risks to the business, such as lower-than-expected sales and emergencies that might affect it.
    * The cover page should include the company’s name, address, phone number, Web site and e-mail addresses, and logo.
      * The title page follows the cover page. It includes the company name; the names, titles, and addresses of the owners; the date the plan was submitted; and the name of its preparer.
      * The table of contents details the components of the business plan.
      * Supporting documents include exhibits and other information relevant to the business.