What Is an Entrepreneur?

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 of them never act on their ideas. Entrepreneurs do. The process of creative
destruction, in which entrepreneurs create new ideas and new businesses that make existing ones
obsolete, is a sign of a vibrant economy. Although this constant churn of businesses—some
rising, others sinking, and many failing—concerns some people, in reality it is an indication of a
healthy, growing, economic system that is creating new and better ways of serving people’s
needs and improving their quality of life and standard of living.
Researchers have invested a great deal of time and effort over the last few decades trying to paint
a clear picture of “the entrepreneurial personality.” Although these studies have identified
several characteristics entrepreneurs tend to exhibit, none of them has isolated a set of traits
required for success. We now turn to a brief summary of the entrepreneurial profile.
1. Desire for responsibility. Entrepreneurs feel a deep sense of personal responsibility for the
outcome of ventures they start. They prefer to be in control of their resources, and they use those
resources to achieve self-determined goals.
2. Preference for moderate risk. Entrepreneurs are not wild risk takers but are instead
calculating risk takers. A study of the founders of the businesses listed as Inc. magazine’s fastest-
growing companies found no correlation between risk tolerance and entrepreneurship. “The
belief that entrepreneurs are big risk takers just isn’t true,” says researcher and former Inc. 500
CEO Keith McFarland. Unlike “high-rolling, riverboat” gamblers, entrepreneurs rarely gamble.
Their goals may appear to be high—even impossible—in others’ eyes, but entrepreneurs see the
situation from a different perspective and believe that their goals are realistic and attainable.
They usually spot opportunities in areas that reflect their knowledge, backgrounds, and
experiences, which increase their probability of success.
One writer observes Entrepreneurship is not the same thing as throwing darts and hoping for the
best. It is about planning and taking calculated risks based upon knowledge of the market, the
available resources or products, and a predetermined measure of the potential for success.
In other words, successful entrepreneurs are not as much risk takers as they are risk eliminators,
removing as many obstacles to the successful launch of their ventures as possible. One of the
most successful ways of eliminating risks is to build a solid business plan for a venture.
3. Confidence in their ability to succeed. Entrepreneurs typically have an abundance of
confidence in their ability to succeed. They tend to be optimistic about their chances for success.
In a recent National Small Business Poll, the National Federation of Independent Businesses
(NFIB) found that business owners rated the success of their companies quite high—an average
of 7.3 on a scale of 1 (a total failure) to 10 (an extreme success). This high level of optimism
may explain why some of the most successful entrepreneurs have failed in business—often more
than once—before finally succeeding. “I don’t believe in luck,” says Kerri Evans, owner of a
mobile pet grooming business. “I believe in myself.”
4. Desire for immediate feedback. Entrepreneurs enjoy the challenge of running a business, and
they like to know how they are doing and are constantly looking for feedback. “I love being an
entrepreneur,” says Nick Gleason, co-founder of CitySoft Inc., a Web-page design firm based in
Cambridge, Massachusetts. “There’s something about the sheer creativity and challenge of it that
I like.”
5. High level of energy. Entrepreneurs are more energetic than the average person. That energy
may be a critical factor, given the incredible effort required to launch a start-up company. Long
hours and hard work are the rule rather than the exception, and the pace can be grueling.
When Colin Angle and Helen Greiner, MIT graduates whose joint interest in robotics brought
them together, formed a business venture, iRobot, they and their six employees routinely spent
18 hours a day creating software and assembling prototype robots. Their hard work paid off;
their company has become the leader in the field of robotics. iRobot has developed a multitude
of robots for a wide variety of market segments, ranging from My Real Baby (“an interactive,
robotic, artificially-intelligent, emotionally responsive baby doll”) for kids and Roomba (an
automatic vacuum cleaner) for busy homeowners to the MicroRig (a device that takes sensors to
the bottom of oil wells) for industry and Ariel (a robot capable of removing obstacles on land
and underwater) for the military.
6. Future orientation. Entrepreneurs have a well-defined sense of searching for opportunities.
They look ahead and are less concerned with what they did yesterday than with what they might
do tomorrow. Not satisfied to sit back and revel in their success, real entrepreneurs stay focused
on the future.
Tom Stemberg, founder of the Staples office supply chain, went on to start Zoots, a 54-store dry
cleaning chain (he came up with the idea after a dry cleaners lost one of his Brooks Brothers
dress shirts), and Olly Shoes, a small chain of children’s shoe stores (he came up with the idea
after a frustrating experience shopping for shoes for his four boys).
Entrepreneurs see potential where most people see only problems or nothing at all, a
characteristic that often makes them the objects of ridicule (at least until their ideas become huge
successes). Whereas traditional managers are concerned with managing available resources,
entrepreneurs are more interested in spotting and capitalizing on opportunities. The United States
leads the world in the percentage of opportunity entrepreneurs, those who start businesses
