SECTION I.

THE CHALLENGE OF ENTREPRENEURSHIP

CHAPTER 1. THE FOUNDATIONS OF ENTREPRENEURSHIP

Part 1: Learning Objectives

1. Define the role of the entrepreneur in business in the United States and around the
world.
2. Describe the entrepreneurial profile.
3-A. Describe the benefits of entrepreneurship.
3-B. Describe the drawbacks of entrepreneurship.
4. Explain the forces that are driving the growth of entrepreneurship.
5. Explain the cultural diversity of entrepreneurship.
6. Describe the important role that small businesses play in our nation’s economy.
7. Put failure into the proper perspective.
8. Explain how an entrepreneur can avoid becoming another failure statistic.
9. Discover how the skills of entrepreneurship, including critical thinking and problem
solving, written and oral communication, leadership, creativity, and ethics and social
responsibility, apply to every career choice and every avenue of life.

Part 2: Class Instruction

The World of the Entrepreneur LO 1

Around the world growing numbers of people are realizing their dreams of owning and
operating their own business. Entrepreneurship is thriving and is essential to a strong
global economy. Downsizing by large companies has resulted in a new population of
entrepreneurs. Today small companies have the competitive advantage as they can move
faster to exploit market opportunities and use modern technology to quickly create
products and service that once took years.
A study by the Global Entrepreneurship Monitor (GEM) found that 68 percent of
working adults around the world perceive entrepreneurs as having high status. Eastern
European countries, China, Vietnam, and other nations whose economies were state–

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controlled and centrally planned now hold potential for entrepreneurs. (Refer to Figure
1.1 and Table 1.1)

What Is an Entrepreneur? LO 2
An entrepreneur is one who creates a new business in the face of risk and uncertainty for
the purpose of achieving profit and growth by identifying significant opportunities and
assembling the necessary resources to capitalize on them. Although many people come
up with great business ideas, most never act on their ideas.
One reason the U.S. economy has been so successful over time is the constant churn that
results from the rapid pace at which entrepreneurs create new businesses, destroy old
ones, and upend entire industries with their creativity and ingenuity. (Refer to Figure 1.2)
Studies have identified several characteristics entrepreneurs tend to exhibit, but none of
them has isolated a set of traits required for success. A brief summary of the
entrepreneurial profile includes:
1. Desire for responsibility
2. Preference for moderate risk (risk eliminators)
3. Willingness to break rules
4. Self-reliance
5. Confidence in their ability to succeed
6. Determination
7. Desire for immediate feedback
8. High level of energy
9. Competitiveness
10. Future orientation. Opportunity entrepreneurs start businesses because they spot
an opportunity in the marketplace. Necessity entrepreneurs start businesses
because they cannot find work any other way. Serial entrepreneurs repeatedly
start businesses and grow them to a sustainable size before striking out again.
11. Skill at organizing
12. Value of achievement over money
Other characteristics of entrepreneurs include:
High degree of commitment
Tolerance for ambiguity

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 Creativity
Flexibility
Resourceful. Bootstrapping is a strategy that involves conserving money and cutting
costs during start-up so that entrepreneurs can pour every available dollar into their
businesses.
Willingness to work hard
Tenacity
Entrepreneurs are not of one mold; no one set of characteristics can predict who will
become entrepreneurs and whether they will succeed. Diversity seems to be a central
characteristic of entrepreneurs. Anyone can become an entrepreneur. It is a practical
discipline; it is a skill that most people can learn. (Refer to Figure 1.3)
Consider using You Be the Consultant: “Making the Most of an Opportunity,” or
You Be the Consultant: “Decoding the DNA of the Entrepreneur” at this point.

