CHAPTER

1
The Entrepreneurial
Life

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LEARNING OBJECTIVES

By studying this chapter, you should be able to…

1-1 Explain the importance of small businesses and
entrepreneurship in our society.
1-2 Describe what it means to be a small
entrepreneurial firm.
1-3 Identify how small businesses can compete against
the giants.
1-4 Understand what might motivate you to be a small
business owner with all its risks and uncertainties.
1-5 Discuss ways to build a successful business as a
part of your life legacy.

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 1-1 SMALL SIZE,
GREAT SIGNIFICANCE
• Entrepreneurs who start and lead small businesses make a
significant contribution to the economy and to quality of life.
• There are 27.8 million businesses in the United States with fewer
than 500 employees, accounting for 99.7 percent of all
businesses—and 90 percent have fewer than 20 employees!
• Fifty-five million people work in small businesses, representing 49
percent of all employees and 42 percent of all salaries paid to
employees.
• Small enterprises hire 43 percent of all high-tech employees
(scientists, engineers, computer programmers, and others).
• Many small companies have gone global, representing 97 percent
of all exporters.

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 1-2 SMALL BUSINESS AND
ENTREPRENEURSHIP GO TOGETHER
• It is important to understand the terms small
business and entrepreneurship.

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 1-2a What Is a Small Business?
(slide 1 of 3)

• Definitions of small business are usually

arbitrary, based on some predetermined
numerical measurement, such as the amount
of revenue or profit or the number of
employees.
• The criteria often depend on the purpose for
identifying small companies.

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 1-2a What Is a Small Business?
(slide 2 of 3)

• Small firms also differ depending on the

amount of growth potential they have.
• There are three types of small companies,
based on their growth potential:
1. Microbusinesses (lifestyle businesses) – A small
firm that provides minimal profits to its owner.
2. Attractive small firms – A small firm that provides
substantial profits to its owner.
3. High-potential ventures (gazelles) – A small firm
that has great prospects for growth.

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 1-2a What Is a Small Business?
(slide 3 of 3)

• Small business – A business with growth

potential that is small compared to large
companies in an industry, has geographically
localized operations, is financed by only a few
individuals, and has a small management
team.

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 1-2b What Is Entrepreneurship?
(slide 1 of 2)

• Entrepreneur – A person willing to create

value, in either a new or an existing business,
while assuming both the risks and the rewards
for his or her efforts.
• Entrepreneurship – A four-stage process that
involves the relentless pursuit of an opportunity
without regard to owning all the resources
needed to capture the opportunity.

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 1-2b What Is Entrepreneurship?
(slide 2 of 2)

• From beginning to end, entrepreneurship

involves four stages:
1. Identifying an attractive opportunity.
2. Acquiring the critical resources needed for growing
the business.
• Entrepreneurs generally think differently about resources
than do employee-managers.
• Bootstrap – Doing more with less in terms of resources
invested in a business, and, where possible, controlling the
resources without owning them.
3. Executing the plan.
4. Harvesting the business.

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1.1 The Entrepreneurial Process

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 1-2c Entrepreneurs:
Born or Made? (slide 1 of 2)
• Desirable and acquirable attitudes and
behaviors of entrepreneurs:
• Leadership abilities.
• Opportunity obsession.
• Commitment and determination.
• Motivation to excel.
• Courage.
• Tolerance of risk, ambiguity, and uncertainty.
• Creativity, self-reliance, and adaptability.

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 1-2c Entrepreneurs:
Born or Made? (slide 2 of 2)
• An almost certain way to fail as an
entrepreneur is to do the following:
• Overestimate what you can do.
• Lack an understanding of the market.
• Hire mediocre people.
• Fail to be a team player (usually the result of taking
oneself too seriously).
• Be a domineering manager.
• Fail to share ownership in the business in an
equitable way.

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 1-2d Types of Entrepreneurs
(slide 1 of 3)

SECOND-STAGE ENTREPRENEURS
• At some point after a new firm is established, it may be purchased
or taken over by a second-generation family member or another
individual who may have been managing the company.