because they spot an opportunity in the marketplace, compared to necessity entrepreneurs, those
who start businesses because they cannot find work any other way.
Serial entrepreneurs, those who repeatedly start businesses and grow them to a sustainable size
before striking out again, push this characteristic to the maximum.
The majority of serial entrepreneurs are leap froggers, people who start a company, manage its
growth until they get bored, and then sell it to start another. A few are jugglers (or parallel
entrepreneurs), people who start and manage several companies at once.
Ron Berger is a classic leapfrogging serial entrepreneur, having started five companies, one right
after the other. Berger’s business ventures include a camera retailer that grew to 54 stores before
it folded, a company that managed the system by which video stores pay fees to movie studios,
and his current business, Figaro’s, a take-and-bake pizza restaurant that generates more than $24
million a year in sales.
It’s almost as if serial entrepreneurs are addicted to launching businesses. “Starting a company is
a very imaginative, innovative, energy-driven, fun process,” says Dick Kouri, who has started 12
companies in his career and now teaches entrepreneurship at the University of North Carolina.
“Serial entrepreneurs can’t wait to do it again.”
7. Skill at organizing. Building a company “from scratch” is much like piecing together a giant
jigsaw puzzle. Entrepreneurs know how to put the right people together to accomplish a
task.Effectively combining people and jobs enables entrepreneurs to transform their visions into
reality.
8. Value of achievement over money. One of the most common misconceptions about
entrepreneurs is that they are driven wholly by the desire to make money. To the contrary,
achievement seems to be entrepreneurs’ primary motivating force; money is simply a way of
“keeping score” of accomplishments—a symbol of achievement. One business researcher says,
“What keeps the entrepreneur moving forward is more complex—and more profound—than
mere cash. It’s about running your own show. It’s about doing what is virtually impossible.”
9. High degree of commitment. Entrepreneurship is hard work, and launching a company
successfully requires total commitment from an entrepreneur. Business founders often immerse
themselves completely in their companies. Most entrepreneurs have to overcome seemingly
insurmountable barriers to launch a company and to keep it growing. That requires commitment.
10. Tolerance for ambiguity. Entrepreneurs tend to have a high tolerance for ambiguous, ever-
changing situations, the environment in which they most often operate. This ability to handle
uncertainty is critical because these business builders constantly make decisions using new,
sometimes conflicting information gleaned from a variety of unfamiliar sources. Based on his
research, entrepreneurial expert Amar Bhidé says that entrepreneurs exhibit “a willingness to
jump into things when it’s hard to even imagine what the possible set of outcomes will be.”19
11. Flexibility. One hallmark of true entrepreneurs is their ability to adapt to the changing
demands of their customers and their businesses. In this rapidly changing global economy,
rigidity often leads to failure. As our society, its people, and their tastes change, entrepreneurs
also must be willing to adapt their businesses to meet those changes. When their ideas fail to live
up to their expectations, successful entrepreneurs change them!
In 1917, Ed Cox invented a pre-soaped steel-wool scouring pad that was ideal for cleaning pots
and used it as a “calling card” in his sales calls. Although his efforts at selling pots proved futile,
Cox noticed how often his prospects asked for the soap pads. He quickly forgot about selling
pots and shifted his focus to selling the scouring pads, which his wife had named S.O.S. (“Save
Our Saucepans”), and went on to start a business that still thrives
12. Tenacity. Obstacles, obstructions, and defeat typically do not dissuade entrepreneurs from
doggedly pursuing their visions. They simply keep trying.
Shawn Fanning, who unleashed the downloaded digital music wars when he created
Napster, a program that allowed users to download songs over the Internet without paying for
them, lost the legal battle to keep his company going in 2002 over copyright infringement. One
week after Napster closed, Fanning began planning his next entrepreneurial venture, a company
called Snocap that works with major companies in the recording industry to operate a music file-
sharing database that allows authorized users to download legally the songs for which they have
paid.
What conclusion can we draw from the volumes of research conducted on the entrepreneurial
personality? Entrepreneurs are not of one mold; no one set of characteristics can predict who will
become entrepreneurs and whether or not they will succeed. Indeed, diversity seems to be a
central characteristic of entrepreneurs. One researcher of the entrepreneurial personality explains,
“Entrepreneurs don’t fit any statistical norm . . . . Most are aberrant or a bit odd by nature.”22
Entrepreneurs tend to be nonconformists, a characteristic that seems to be central to their views
of the world and to their success.
As you can see from the examples in this chapter, anyone, regardless of age, race, gender, color,
national origin, or any other characteristic, can become an entrepreneur (although not everyone
should). There are no limitations on this form of economic expression.
Entrepreneurship is not a mystery; it is a practical discipline. Entrepreneurship is not a genetic
trait; it is a skill that most people can learn. The editors of Inc. magazine claim,
“Entrepreneurship is more mundane than it’s sometimes portrayed. . . . You don’t need to be a
person of mythical proportions to be very, very successful in building a company.”

