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©2013 John Wiley & Sons, Inc. All rights reserved. 6-16-1©2013 John Wiley & Sons, Inc. All rights reserved.

JOHN R. SCHERMERHORN, JR.JOHN R. SCHERMERHORN, JR.

MANAGEMENTMANAGEMENT1212thth Edition Edition

Chapter 6

Entrepreneurship and New Ventures

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Planning Ahead – Chapter 6 Study Questions

1. What is entrepreneurship and who are entrepreneurs?

2. What is special about small business entrepreneurship?

3. How do entrepreneurs start and finance new ventures?

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Chapter 6 Learning Dashboard

1. Nature of Entrepreneurship1. Who are the entrepreneurs?2. Characteristics of entrepreneurs3. Women and minority entrepreneurs4. Social entrepreneurship

2. Entrepreneurship and Small Business1. Why and how to get started2. Web-based business models3. Family businesses4. Why small businesses fail5. Small business development

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Chapter 6 Learning Dashboard

3. New Venture Creation1. Life cycles of entrepreneurial firms2. Writing the business plan3. Choosing the form of ownership4. Financing the new venture

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Takeaway 1: Nature of Entrepreneurship

Entrepreneurship • Risk-taking behavior that results in new opportunities

Classic entrepreneur• Pursues opportunities others view as problems

Serial entrepreneur• Starts and runs business and nonprofits over and over

again

First-mover advantage• First to exploit a niche or enter a market

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Takeaway 1: Nature of Entrepreneurship

Intrapreneurs– Display entrepreneurial behavior as

employees of larger firms

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Takeaway 1: Nature of Entrepreneurship

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Takeaway 1: Nature of Entrepreneurship

• Women and minority entrepreneurs are growing in numbers

• Necessity-based entrepreneurship– People start a business because no other

employment opportunities exist

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Takeaway 1: Nature of Entrepreneurship

Social entrepreneurship– Unique form of ethical entrepreneurship that

seeks new ways to solve pressing social problems– Social entrepreneurs

• Take risks to find new ways to solve pressing social problems such as poverty, literacy, illness,homelessness

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Takeaway 2: Entrepreneurship and Small Business

A small business has fewer than 500 employees

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Takeaway 2: Entrepreneurship and Small Business

Starting a small business– Franchise

• One business owner sells to another the right to operate the same business in another location

– Business model• Plan for making a profit by generating revenues that are greater than

costs

– Startup• New and temporary venture that is trying to establish a profitable

business model

– Lean startups• Use open source software and free web services to contain costs

while staying small and keeping operations simple

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Takeaway 2: Entrepreneurship and Small Business

Types of web-based business models

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Takeaway 2: Entrepreneurship and Small Business

Family owned businesses– Account for 78% of new jobs created in the U.S.– Provide 60% of the nation’s employment– Feuds result when family members disagree over

how the business is run– Possible succession problems

• Who will run the business when the current head leaves?

• Succession plan outlines leadership transition and financial matters

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Takeaway 2: Entrepreneurship and Small Business

Why small businesses fail– SBA reports that as many as 60 to 80% of new

businesses fail in first five years– Reasons why small businesses fail

- Lack of experience - Lack of expertise

- Lack of commitment - Growing too fast- Lack of strategy - Lack of strategic leadership- Ethical failure - Poor financial control

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Takeaway 2: Entrepreneurship and Small Business

Small business development– Business incubator

• Offers space, shared services and advice to get small businesses started

– Small Business Development Centers• Founded with U.S. Small Business Administration to

provide advice to new and existing small businesses

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Takeaway 3: New Venture Creation

Life cycles of entrepreneurial firms

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Takeaway 3: New Venture Creation

Business plan– Describes the direction for a new business and

the financing needed to operate it– Banks want to see a well-developed business plan

before loaning money

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Takeaway 3: New Venture Creation

Sample Business Plan Outline:– Executive Summary– Industry Analysis– Company description– Products and services description– Market description– Marketing Strategy– Operations description– Staffing description– Financial projections– Capital needs– Milestones

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Takeaway 3: New Venture Creation

Forms of ownership– Sole Proprietorship

• An individual or married couple pursuing business for a profit. This does not involve incorporation.

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Takeaway 3: New Venture Creation

Forms of ownership– Partnership

• Two or more people agree to contribute resources to start and operate a business together

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Takeaway 3: New Venture Creation

Forms of ownership– Corporation

• A legal entity that exists separately from its owners– Limited Liability Corporation (LLC)

• A combination of sole proprietorship, partnership, and corporation

– Protects owners against personal loss other than what is invested in the company

– Treated as a proprietorship or partnership for tax purposes

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Takeaway 3: New Venture Creation

Financing– Debt Financing

• involves borrowing money from another person, a bank, or a financial institution

– Equity Financing• involves exchanging ownership shares for outside investment

monies

– Venture Capitalists • Involves making large investments in new ventures in return for

an equity stake in the business

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Takeaway 3: New Venture Creation

Financing– Angel Investor

• A wealthy individual willing to invest in return for equity in a new venture

– Initial Public Offering (IPO)• An initial selling of shares of stock to the public at

large