TEXTBOOK

Entrepreneurship Today

Why do people become entrepreneurs, and what are the different types of entrepreneurs?
- Brothers Fernando and Santiago Aguerre example:
  - Early entrepreneurial tendencies: selling strawberries/radishes at ages 8/9, surfboard repair at 11/12.
  - Opened Argentina’s first surf shop.
  - Founded Reef sandals due to discomfort with flip-flops, investing 4,000 in 1984.
  - Reef became a successful global brand.

The Economic Impact of Small Business

Most U.S. Businesses Are Small:
- 80\%, approximately 23.8 million, have no employees.
- 89\%, approximately 5.2 million, of businesses with employees have fewer than 20 employees.
- 99.6\%, approximately 5.7 million, have 0–99 employees, and 98\% have 0–20 workers.
- Approximately 5.8 million businesses have fewer than 500 employees.
- Only ~19,000 businesses have more than 500 employees.
- Companies with
- Companies with
- 32.5 million (1 in 4) work for businesses with <50 employees.

Catching the Entrepreneurial Spirit

Young Entrepreneur Living the Dream: Jack Bonneau
- Jack Bonneau, an 11-year-old entrepreneur:
  - Expanded product line, opened multiple locations, established strategic partnerships, secured sponsorships.
  - Received publicity and spoke at events.
  - Appeared on Shark Tank.
- Story:
  - Wanted a LEGO Star Wars Death Star costing 400.
  - Started a lemonade stand, then expanded to a farmers market with father’s advice.
  - Earned enough to buy the LEGO Death Star, with 2,000 in sales and 900 profit.
  - Expanded to three new "Jack Stands", secured a 5,000 loan from Young Americas Bank.
  - Made 25,000 in 2015.
  - Secured a 12,000 second loan, expanded to shopping malls, selling apple cider/hot chocolate.
  - Added shop space, recruited young entrepreneurs, renamed to Jack’s Stands and Marketplace.
  - Partnerships included Sweet Bee Sisters.
  - Business brought in >100,000 last year.
  - Became spokesperson for Santa Cruz Organic Lemonade and is considering expansion into Detroit/New Orleans.

Reef Success and Founders' Freedom

Reef sandals built a brand from nothing and became a dominant market share leader.
The Aguerres sold Reef to VF Corporation for >100 million in 2005.
Fernando: "We’ve finally found our freedom. We traded money for time."
Fernando is president of the International Surfing Association, known as “Ambassador of the Wave”, got surfing into the 2020 Olympics.
Santiago raises funds for SurfAid.

Entrepreneurial Aspirations and Advice

Two-thirds of college students intend to be entrepreneurs.
Minority groups and women are becoming business owners at a higher rate than the national average.
Global economy rewards innovative, flexible companies started by entrepreneurs.

Questions for Would-Be Entrepreneurs

What is new and novel about your idea? Are you solving a problem or unmet need?
Are there similar products/services out there? If so, what makes yours better?
Who is your target market? How many people would use your product or service?
Have you talked with potential customers to get their feedback? Would they buy your product/service?
What about production costs? How much do you think the market will pay?
How defensible is the concept? Is there good intellectual property?
Is this innovation strategic to my business?
Is the innovation easy to communicate?
How might this product evolve over time? Would it be possible to expand it into a product line? Can it be updated/enhanced in future versions?
Where would someone buy this product/service?
How will the product/service be marketed? What are the costs to sell and market it?
What are the challenges involved in developing this product/service?

Statistics for Minority-Owned Businesses

Hispanic-owned businesses almost tripled between 1997 (1.2 million) and 2012 (3.3 million).
50\% increase in African American owned businesses with 1 to 50 employees between 1996 and 2015.
Almost a million firms with employees are minority owned: 53\% Asian American, 11\% African American, ~1\/3 Hispanic.
19\% of all companies with employees are owned by women.

Entrepreneur vs. Small-Business Owner

Entrepreneurship: taking a risk, creating a new business or greatly changing an existing one; innovators pursuing new product/service ideas and spotting trends.
Small-business owners: managers/technical experts who start/buy a business and choose to stay small.
Example: Jeff Bezos (Amazon) vs. local bookstore proprietor.
Entrepreneurs are less likely to accept the status quo and take a longer-term view.