The Benefits of Entrepreneurship LO 3A

The primary benefits entrepreneurs enjoy include the:
Opportunity to Create Your Own Destiny
Opportunity to Make a Difference. Social entrepreneurs use their skills not only to
create profitable businesses, but also to achieve economic, social and environmental
goals for the common good.
Opportunity to Reach Your Full Potential
Opportunity to Reap Impressive Profits
Opportunity to Contribute to Society and Be Recognized for Your Efforts
Opportunity to Do What You Enjoy and Have Fun at It

The Potential Drawbacks of Entrepreneurship

LO 3B
With these potential rewards, entrepreneurship also presents risk and uncertainty.
Individuals who prefer the security of a steady paycheck, a comprehensive benefits
package, a two-week paid vacation, and the support of a corporate staff probably should
not go into business for themselves. Entrepreneurs may experience:

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Uncertainty of Income: The entrepreneur is the last one to be paid, as employees must
be paid first. While it is possible for an entrepreneur to earn more working for
themselves, their may end up earning less.
Risk of Losing Your Entire Investment
Long Hours and Hard Work
Lower Quality of Life Until the Business Gets Established
High Levels of Stress
Complete Responsibility
Discouragement

Behind the Boom: What’s Feeding the

Entrepreneurial Fire LO 4
Some of the most significant factors that have led to this age of entrepreneurship include:
 Entrepreneurs as heroes
 Entrepreneurial education
 Demographic factors. See Figure 1.4 for global entrepreneurial activity by age
group.
 Shift to a service economy
 Technology advancements
 Independent lifestyle
 Outsourcing
 The Internet, cloud computing, and mobile marketing. Cloud computing:
Internet-based subscription or pay-per-use software services that allow business
owners to use a variety of business applications, from database management and
inventory control to customer relationship management and accounting. (Refer to
Figure 1.5)
 International opportunities. Micromultinationals are small companies that
operate globally from their inception.

Consider using You Be the Consultant: “College: The Ideal Place to Launch a
Business” at this point.

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 The Cultural Diversity in Entrepreneurship LO 5
Entrepreneurs are found virtually every walk of life and include:
Young Entrepreneurs
Women Entrepreneurs. (Refer to Figure 1.6.)
Minority Enterprises. (Refer to Figure 1.7.)
Immigrant Entrepreneurs
Part-Time Entrepreneurs
Home-Based Businesses
Family Businesses. Family-owned business includes two or more members of a family
with financial control of the company.
Copreneurs. Copreneurs are entrepreneurial couples who work together as co-owners
of their businesses.
Corporate Castoffs
Encore Entrepreneurs
Retiring Baby Boomers. (Refer to Figure 1.8)

The Power of “Small” Business LO 6

Because big business is more visible than small business, most people underestimate the
role of the small firm in the U.S. economy. Approximately 99.7 percent of all businesses
in the United States are considered small. While there is no universal definition of what
constitutes a small business, a common delineation of a small business is one that
employs fewer than 100 people.
The majority of small companies are concentrated in the service, construction and retail
industries. (Refer to Figure 1.9)
Small companies account for 43 percent of total private payroll in the United States.
Small businesses actually create more jobs than do big businesses. Between 1993 and
2013 small companies created 63 percent of the net new jobs in the U.S. economy.
Gazelles are small companies that are growing at 20 percent or more per year with at
least $100,000 in annual sales; they create 70 percent of net new jobs in the economy.

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 Putting Failure into Perspective LO 7
Because of their limited resources, inexperienced management, and lack of financial
stability, small businesses suffer relatively high mortality rates. Two years after start-up,
21 percent of small companies have failed, and after five years, 51 percent have failed.
(Refer to Figure 1.10 below)

Entrepreneurs recognize that failure is likely to be part of their lives, but they are not
paralyzed by that fear. Failure is an inevitable part of being an entrepreneur, and true
entrepreneurs don’t quit when they fail. One hallmark of successful entrepreneurs is the
ability to fail intelligently, learning why they failed so that they can avoid making the
same mistake again. Success requires both persistence and resilience, the ability to
bounce back from failure.
The following material in this section is in addition to the text.
The Ten Deadly Mistakes of Entrepreneurship
Studies have indicated that there are common reasons for new business ventures to fail.
These causes of small business failure may include:
1. Management mistakes
2. Lack of experience
3. Poor financial control
4. Weak marketing efforts

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 5. Failure to develop a strategic plan
6. Uncontrolled growth
7. Poor location
8. Improper inventory control
9. Incorrect pricing
10. Inability to make the “entrepreneurial transition”