The Benefits of Entrepreneurship

Surveys show that owners of small businesses believe they work harder, earn more money, and
are more satisfied than if they worked for someone else. Indeed, a study by the Gallup
Organization found that 86 percent of small business owners would choose to own their own
companies if they had it to do all over. Before launching any business venture, every potential
entrepreneur should consider the benefits of small business ownership.
1. Opportunity to Create Your Own Destiny Owning a business provides
entrepreneurs the independence and the opportunity to achieve what is important to them.
 Entrepreneurs want to “call the shots” in their lives, and they use their businesses to make
that desire a reality. After spending years in the construction business, Doug Danforth
decided to pursue his dream of opening a flower shop in his hometown of Green Bay,
Wisconsin. “I had managed two floral shops years before I went into the construction
business, and I liked it a lot,” he says. Danforth scraped together $900 of his own money,
convinced family members to put up a small amount of cash, and launched his shop,
which he has built into a thriving business. “I wanted to control my own destiny,” he
says. “I knew I wanted to be my own boss.”
Like Doug Danforth, entrepreneurs reap the intrinsic rewards of knowing they are the driving
forces behind their businesses.
2. Opportunity to Make a Difference
Increasingly, entrepreneurs are starting businesses because they see an opportunity to make a
difference in a cause that is important to them. Whether it is providing low-cost, sturdy housing
for families in developing countries or establishing a recycling program to preserve Earth’s
limited resources, entrepreneurs are finding ways to combine their concerns for social issues and
their desire to earn a good living.
Concerned about protecting the environment, gardening enthusiast Lars Hundley launched a
Web-based company, CleanAirGardening.com, which sells environmentally friendly lawn care
and gardening products, from a spare room in his apartment. Hundley, who now operates his
business from an office in his three-bedroom home, is constantly adding new products to the
Web site, which also includes a comprehensive list of links that teach visitors about
environmentally safe gardening and lawn care. Based on the responses from his growing list of
customers, “I think I am certainly making a difference,” says Hundley.
3. Opportunity to Reach Your Full Potential
Too many people find their work boring, unchallenging, and unexciting. But not entrepreneurs!
To them, there is little difference between work and play; the two are synonymous.
Entrepreneurs’ businesses become their instruments for self-expression and self-actualization.
They know that the only boundaries on their success are those imposed by their own creativity,
enthusiasm, and vision. Owning a business gives them a sense of empowerment.
Barbie Dallman, who left the security (and the hassles) of corporate life at age 30 to start a
résumé service, says, “Starting my own business was a spiritual awakening. I found out what was
important to me—being able to follow my own interests.”
4. Opportunity to Reap Impressive Profits
Although money is not the primary force driving most entrepreneurs, the profits their businesses
can earn are an important motivating factor in their decisions to launch companies. Most
entrepreneurs never become super-rich, but many of them do become quite wealthy. In fact,
nearly 75 percent of those on the Forbes list of the 400 richest Americans are first generation
entrepreneurs! According to research by Thomas Stanley and William Danko, self-employed
business owners make up two-thirds of American millionaires. “Self employed people are four
times more likely to be millionaires than people who work for others,” says Danko. The typical
millionaire’s business is not a glamorous, high-tech enterprise; more often, it is something much
less glamorous—scrap metal, welding, auctioneering, garbage collection, and the like.
When Sam Walton launched Wal-Mart near his hometown of Bentonville, Arkansas, reaching
the list of the wealthiest people in the United States wasn’t even imaginable to him. Walton died
in 1992, and his family business has grown into the largest company in the world; the 39 percent
of Wal-Mart stock that the Walton family controls is worth $90 billion (an amount equivalent to
the Gross Domestic Product of Singapore!), making them the richest family in the United States.
5. Opportunity to Contribute to Society and Be Recognized for Your
Efforts
Often, small business owners are among the most respected and most trusted members of their