Types of Entrepreneurs

Classic Entrepreneurs: risk-takers starting companies based on innovative ideas.
- Micropreneurs: start small, stay small for personal satisfaction and lifestyle (e.g., Miho Inagi and her bagel shop).
  - Miho Inagi opened a bagel shop in Tokyo after a visit to NYC in 1998.
  - Took an unpaid apprenticeship at Ess-a-Bagel, and opened Maruichi Bagel in 2004 with $20,000 savings and a 30,000 loan.
  - Earns ~$2,300/month after expenses.
- Growth-oriented entrepreneurs: want their business to grow into a major corporation (e.g., Jeff Bezos).
  - Jeff Bezos aimed to compete with traditional book retailers using Internet technology.
Multipreneurs: start a series of companies, thrive on building businesses.
- Jeff and Rich Sloan: renovated houses, owned a horse breeding business, invented a car battery device, and created StartupNation.
Intrapreneurs: apply creativity, vision, risk-taking within a large corporation with freedom to develop new products with financial backing.
- Gifford Pinchot coined the term; examples include Intel, IBM, Texas Instruments, Salesforce.com, Xerox.

Reasons to Become an Entrepreneur

Challenge of building a business.
Desire to control their own destiny.
Financial independence.
Frustration of working for someone else.
Personal satisfaction, and creating the lifestyle that they want.
Most entrepreneurs would do it again.

Characteristics of Successful Entrepreneurs

Entrepreneurs need to develop and manage the company that implements his or her idea.
Special drive, perseverance, passion, and a spirit of adventure, in addition to managerial and technical ability is required.
Entrepreneurs are the company; they tend to work longer hours, take fewer vacations, and cannot leave problems at the office at the end of the day.

The Entrepreneurial Personality Traits

Ambitious: competitive, high need for achievement.
Independent: individualists, self-starters, prefer to lead.
Self-confident: decisive, confident in problem-solving.
Risk-takers: prefer moderate risk with control over outcomes.
Visionary: spot trends.
Creative: innovative product designs, bold marketing, innovative solutions.
Energetic: able to work long hours.
Passionate: love their work.
Committed: willing to make personal sacrifices.

Ethical Choices: Poilâne Bakery

Apollonia Poilâne took over the family business (Poilâne Bakery) after her parents died in a helicopter crash in 2002.
She was just 18, and she managed the bakery from her apartment in Cambridge, Massachusetts while attending Harvard.
Continued the tradition of customer satisfaction and quality (started in 1932 by her grandfather).
Poilâne is an 18 million business, employs 160, runs three restaurants (Cuisine de Bar), and ships >200,000 loaves a year to 20 countries.

Managerial Ability and Technical Knowledge

Entrepreneurs need both technical knowledge and managerial ability.
Jim Crane built Eagle Global Logistics from a start-up into a 250 million company despite having never run a 250 million dollar company before.
Entrepreneurs need good interpersonal and communication skills.
Jim Steiner started Quality Imaging Products with 400: spent 200 on a consultant/learning the business, and 200 on materials and sales calls. worked long hours to get business off the ground for 18 months.
Entrepreneurs often focus on their strengths and hire others for the rest.

Small Business: Driving America's Growth

Small businesses are again at the forefront after large corporations dominated for decades.
Downsizings have caused people to look toward smaller companies for employment.
Small businesses play an important role in the U.S. economy.
- Represent ~1\/2 of U.S. economic output.
- Employ ~1\/2 the private sector workforce.
- Give individuals from all walks of life a chance to succeed.

What Is a Small Business?

Estimates range from 5 million to >22 million, depending on size limits used.
The SBA has size standards based on economic activity/industry.