How to Avoid the Pitfalls LO 8

Ways to avoid becoming another failure statistic and gain insight into what makes a
successful business include:
Know Your Business in Depth
Build a Viable Business Model – and Test It
Use Lean Start-up Principles
Know When to Pivot
Develop a Solid Business Plan
Manage Financial Resources
Understand Financial Statements
Build the Right Team
Learn to Manage People Effectively
Set Your Business Apart from the Competition
Maintain a Positive Attitude

Developing Skills for Your Career

LO 9
The skill sets that are desired by employers that are a part of this book include:
Critical Thinking and Problem Solving
Written and Oral Communication
Teamwork and Collaboration

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Leadership
Creativity
Ethics and Social Responsibility

Conclusion
Entrepreneurs are a key part of America’s free enterprise system, and as we will
discover, are changing the business of the world as well. Their contributions are as many
and as diverse as the businesses themselves. There are steps that entrepreneurs can take to
enhance the probability of their success.
The remainder of this book will explore the steps to launch a successful business. This
course emphasizes establishing a clear understanding of the entrepreneurial environment
and using that information to build a sound business plan.

Part 3: Chapter Exercises

You Be the Consultant: Making the Most of an

Opportunity
1. What benefits do these entrepreneurs gain from owning their businesses? What
risks did these entrepreneurs take when they started their companies? (LO 3-A)
(AACSB: Reflective thinking)
The students should answer in two parts. First, they should mention the benefits of being
an entrepreneur. For example, some benefits both Sihah and Khaled gained were the
opportunity to create destiny, the chance to make a difference and contribute to society,
recognition, and praise.
Second, the students should mention the challenges/risks of entrepreneurship. For
example, since both these entrepreneurs are focussing on social objectives and trying to
bring changes to established norms and traditions in their societies, they are likely to face
challenges like high levels of stress, discouragement, and ridicule.
2. Explain how these entrepreneurs exhibit the entrepreneurial spirit. (LO 3-B)
(AACSB: Application of knowledge)
The answer should be linked to the content on the characteristics displayed by the
entrepreneurs. For example, the most important trait that makes an entrepreneur
successful, the ability to spot a busines opportunity from their everyday lives and the
lives of people around them. Both Sihah and Khaled get motivation from the problems

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faced by their friends and family. This also displays other important traits, such as the
desire for responsibility, confidence in their ability to succeed, and determination.
3. How do both Sihah and Khalid display entrepreneurial skills that do not only
focus on the profitability of the businesses but also on other goals? Explain your
answer. (LO 3-B) (AACSB: Application of knowledge)
The student should be able to look at other goals and objectives that can motivate
entrepreneurs – the concept of ‘Social entrepreneurs’; ‘Triple bottom-line.’

You Be the Consultant: Decoding the DNA of the

Entrepreneur
2. How do the characteristics at the model’s nucleus—opportunistic mindset and
tolerance of risk and failure—fit together in the entrepreneur’s mind? (LO 2)
(AACSB: Reflective thinking)
The internal locus of control describes an entrepreneur’s willingness to accept risk and
failure, blended with his or her ability to identify opportunities that others might miss.
Entrepreneurs understand that problems create opportunities for those who are prepared
to capitalize on them. Entrepreneurs recognize risks and the potential for failure, but
take steps to reduce risks by preparing themselves well.
4. Work with a team of your classmates to interview at least one entrepreneur.
Does he or she fit the model described here? Explain, giving specific examples
from your interview. (LO 2) (AACSB: Application of knowledge)
Expect students to discuss their entrepreneur’s attitudes about risk and failure, as well as
how the entrepreneur recognized the opportunity that paved the way for their business’
success. Ideally students will ask interview questions about the entrepreneur’s vision,
flexibility, customer focus, quality of products and services, leadership, passion for their
business, innovations, teamwork, and resilience in the face of adversity.