communities. Business deals based on trust and mutual respect are the hallmark of many
established small companies. These owners enjoy the trust and recognition they receive from the
customers they have served faithfully over the years. A study by the National Federation of
Independent Businesses found that 78 percent of Americans believe that small business exerts a
positive influence on the country’s direction, a ranking exceeded only by science and technology
Playing a vital role in their local business systems and knowing that their work has a significant
impact on how smoothly our nation’s economy functions is yet another reward for small business
managers. One survey reports that 72 percent of business owners say that what they enjoy most
about being a business owner is contributing to the local community.
 6. Opportunity to Do What You Enjoy and Have Fun at It
A common sentiment among small business owners is that their work really isn’t work.
Most successful entrepreneurs choose to enter their particular business fields because they have
an interest in them and enjoy those lines of work. They have made their avocations (hobbies)
their vocations (work) and are glad they did. These entrepreneurs are living Harvey McKay’s
advice: “Find a job doing what you love, and you’ll never have to work a day in your life.” The
journey rather than the destination is the entrepreneur’s greatest reward
“Starting a company is very hard to do,” says entrepreneur and small business researcher
David Birch. “The risks are enormous; the anxiety is enormous. The only business you should
start is one in which you have a huge interest, or else you won’t have the persistence to stick with
it. Get into [a business] because you’re fanatically interested in it.”.
In 1996, twins Izzy and Coco Tihanyi decided to quit their desk jobs to transform their passion
for surfing into a business venture. The Tihanyi sisters took $328 in savings and Izzy’s surfboard
collection and launched Surf Diva, a school that teaches women to surf. Since then, thousands of
women, including the actress Minnie Driver, have learned the finer points of surfing at one of
Surf Diva’s three locations in California. In addition to the surfing school, the Tihanyis also sell
surf boards and apparel under the Surf Diva brand through a company owned boutique and 50
retailers in the United States, Japan, and England. Company headquarters in La Jolla is less than
a block away from the beach, but the sisters’ work seems more like play to them. “A big problem
is keeping the office chairs dry,” says Izzy. “We just put towels on them, but maybe we should
buy vinyl chairs or something.
Not only have the Tihanyi twins found a way to make a living, but what is more important, they
are doing something they love!
The Potential Drawbacks of Entrepreneurship

Although owning a business has many benefits and provides many opportunities, anyone
planning to enter the world of entrepreneurship should be aware of its potential
drawbacks. 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. Some of the disadvantages of entrepreneurship
include the following:
 1. Uncertainty of Income
Opening and running a business provides no guarantee that an entrepreneur will earn
enough money to survive. Some small businesses barely earn enough to provide the owner-
manager with an adequate income. In a business’s early days the owner often has trouble
meeting financial obligations and may have to live on savings. The steady income that
comes with working for someone else is absent. The owner is always the last one to be
paid. One California couple left their corporate jobs that together brought in $120,000 a
year to start a small vineyard; their combined income in their first year of business:
$30,000.
2. Risk of Losing Your Entire Investment
The small business failure rate is relatively high. According to recent research, 35 percent
of new businesses fail within two years, and 54 percent shut down within four years.
Within six years, 64 percent of new businesses will have folded. Studies also show that
when a company creates at least one job in its early years, the probability of failure after six
years plummets to 35 percent
Before “reaching for the golden ring,” entrepreneurs should ask themselves if they can cope
psychologically with the consequences of failure:
-What is the worst that could happen if I open my business and it fails?
- How likely is the worst to happen? (Am I truly prepared to launch my business?)
- What can I do to lower the risk of my business failing?
- If my business were to fail, what is my contingency plan for coping?