FRANCHISEES
• Franchisee – An entrepreneur whose power is limited by a
contractual relationship with a franchising organization.
• The franchisee is authorized to market the company’s products or
services and expects the franchisor to provide support in
operating the business.
• Such support will usually include operating systems, training,
financing, advertising, and other services.
• In addition to paying an annual franchising fee, the franchisee will
usually pay a portion of the company’s profits to the franchisor.
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 1-2d Types of Entrepreneurs
(slide 2 of 3)

SOCIAL ENTREPRENEURS
• Social entrepreneurship – Entrepreneurial
activity whose goal is to find innovative
solutions to social needs, problems, and
opportunities.

ENTREPRENEURIAL TEAMS
• Entrepreneurial teams – Two or more people
who work together as entrepreneurs on one
endeavor.
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 1-2d Types of Entrepreneurs
(slide 3 of 3)

INTRAPRENEURS
• Intrapreneurship – A process within an existing corporation
involving an employee who assumes the responsibility for taking a
new idea and converting it into a profitable product, service, or a
process.
• Thus, an intrapreneur mostly creates value for the company, rather
than starting his or her own new business.
• A primary benefit for an intrapreneur is having access to corporate
resources, combined with the economies of scale enjoyed by a
large corporation.
• A drawback is that employees who exhibit an entrepreneurial
spirit can become frustrated by the bureaucracy within large
corporations.

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 1-3 CAN A SMALL COMPANY
COMPETE WITH BIG COMPANIES?
• Any business that can make its product or
service cheaper, faster, and better can be
competitive.
• Ways small firms can gain a competitive
advantage over larger competitors include:
• Building an internal culture based on integrity.
• Focusing on customers.
• Emphasizing quality in operations.
• Being innovative.
• Finding a distinct market segment—a niche market.

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 1-3a Integrity and Responsibility

• The starting point of any competitive

advantage is having a commitment to integrity.
• Consistently operating with integrity can set a
small business apart, with a reputation of being
trustworthy.
• Trust is the foundation of all relationships, including
those in business.
• Above all else, the core values of the
entrepreneur, as reflected in what she or he
says and does, determine the culture within a
business.
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 1-3b Customer Focus

• Small businesses have a greater potential to

provide good customer service than larger
firms do.
• They have the advantage of being able to serve
customers directly and effectively, avoiding the
layers of bureaucracy and corporate policies that
tend to stifle employee initiative.

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 1-3c Quality Performance

• Small business owners are often able to insist

on high levels of quality without experiencing
the frustration of a large-company C E O who
may have to push a quality philosophy through
layers of bureaucracy.

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 1-3d Innovation

• Innovation, both in products or services and in

competitive strategies, is within the reach of
the small business in ways that were not
thought possible a few years ago.
• Access to technology has helped smaller firms
compete and, in many cases, has clearly leveled
the playing field with larger companies.

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 1-3e Niche Markets

• Numerous small businesses are uniquely

positioned to capture niche markets.
• Niche market – A specific group of customers with
an identifiable but narrow range of product or
service interests.

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 1-4 MOTIVATIONS FOR
OWNING A BUSINESS
• Understanding clearly why you want to own a
small business and what motivates you are
vital to eventually achieving fulfillment through
your business.

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 1-4a Types of Entrepreneurial
Motivations (slide 1 of 4)
• Four fundamental reasons for owning a
company:
1. Personal fulfillment.
2. Personal satisfaction.
3. Independence.
4. Financial rewards.

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1.2 Entrepreneurial Motivations

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 1-4a Types of Entrepreneurial
Motivations (slide 2 of 4)
PERSONAL FULFILLMENT
• Only when your company is about something more significant
than yourself will you have a sense that what you are doing is
meaningful and well worth the effort.
• Business owners outrank all other occupational groups in terms of
overall contentment based on the following six criteria:
1. Emotional health.
2. Physical health.
3. Job satisfaction.
4. Healthy behavior.
5. Access to basic needs.
6. Self-reporting of overall life quality.
• Personal fulfillment extends to employees of small companies as well.
• Working as a team provides a sense of belonging for both owner-
managers and employees.
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 1-4a Types of Entrepreneurial
Motivations (slide 3 of 4)
PERSONAL SATISFACTION
• Small business owners feel rewarded in working with a product or
providing a service and being good at it.
• Entrepreneurs are energized by enjoyable associations within
their businesses.
• Entrepreneurs enjoy friendships with other business owners,
frequently learning from one another.
• If they are visible within the community, small business owners
can garner the respect of those who live there.

INDEPENDENCE
• Many people have a strong desire to make their own decisions,
take risks, and reap the rewards.