You Be the Consultant: “College: The Ideal Place to

Launch a Business”
1. One venture capitalist says that entrepreneurship can’t be taught in a regular
classroom any more than surfing can. His view is that students should get their
feet wet in the real world of entrepreneurship. What do you think? (LO 9)
(AACSB: Analytical thinking)

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While students may have different opinions on this, they should consider the following
point: by taking one or more entrepreneurship courses in college, students benefit from
what we already know about various aspects of entrepreneurship. They can eliminate
common mistakes that lead to failure, they can sound out their classmates and their
instructor on the viability of their business idea, and can identify venture team members
from among their classmates. Besides, most entrepreneurial programs these days include
many practical elements – pitch competitions, incubators – that combine classroom
learning with practical experience.
2. In addition to the normal obstacles of starting a business, what other barriers do
collegiate entrepreneurs face? (LO 4) (AACSB: Analytical thinking)
One of the most significant barriers college students face is their inexperience. The
learning curve these college students face may be challenging. In addition, their youth
may not be taken seriously when working with older business people and engaging in
business transactions. Securing financing may prove to be an example of this.
3. What advantages do collegiate entrepreneurs have when launching a business?
(LO 4) (AACSB: Analytical thinking)
Many young entrepreneurs are technically proficient, are energetic, have an intimate
understanding of their peer market, and may be highly creative in identifying market
needs and solutions. This group also brings a fresh viewpoint and an ability to see
beyond obstacles.
4. What advice would you offer a fellow college student who is about to start a
business? (LO 4) (AACSB: Reflective thinking)
Suggest students review the advice found in the “Hands On… How To” feature on page
36 and 37.
 Know your business in depth. Conduct thorough research and demonstrate an
understanding of the critical needs of the market and the business. Maintain a
positive attitude. Seek counsel from more experienced entrepreneurs.
 Build a viable business model and test it, and develop a solid business plan. Set
your business apart from the competition. Identify areas of need.
 Understand financial statements, and manage financial resources.
 Learn to manage people effectively.
 Take action to build credibility. Leverage resources to build understanding.
5. Work with a team of your classmates to develop ideas about what your college
or university could do to create a culture of entrepreneurship on your campus
or in your community. (AACSB: Analytical thinking)

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Encourage students to list ideas that may help to build entrepreneurial resources. This list
might include:
 Bring guest speakers to campus
 Create an entrepreneurial mentorship or internship programs
 Establish an entrepreneurship club
 Host a business plan, big idea, or business model competition
 Explore options to expand entrepreneurship courses offered

Part 4: Chapter Discussion Questions

1-1. What forces have led to the boom in entrepreneurship in the United States and
around the globe? (LO 4) (AACSB: Reflective thinking)
Forces that have influenced the U.S. entrepreneurial boom include:
 Entrepreneurs are regarded as heroes
 Entrepreneurship education is extremely popular
 Demographic and economic factors
 Shift to a service economy
 Technology advancements
 Independent lifestyle
 The Internet, cloud computing, and mobile marketing
 International opportunities
1-2. What is an entrepreneur? Give a brief description of the entrepreneurial
profile. (LO 2) (AACSB: Reflective thinking)
An entrepreneur is one who creates a new business in the face of risk and uncertainty for
the purpose of achieving profits and growth by identifying significant opportunities and
assembling the necessary resources to capitalize on them. The entrepreneur has a:
 Desire for responsibility
 Preference for moderate risk (risk eliminators)
 Self-reliance
 Confidence in their ability to succeed
 Determination

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  Desire for immediate feedback
 High level of energy
 Future orientation (serial entrepreneurs)
 Skill at organizing
 Value of achievement over money
In addition, other characteristics of an entrepreneurial profile include:
 High degree of commitment
 Tolerance for ambiguity
 Creativity
 Flexibility
 Resourceful
 Willingness to work hard
 Tenacity
1-3. Coming up with great business ideas may seem easy, but only a true
entrepreneur capitalizes on them to turn them into reality. Why are they considered
an important agent of change in this global economy? (AACSB: Analytical
thinking)
Entrepreneurs are important agents of change in the global economy because they
reinvigorate staid industries using fresh new business models that spot market
opportunities.
1-4. What are the major benefits of business ownership? (LO 3 A) (AACSB:
Reflective thinking)
Major benefits of business ownership include the opportunity to:
 Create your own destiny
 Make a difference
 Reach your full potential
 Reap impressive profits
 Contribute to society and be recognized for your efforts
 Do what you enjoy and have fun at it
1-5. Which of the potential drawbacks to business ownership are most crucial?
(LO 3 B) (AACSB: Reflective thinking)