3. Long Hours and Hard Work

Business start-ups often demand that owners keep nightmarish schedules. According to a
recent Dun & Bradstreet survey, 65 percent of entrepreneurs devote more than 40 hours
per week to their companies. In many start-ups, six- or seven-day workweeks with no paid
vacations are the norm. In fact, one study by American Express found that 29 percent of
small business owners had no plans to take a summer vacation. The primary reason? “Too
busy.” These owners feel the pressure because they know that when the business closes,
the revenue stops coming in, and customers go elsewhere. “You must have stamina to see it
through,” says Chantelle Ludski, founder of London-based fresh!, an organic food company.
“I put in many 16-hour workdays. Holidays and time off are things that go out the window!”
4. Lower Quality of Life until the Business Gets Established
The long hours and hard work needed to launch a company can take their toll on the other
aspects of the entrepreneur’s life. Business owners often find that their roles as husbands
or wives and fathers or mothers take a back seat to their roles as company founders. Holly
Dunlap, a 32-year-old designer of women’s shoes, handbags, and party dresses that she
sells through Hollywood, the boutique she founded with locations in New York City and
Palm Beach, Florida, admits that she is married to her business. Her 14-hour workdays
leave little time for lunch most days or for a quiet evening with friends. “As my mother has
pointed out,” she says, “businesses do not produce grandchildren.” Part of the problem
is that half of all entrepreneurs launch their businesses between the ages of 25 and 39
years, just when they start their families (see Figure 1.3). As a result, marriages, families,
and friendships are too often casualties of small business ownership. “The traits that make
you a successful entrepreneur are not the things you can turn off when you walk in the
door at home,” says one entrepreneurial researcher, describing how owning a business
often conflicts with one’s family and social life.
5. High Levels of Stress
Starting and managing a business can be an incredibly rewarding experience, but it also can
be a highly stressful one. Entrepreneurs often have made significant investments in their
companies, have left behind the safety and security of a steady paycheck, and have
mortgaged everything they own to get into business. Failure may mean total financial ruin,
and that creates intense levels of stress and anxiety. Sometimes entrepreneurs
unnecessarily bear the burden of managing alone because they cannot bring themselves to
delegate authority and responsibility to others in the company, even though their
employees are capable.
6. Complete Responsibility
It’s great to be the boss, but many entrepreneurs find that they must make decisions on
issues about which they are not really knowledgeable. Many business owners have
difficulty finding advisors. A recent national small business poll conducted by the National
Federation of Independent Businesses found that 34 percent of business owners have no
one person to turn to for help when making a critical business decision.41When there is no one
to ask, the pressure can build quickly. The realization that the decisions they make are the
cause of success or failure has a devastating effect on some people. Small business owners
discover quickly that they are the business.
7. Discouragement
Launching a business is a substantial undertaking that requires a great deal of dedication,
discipline, and tenacity. Along the way to building a successful business, entrepreneurs will
run headlong into many different obstacles, some of which appear to be insurmountable.
In the face of such difficulties, discouragement and disillusionment are common emotions.
Successful entrepreneurs know that every business encounters rough spots along the way,
and they wade through difficult times with lots of hard work and an abundant reserve of
optimism.

Q. Explain the forces that are driving the growth of entrepreneurship

Behind the Boom: What’s Feeding the Entrepreneurial Fire

What forces are driving this entrepreneurial trend in our economy? Which factors have led to
this age of entrepreneurship? Some of the most significant ones include the following:

1. Entrepreneurs as heroes.

An intangible but very important factor is the attitude that Americans have toward
entrepreneurs. As a nation we have raised them to hero status and have held out their
accomplishments as models to follow. Business founders such as Bill Gates (Microsoft
Corporation), Mary Kay Ash (Mary Kay Cosmetics), Jeff Bezos (Amazon.com), Michael Dell (Dell
Computer Corporation), and Ben Cohen and Jerry Greenfield (Ben & Jerry’s Homemade Inc.) are
to entrepreneurship what Tiger Woods and Kevin Garnett are to sports.