Kaufman Index of Entrepreneurship

One of the best sources to track U.S. entrepreneurial growth is the Ewing Marion Kauffman Foundation.
Kauffman Foundation focuses on projects encouraging entrepreneurship/supporting education.
The annual Kauffman Index of Entrepreneurship series measures and interprets indicators of U.S. entrepreneurial activity.
The ASE provides annual data on select economic/demographic characteristics of employer businesses and their owners.
The Kauffman Index series measures how people/businesses contribute to America’s economy.
The indexes don’t focus on inputs; they report primarily on entrepreneurial outputs.
The Kauffman Index series consists of three in-depth studies—Start-up Activity, Main Street Entrepreneurship, Growth Entrepreneurship.
- Kauffman Index of Startup Activity: focuses on new business creation activity and people engaging in business start-up activity, using three components: the rate of new entrepreneurs, the opportunity share of new entrepreneurs, and start-up density.
- Kauffman Index of Main Street Entrepreneurship: measures established small-business activity—focusing on U.S. businesses more than five years old with less than 50 employees, taking into account three components of local, small-business activity: the rate of businesses owners in the economy, the five-year survival rate of businesses, and the established small business density.
- Kauffman Growth Entrepreneurship Index: a composite measure of entrepreneurial business growth in the United States that captures growth entrepreneurship in all industries and measures business growth from both revenue and job perspectives, including three component measures of business growth: rate of start-up growth, share of scale-ups, and high-growth company density.

Small Business Statistics

Snapshot of Small-Business Owners:
- Start-up activity increased from -0.87\% in 2013 to +0.48\% in 2016.
- Business ownership has increased every year since 2014.
- Startup Activity rose slightly in 2016.
- New businesses stated from opportunity reached 86.3\%, more than 12 percentage points higher than in 2009.
- Main Street entrepreneurship activity was higher in 2016 than before the Great Recession.
- Jump in business survival rates, which reached a three-decade high of 48.7\%. Nearly half of new businesses are making it to their fifth year of operation.
- 47\% of U.S. businesses have been in business for 11+ years.
- In 2016, ~25\% of all employing firms had revenues >1 million, but 2\% had revenues <10,000.
More than half of small businesses have between 1 and 4 employees.
Number of Employees by Percentage of Established Small Businesses: (as of Nov 2016)
- 1-4 Employees: 53.07\%
- 5-9 Employees: 23.23\%
- 10-19 Employees: 14.36\%
- 20-49 Employees: 9.33\%

Ready, Set, Start Your Own Business

Best way: start from scratch, buy an existing business, or buy a franchise?
- ~75\% of business start-ups involve brand-new organizations.

Checklist for Starting a Business

Identify your reasons
Self-analysis
Personal skills and experience
Finding a niche
Conduct market research
Plan your start-up: write a business plan
Finances: how to fund your business

Finding the Idea

~80\% of Inc. 500 executives got the idea while working in the same/related industry.
Other sources: personal experiences, hobbies, suggestions, industry conferences, college courses.
Keep up with small-business trends by reading magazines/websites.

Choosing a Form of Business Organization

Key decision: sole proprietorship, partnership, corporation, or limited liability company.
Choice depends on: type of business, number of employees, capital requirements, tax considerations, and level of risk involved.

Developing the Business Plan

One of the most important steps in starting a business.
Helps attract financing, minimize risks, and is a critical determinant in success.
Lets you run various “what if” analyses without financial outlay or risk.
Allows you to develop strategies to overcome problems well before starting the business.
Forces entrepreneurs to take an objective and critical look at their business venture and analyze their concept carefully.
Serves as the initial operating plan for the business.

Key Elements of a Business Plan

Executive summary: overview of total business plan.
Vision and mission statement: describes intended strategy and business philosophy.
Company overview: explains type of company, background information, and proposed form of organization.
Product and/or service plan: describes the product/service and points out any unique features.
Marketing plan: shows who the firm’s customers will be and what type of competition it will face.
Management plan: identifies the key players.
Operating plan: explains the type of manufacturing or operating system to be used.
Financial plan: specifies financial needs and contemplated sources of financing.
Appendix of supporting documents: provides materials supplementary to the plan.

Business Plan Importance

Business plans should be dynamic documents, reviewed and updated regularly.
The SBA offers sample business plans and online guidance.

Financing the Business

The funding required depends on the type of business and the entrepreneur’s own investment.
94% of business owners raise start-up funds from personal accounts, family, and friends.
3\/4 of Inc. 500 companies have been funded on 100,000 or less.