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The most crucial drawbacks to business ownership may include the:
 Uncertainty of income
 Risk of losing your entire investment
 Long hours and hard work
 Lower quality of life until the business gets established
 High levels of stress
 Complete responsibility of the business
 Discouragement
1-6. Describe the small business failure rate. (LO 7) (AACSB: Reflective thinking)
Many small businesses have inexperienced management and lack financial stability.
These businesses suffer a mortality rate significantly higher than that of larger, more
established businesses because of managerial inexperience and the limited resources
available to support the business when it is in need of cash.
1-7. One hallmark of successful entrepreneurs is the ability to “fail intelligently.”
How can an entrepreneur do so? (AACSB: Reflective thinking)
Entrepreneurs can “fail intelligently” by learning why they failed so that they can avoid
making the same mistake again. Success requires both persistence and resilience, the
ability to bounce back from failure.
1-8. Identify the different types of entrepreneurs. (AACSB: Reflective thinking)
Young entrepreneurs, women entrepreneurs, minority enterprises, immigrant
entrepreneurs, part-time entrepreneurs, home-based businesses, family businesses,
copreneurs, corporate castoffs, encore entrepreneurs, and retiring baby boomers.
1-9. How can the small business owner avoid the common pitfalls that often lead to
business failures? (LO 8) (AACSB: Reflective thinking)
Ways to avoid becoming another failure statistic and gain insight into what makes a
successful business include:
 Know your business in depth
 Build a viable business model – and test it
 Develop a solid business plan
 Understand financial statements
 Manage financial resources
 Learn to manage people effectively

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  Set your business apart from the competition
 Maintain a positive attitude.
1-10. Assuming that they are aware of all the aspects of their business, how can
small business owners study a business in depth? (AACSB: Reflective thinking)
To study a business in depth, a small business owner needs to conduct thorough research
and demonstrate an understanding of the critical needs of the market and the business.
They also need to maintain a positive attitude and seek counsel from more experienced
entrepreneurs.
1-11. Who are serial entrepreneurs? (AACSB: Reflective thinking)
Serial entrepreneurs are entrepreneurs who repeatedly start businesses and grow them to
a sustainable size before striking out again.
1-12. How does cloud computing allow an entrepreneur to build their company
without incurring high overhead costs? (AACSB: Application of knowledge)
Cloud computing is an Internet-based subscription or pay-per-use software service that
allows business owners to use a variety of business applications, from database
management and inventory control to customer relationship management and accounting,
while eliminating the costs of maintaining them.
1-13. What might be one of the main reasons for youngsters to be involved in
business? (AACSB: Application of knowledge)
The top five reasons young people want to start their own businesses include the
opportunity to use their skills and abilities, building something for their future, being
their own bosses, earning lots of money, and seeing their ideas realized.
1-14. If one is planning to venture into business, what is the most crucial ingredient
in preparing for a successful business? (AACSB: Application of knowledge)
The answer may vary as it is based on opinion; however, for any entrepreneur, a well-
written business plan is a crucial ingredient in preparing for business success. Without a
sound business plan, a company merely drifts along without any real direction.

Part 5: Case Studies

The following text case complements lecture and assignments for the topics presented in
this chapter.
 Case 2: Bark & Co.

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Part 6: Online Videos and Podcasts
These online videos may enhance class discussion and provide additional insight for the
chapter topics. You may consider searching “entrepreneur,” “small business” along with
more specific topics.
 Eye to Eye: Richard Branson 7:10 minutes
[Link]
v=Q6hILGfbqSg&feature=PlayList&p=3BE9FC907D0E88E9&index=33
 Growing a Woman’s Security Biz 3:40 minutes
[Link]
 The Most Successful Small Business in the World 10:41 minutes
[Link]
 Fireworks Business Is ‘Booming’ for Santores Despite Recession 2:58 minutes
[Link]
 Richard Branson Advice to Entrepreneurs 4:03 minutes
[Link]
 Sunrise – Young Entrepreneurs Making Millions 4:35 minutes
[Link]
 Advice for Young Entrepreneurs: How to Be Taken Seriously 3:20 minutes
[Link]
 Mark Cuban’s 12 Rules for Start-Ups 2:18 minutes
[Link]
 Matt and Jessica Flannery – [Link] 8:01 minutes
[Link]

Links to additional online resources are available on the companion Web site at
[Link]/scarborough.

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