2. Entrepreneurial education.

Colleges and universities have discovered that entrepreneurship is an extremely popular course
of study. Disillusioned with corporate America’s downsized job offerings and less promising
career paths, a rapidly growing number of students sees owning a business as an attractive
career option. Today more than 2,100 colleges and universities offer courses in
entrepreneurship and small business to some 200,000 students. Many colleges and universities
have difficulty meeting the demand for courses in entrepreneurship and small business.

3. Demographic and economic factors.

Nearly two-thirds of entrepreneurs start their businesses between the ages of 25 and 44 years,
and much of our nation’s population falls into that age range. In addition, the economic growth
that spanned most of the 1980s and 1990s created a significant amount of wealth among
people of this age group and many business opportunities on which they can capitalize.

4. Shift to a service economy.

The service sector produces 80 percent of the jobs and 64 percent of the Gross Domestic
Product (GDP) in the United States, which represents a sharp rise from just a decade ago.
Because of their relatively low start-up costs, service businesses have become very popular
among entrepreneurs. The booming service sector continues to provide many business
opportunities, and not all of them are in high tech fields,

5. Technological advances.

With the help of modern business machines such as personal computers, laptop computers, fax
machines, copiers, color printers, answering machines, and voice mail, even one person
working at home can look like a big business. At one time, the high cost of such technological
wizardry made it impossible for small businesses to compete with larger companies that could
afford the hardware.

Today, however, powerful computers and communication equipment are priced within the
budgets of even the smallest businesses. Although entrepreneurs may not be able to
manufacture heavy equipment in their spare bedrooms, they can run a service- or information-
based company from their homes very effectively and look like any Fortune 500 company to
customers and clients.
 6. Independent lifestyle.

Entrepreneurship fits the way Americans want to live—independent and self-sustaining. People
want the freedom to choose where they live, the hours they work, and what they do. Although
financial security remains an important goal for most entrepreneurs, many place top priority on
lifestyle issues such as more time with family and friends, more leisure time, and more control
over work-related stress.

7. e-Commerce and the World Wide Web.

The proliferation of the World Wide Web, the vast network that links computers around the
globe via the Internet and opens up oceans of information to its users, has spawned thousands
of entrepreneurial ventures since its beginning in 1993. Online commerce is growing rapidly
(see Figure1.4), creating many opportunities for Web-savvy entrepreneurs. Travel services,
computer hardware and software, books, music, videos, and consumer electronics are among
the best-selling items on the Web, but entrepreneurs are learning that they can use this
powerful tool to sell just about anything! Approximately 57 percent of small businesses use the
Internet for business-related purposes, and 70 percent have Web sites. Those that do have
Web sites reap benefits quickly. The most commonly cited benefit of launching a Web site is
additional customers; in fact, after launching a site, 41 percent of small companies reported an
increase in sales. Fifty-five percent- of small companies with Web sites report that their sites
are either breaking even or are earning a profit. These “netpreneurs” are using their Web sites
to connect with their existing customers and, ultimately, to attract new ones. “Small businesses
that use the Web to market their products and services out- perform those that don’t,” says an
executive at Verizon, which sponsors an annual small business Internet survey. “The promise of
the Internet is starting to pay off.

8. International opportunities.

No longer are small businesses limited to pursuing customers within their own national
borders. The shift to a global economy has opened the door to tremendous business
opportunities for entrepreneurs willing to reach across the globe. Although the United States is
 an attractive market for entrepreneurs, approximately 95 percent of the world’s population
lives outside its borders. World- altering changes such as the crumbling of the Berlin Wall, the
collapse of Communism, and the breaking down of trade barriers through trade agreements
have changed the world order and have opened more of the world market to entrepreneurs.
Today, small businesses can have a global scope from their inception. Small companies
comprise 97 percent of all businesses engaged in exporting, yet they account for only 30
percent of the nation’s export sales. Most small companies do not take advantage of export
opportunities, often because their owners don’t know how or where to start an export
initiative. Although terrorism and global recessions have slowed the growth of international
trade somewhat, global opportunities for small businesses have a long-term positive outlook.

Although going global can be fraught with dangers and problems, many entrepreneurs
are discovering that selling their products and services in foreign markets is really not so
difficult. Small companies that have expanded successfully into foreign markets tend to rely on
the following strategies:

 Researching foreign markets thoroughly.

 Focusing on a single country initially.
 Utilizing government resources designed to help small companies establish an
international presence.
 Forging alliances with local partners.

