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116 PART 2 | Planning

6 chapter

Entrepreneurship

After studying Chapter 6, you will be able to

LO1 Describe why people become entrepreneurs and what it takes, personally.

LO2 Summarize how to assess opportunities to start new businesses.

LO3 Identify common causes of success and failure.

LO4 Discuss common management challenges.

LO5 Explain how to increase your chances of success, including good business planning.

LO6 Describe how managers of large companies can foster entrepreneurship.

Learning Objectives

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117

S ome extraordinary individuals have founded companies that have become famously successful: 1

• Bill Gates and Paul Allen started Microsoft.

• Oprah Winfrey founded Harpo Productions.

• Steve Jobs and Steve Wozniak created Apple Computer.

• Mary Kay Ash established Mary Kay.

• N. R. Narayana Murthy founded Infosys.

• Martha Stewart started Martha Stewart Living Omnimedia.

• Larry Page and Sergey Brin founded Google.

• Estée Lauder created her namesake company.

• Elon Musk founded Tesla Motors and Space X.

• Mark Zuckerberg started Facebook.

• Vera Wang founded her namesake firm.

services, publishing, and retail- ing. Today the Virgin empire has nearly 50,000 employees in 50 countries, and Branson has a mind-boggling net worth of more than $5 billion. In 1999 he was knighted by Queen Elizabeth. 5

Entrepreneurs differ from managers generally. An entre- preneur is a manager but engages in additional activities that not all managers do. 6 Traditionally, managers operate in a formal management hierarchy with well-defined authority and responsibility. In contrast, entrepre- neurs use networks of contacts more than formal authority. And although managers usually prefer to own assets, entrepreneurs often rent or use assets on a temporary basis. Some say that man- agers often are slower to act and tend to avoid risk, whereas entre- preneurs are quicker to act and actively manage risk.

An entrepreneur’s organization may be small, but it differs from a typical small business: 7

• A small business has fewer than 100 employees, is independently owned and operated, is not dominant in its field, and is not charac- terized by many innovative practices. Small business owners tend not to manage particularly aggressively, and they expect normal, moderate sales, profits, and growth.

entrepreneurship the process by which enterprising individuals initiate, manage, and assume the risks and rewards associated with a business venture

small business a business having fewer than 100 employees, independently owned and operated, not dominant in its field, and not characterized by many innovative practices

As they and countless others have demonstrated, great opportu- nity is available to talented people who are willing to work hard to achieve their dreams. Entrepreneurship occurs when an enter- prising individual pursues a lucrative opportunity under condi- tions of uncertainty. 2 To be an entrepreneur is to initiate and build an organization, rather than being only a passive part of one. 3 It involves creating new systems, resources, or processes to produce new goods or services and/or serve new markets. 4

Richard Branson is a perfect example. He seems to have busi- ness in his blood. He was only a teen when he started his first com- pany, a magazine called Student, in the mid-1960s. In 1970 Branson launched his next enterprise, the iconic Virgin Records, which generated his first fortune. Since then, Branson has built 300 other businesses, all under the Virgin umbrella: a space travel venture, a global airline, a mobile phone enterprise, and companies in financial

Engage your professors Even though you are extremely busy, you should find time to visit with your professors when you have questions about the reading material or a challenging assignment. Similarly, you should go to office hours within a few days of taking an exam to see what questions you missed. This is a good time to ask the professor’s advice regarding how to improve your studying strategy to make a higher grade on the next exam.

study tip 6

LISTEN & LEARN ONLINE

YOUNG MANAGERS

Speak Out! “ I encourage my employees to be entrepreneurial. To think. To be creative. I encourage them by asking the hard questions and making sure they have a solid plan going forward. ”

— Joe Gaspar , Bicycle Shop Owner/Manager

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118 PART 2 | Planning

• An entrepreneurial venture has growth and high profitability as its primary objectives. Entrepreneurs manage aggressively and develop innovative strategies, practices, and products. They and their financial backers usually seek rapid growth, immediate and high profits, and sometimes a quick sellout with large capital gains.

Entrepreneurship Excitement Consider these words from Jeffry Timmons, a leading entrepreneurship scholar and author: “During the past 30 years, America has unleashed the most revolutionary generation the nation has experienced since its founding in 1776. This new generation of entrepreneurs has altered permanently the economic and social structure of this nation and the world . . . . It will determine more than any other single impetus how the nation and the world will live, work, learn, and lead in this century and beyond.” 8

Overhype? Sounds like it could be, but it’s not. Entrepreneurship is transforming economies all over the world, and the global economy in general. In the United States since 1980, more than 95 percent of the wealth has been created by entrepreneurs. 9 It has been estimated that since World War II, small entrepreneurial firms have generated 95 percent of all radical innovation in the United States. The Small Business Administration has found that in states with more small busi- ness start-ups, statewide economies tend to grow faster and employment levels tend to be higher than in states with less entrepreneurship. 10 An estimated 20 million Americans are running a young business or actively trying to start one. 11

The self-employed love the entrepreneurial process, and they report the highest levels of pride, satisfaction, and income. Importantly, entrepreneurship is not about the privileged descendants of the Rockefellers and the Vanderbilts; instead it provides opportunity and upward mobility for anyone who performs well. 12