Entrepreneurship and Small

Business Management
2/e
by Mariotti and Glackin

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Chapter 1:
ENTREPRENEURS
RECOGNIZE OPPORTUNITIES

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 Learning Objectives
 Explain what entrepreneurs do.
 Describe how free-enterprise economies
work and how entrepreneurs fit into
them.
 Find and evaluate opportunities to start
your own business.
 Explain how profit works as a signal to
the entrepreneur.

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 What Is Business?
 Business—buying and selling
products and services.

 Product—something tangible that

exists in nature or is made by people.

 Service—intangible work that provides

time, skills, or expertise.

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 What Is an Entrepreneur?
 Employees work for someone
else’s business.

 Entrepreneurs start their own

businesses and work for
themselves.

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 Entrepreneurs Add Value
to Scarce Resources
 A scarce (limited) resource is
something of value that can be used
to make something else or fill a need.

 Entrepreneurs add value to scarce

resources by what they do with those
resources.

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 The Economic Questions
 What should be produced?
 When will it be produced?
 How will it be produced?
 Who will produce it?
 Who gets to have what is produced?

An economy is a country’s financial structure. It is

the system that produces and distributes wealth.

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 Free-Enterprise System
 Economic system in which businesses
can be privately owned and operated.
 Also called capitalism.
 Based on voluntary exchange.
 Encourages competition between
entrepreneurs.
 Free market forces determine prices.
 Private wealth and property ownership.
 Involves capital investment.
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 What Is a Small Business?
 Less than 500 employees.
 About 99.9% of the 27.2 million U.S.
businesses are small.
 Small businesses employ about 50% of
the U.S. private workforce.
 Annual sales under $5 million.

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 Why Be an Entrepreneur?
 Control over time
 Fulfillment
 Creation/ownership
 Control over compensation
 Control over working conditions

The desire to make money, alone, is not a good enough

reason to start one’s own business.

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 Benefits and Costs
of Becoming an Entrepreneur
Benefits Costs
 Independence  Business failure

 Satisfaction  Obstacles

 Financial reward  Loneliness

 Self-esteem  Financial insecurity

 Contribution to  Long hours/hard work

society  Strain on personal

relationships

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 Benefit/Cost Analysis
 Benefit/Cost Analysis—a decision-making
process in which the costs of taking an action
are compared to the benefits.
 Benefits—money, knowledge, and experience
you will gain.
 Costs—money and time you must invest.
 Opportunity Cost—the value of what must
be given up in order to obtain something else.
For a benefit/cost analysis to be accurate,
opportunity cost must be included.

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 Keys to Avoiding Missteps
 Explore options thoughtfully and
systematically
 Research
 Educational courses and workshops
 Learn from the experience of others
 Formal mentors
 Informal advisors

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 Entrepreneurial Options
 Traditional for-profit enterprise
 Social entrepreneurship—for-profit
with dual goals of profitability and
social returns.
 Social business
 Venture philanthropy
 Green entrepreneurship
 Not-for-profit organization
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 Shumpeter’s
Sources of Opportunity
 Use a new technology to produce a new
product.
 Use an existing technology to produce a
new product.
 Use an existing technology to produce an
old product in a new way.
 Find a new source of resources to produce
more efficiently.
 Develop a new market for an existing
product.

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 Creating Business Ideas
 Listen
 Observe
 Analyze

Drucker: exploit changes in the world.

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Not All Ideas Are Opportunities
 An opportunity is an idea that is based on
what consumers need or want and are
willing to buy sufficiently often at a high
enough price to sustain a business.
 Opportunity is situational: dependent on
variable circumstances.

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Timmons’ Business Opportunity =
Idea + Four Characteristics
1. Attractive to customers.
2. Will work in the business environment.
3. Can be executed in an existing
window of opportunity.
4. Can be implemented with the right
team to make it durable.

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 Use SWOT Analysis
to Evaluate Business Ideas
 Strengths
 Weaknesses
 Opportunities
 Threats

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 Five Roots of Opportunity
1. Problems
2. Changes
3. Inventions
4. Competitive advantage
5. Technological advances

The best business opportunities often

combine both internal and external factors.

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 Components of Porter’s
Generic Strategies
 Product uniqueness—ability to
differentiate the product/service from
those of the market’s competitors
 Low cost—ability to reduce costs and
sustain a price advantage
 Focus—targeting a particular market
segment or group

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Pathways to Entrepreneurship
 Start and build a new business.
 Inherit a business.
 Secure franchise rights.
 Buy an existing business.
 License or purchase technology.

Respect the intellectual property of others.

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Pathways to Entrepreneurship
(continued)

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 Types of Business Ventures
 Full-time enterprises
 “Gazelles”
 Microenterprises including lifestyle
businesses
 Mainstream small firms

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 Profit Is a Sign of Success
 Profit—amount remaining after costs
are deducted from the firm’s income.
 Profit signals that an entrepreneur is
adding value to scarce resources.
 Entrepreneurs try to make choices
(trade-offs) that will increase profit.

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 Seven Rules for Building
a Successful Business
1. Recognize an opportunity
2. Evaluate it with critical thinking (SWOT)
3. Build a team
4. Write a realistic business plan
5. Gather resources
6. Decide ownership
7. Create wealth

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Copyright © 2015 Pearson Education, Inc. publishing as Prentice Hall 1-27