Forms of Business Financing

Debt: borrowed funds that must be repaid with interest.
Equity: funds raised through the sale of stock.
Debt financing limited to no more than ~1\/4 to 1\/3 of the firm’s total needs.

Financing Options

Bootstrapping: funding the operation with your own resources.
Angel investors: individual investors or groups of experienced investors who provide financing (seed capital).
Venture capital: financing from venture capitalists (investment firms).

Buying a Small Business.

Less risky, but requires careful analysis.
Must answer several important questions like, "Why is the owner selling?", "Is the business operating at a profit?", "What are the owner’s plans after selling the company?"
To protect against current customers leaving, many purchasers include a noncompete clause in the contract of sale
Then you must negotiate the price and other terms of purchase and obtain appropriate financing.

Risky Business

Running your own business may be less easy that it sounds.
Over a period of five years, nearly 50\% percent of small business fail.
Businesses close down for many reasons—and not all are failures.
Some businesses that close are financially successful and close for nonfinancial reasons.

Common Causes of Business Closure

Economic factors: business downturns and high interest rates
Financial causes: inadequate capital, low cash balances, and high expenses
Lack of experience: inadequate business knowledge, management experience, and technical expertise
Personal reasons: the owners may decide to sell the business or move on to other opportunities
Inadequate early planning is often at the core of later business problems.

Managing a Small Business

Must be ready to solve problems and move quickly if market conditions change.

Managing Change: Learning How to Pivot (MailChimp Example)

Founded by Ben Chestnut and Dan Kurzius.
Initially Rocket Science Group, then pivoted multiple times (tech companies, airline/travel, real estate).
Focused on email marketing for small businesses.
Freemium idea led to significant growth.

Importance of a Sound Business Plan

Keeps the small-business owner in touch with all areas of his or her business.
Hiring, training, and managing employees is another important responsibility because the owner’s role may change over time.
As the company grows, others will make many of the day-to-day decisions while the owner focuses on managing employees and planning for the firm’s long-term success.

Using Outside Consultants

Accountant, attorney, consultants (marketing, employee benefits, insurance).
Can outsource IT, marketing, customer service, order fulfillment, payroll, and human resources.

Hiring and Retaining Employees

Attracting good employees is more difficult for a small firm.
Make employee satisfaction a top priority.

Going Global with Exporting

Global marketplace = a huge opportunity.
Small businesses’ decision to export is driven by the desire for increased sales and higher profits.
Small businesses may hire international-trade consultants or distributors to get started selling overseas.
Many online resources are available.

Small Business, Large Impact

Advantages:
- Independence and a better lifestyle.
- Personal satisfaction from work.
- Best route to success: Business ownership provides greater advancement opportunities for women and minorities.
- Rapidly changing technology.
- Major corporate restructuring and downsizing.
- Outsourcing.
- Small businesses are resilient.
Disadvantages:
- Limited managerial skill.
- Difficulty obtaining adequate financing.
- Complying with federal regulations is also more expensive for small firms.
- Long hours, the need for owners to do much of the work themselves, and the stress of being personally responsible for the success of the business can take a toll.

Small Business Administration (SBA)

Mission: to speak on behalf of small business, and through its national network of local offices it helps people start and manage small businesses, advises them in the areas of finance and management, and helps them win federal contracts

Trends in Entrepreneurship and Small-Business Ownership

Entrepreneurial opportunities come from changes in demographics, society, and technology.
Evolving social and demographic trends, combined with the challenge of operating in a fast-paced technologydominated business climate, are changing the face of entrepreneurship and small-business ownership.
New business ventures drove the economic recovery from the 2001–2002 and 2007–2009 to recessions, and are they continuing to make significant contributions to the U.S. economy.
The highest rate of growth is coming from women-owned firms, which continues to rise at rates higher than the national average—and with even stronger growth rates since the recession
Boomers have accelerated the growing acceptance of working from home, adding to the millions of U.S. workers already showing up to work in their slippers. In addition, the ongoing corporate brain drain could mean that small businesses will be able to tap into the expertise of seasoned free agents at less- than-corporate prices—and that seniors themselves will become independent consultants to businesses of all sizes.