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 1-4a Types of Entrepreneurial
Motivations (slide 4 of 4)
FINANCIAL REWARDS
• In general, self-employed individuals are more likely to create
greater personal wealth than persons who work for others.
• Ideally, the owner should be compensated for two basic activities:
1. Payment for personal time in managing the company, coming in the
form of a salary.
2. A return for investing personal money in the business, which should
relate to the amount invested and the riskiness of the business,
coming in the form of cash dividends and any increase in the value of
the business as it grows.
• A majority of entrepreneurs do not become rich quickly.
• A more realistic goal is to “get rich slowly.”

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 1-4b Influencers in Deciding to
Owning a Business (slide 1 of 2)
• Family and friends and the desire to leave a
difficult work situation are common influencers
when making the decision to own a business.

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 1-4b Influencers in Deciding to
Owning a Business (slide 2 of 2)
FAMILY AND FRIENDS
• Not surprisingly, many small business owners worked
in their family’s business before founding their own
ventures.

THE DESIRE TO LEAVE A DIFFICULT SITUATION

• Reluctant entrepreneurs – A person who becomes an
entrepreneur because of some severe hardship.
• Corporate refugees – A person who becomes an
entrepreneur to escape an undesirable job situation.

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1-4c Why Your Perceptions Matter?
(slide 1 of 5)

• Knowing your motivations is important in starting a

business.
• But that is not enough.
• You also need to understand if your perceptions of what it takes
to be successful in business are accurate.
• Paradigm shift – A change in how we fundamentally
see a situation.
• The question for someone wanting to start a business
is, “What will it take for me to create a successful
business?”
• Your answer will depend largely on your past experiences,
which influence how you see the situation.

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1-4c Why Your Perceptions Matter?
(slide 2 of 5)

• According to Michael Gerber, three

personalities come into play when a person is
starting a business:
1. The technician personality.
2. The manager personality.
3. The entrepreneur personality.

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1.3 Understanding Your Business Personalities

© 2020 Cengage Learning ®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1-4c Why Your Perceptions Matter?
(slide 3 of 5)

THE TECHNICIAN PERSONALITY

• Technician personality – A personality that focuses on an
already developed technical skill, wants to be left alone to get the
job done, and is primarily concerned about the present.
• A technician personality tends to do the following:
• Use short-term thinking with little planning for future growth and
change.
• Be paternalistic (he or she guides the businesses much as he or she
might guide family members).
• Define marketing strategy in terms of the traditional components of
price, quality, and company reputation.
• Be reluctant to delegate.
• Focus on sales efforts that are primarily personal.

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1-4c Why Your Perceptions Matter?
(slide 4 of 5)

THE MANAGER PERSONALITY

• Manager personality – A personality that is pragmatic
and likes order and planning operations.
• A manager personality tends to do the following:
• Avoid paternalism.
• Delegate authority as necessary for growth.
• Employ diverse marketing strategies.
• Use different types of sales approaches.
• Obtain original financing from more than two sources.

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1-4c Why Your Perceptions Matter?
(slide 5 of 5)

THE ENTREPRENEUR PERSONALITY

• Entrepreneur personality – A personality that focuses
on the business and providing results for customers.
• The entrepreneurial personality tends to do the
following:
• Ask the question, “How must the business work?”
• See the business as a system for producing outside results for
the customer and, in so doing, producing profits.
• Start with a picture of a well-defined future, and then attempt
to change the present to match the vision.
• Develop strategies for the business by first seeing the whole
picture.

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 1-5 WHAT DO YOU WANT
YOUR LEGACY TO BE?
• Entrepreneurial legacy – Material assets and
intangible qualities passed on to both heirs and society.
• Includes:
• Money.
• Good or bad family relationships.
• A record of integrity or greed.
• Building a legacy is an ongoing process that begins
with the launch of the firm and continues throughout its
operating life.
• Part of the legacy is the company’s contribution to the
community.
• A worthy legacy includes a good balance of values and
principles important to the entrepreneur.
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 Key Terms
attractive small firm intrapreneurship
bootstrap lifestyle business
corporate refugees manager personality
entrepreneur microbusiness
entrepreneur personality niche market
entrepreneurial legacy paradigm shift
entrepreneurial teams reluctant entrepreneurs
entrepreneurship small business
franchisee social entrepreneurship
high-potential venture (gazelles) technician personality

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