The Cultural Diversity of Entrepreneurship

As we have seen, virtually anyone has the potential to become an entrepreneur. Indeed, of
entrepreneurship, Diversity is a hallmark of entrepreneurship. We now explore the diverse mix
of people who make up the rich fabric of entrepreneurship.

1.Young Entrepreneurs

Young people are setting the pace in starting businesses. Disenchanted with their prospects in
corporate America and willing to take a chance at controlling their own destinies, scores of
young people are choosing entrepreneurship as their primary career path. A study by Babson
 College found that members of Generation X (people born between 1965 and 1981) are three
times more likely than those in other age groups to launch businesses. Members of this
generation are responsible for about 80 percent of all business start-ups, making Generation X
the most entrepreneurial generation in history!
There is no slow down in sight as this generation flexes its entrepreneurial muscle. “Generation
X” might be more appropriately called “Generation E.” Even teenagers and those in their early
20s (the Millennium Generation, born after 1982), show high levels of interest in
entrepreneurship. Young entrepreneur camps are popping up all around the country to teach
youthful business-building “wannabes” how to launch and run a business, and many of them
are fulfilling their dreams. When she was just a sophomore in high school, Natalie Morris
created a line of custom-made purses and handbags. Morris, who sells her stylish purses and
bags at salons and boutiques across upstate South Carolina, recently received the South
Carolina Young Entrepreneur of the Year Award from Merrill Lynch. Because of young people
such as Morris, the future of entrepreneurship looks very bright.

2.Women Entrepreneurs
Despite years of legislative effort, women still face discrimination in the work force. However,
small business has been a leader in offering women opportunities for economic expression
through employment and entrepreneurship. Increasing numbers of women are discovering that
the best way to break the “glass ceiling” that prevents them from rising to the top of many
organizations is to start their own companies. In fact, women are opening businesses at a rate
about twice that of the national average. Women entrepreneurs have even broken through the
comic strip barrier. Blondie Bumstead, long a typical suburban housewife married to Dagwood,
now owns her own catering business with her best friend and neighbor Tootsie Woodley.
Although about 69 percent of women-owned businesses are concentrated in retailing and
services (as are most businesses), female entrepreneurs are branching out rapidly into
previously male-dominated industries. According to the Center for Women’s Business
Research, the fastest-growing industries for women-owned companies are construction,
transportation, communications, utilities, and agribusiness.

Although the businesses women start tend to be smaller than and require half as much start-up
capital as those men start, their impact is anything but small. The nearly 11 million women-
 owned companies in the United States employ more than 19.1 million workers and generate
sales of more than $2.5 trillion a year! Women now own about 48% of all privately held
businesses in the United States.
Although their businesses tend to grow more slowly than those owned by men, women-owned
businesses have a higher survival rate than U.S. businesses overall. Female entrepreneurs today
are more likely than ever to be highly educated and to have managerial experience in the
industries in which they start their companies. Cordia Harrington, a former real estate agent,
wanted more control over her work hours and decided to open a McDonald’s franchise. This
single mother of three children was very successful and went on to own three McDonald’s
restaurants. While serving on a supplier audit committee for McDonald’s, Harrington saw a
business opportunity when she realized that the franchiser’s two suppliers of hamburger buns
could not keep up with demand. She sold her McDonald’s franchises and built the world’s most
automated bakery, the Tennessee Bun Company (TBC), which is capable of turning out 60,000
buns an hour. Four years and 30 interviews later, Harrington finally convinced McDonald’s to
become a customer. Today, McDonald’s is her largest customer, and TBC supplies buns and
muffins to more than 600McDonald’s restaurants in the southeastern United States. As TBC’s
customer list expanded to include other large restaurant chains, Harrington saw the chance to
launch a trucking business called Bun Lady Transport to speed the delivery of her baked
products.

3.Minority Entrepreneurs

Another rapidly growing segment of the small business population is minority-owned

businesses. Hispanics, Asians, and African Americans, are the minority groups most likely to
become entrepreneurs, and minority entrepreneurs are launching businesses at a rate that is 1.5
times the national average. Like women, minorities cite discrimination as a principal reason for
their limited access to the world of entrepreneurship. Minority owned businesses have come a
long way in the last decade, however, and their success rate is climbing. After launching Roc-
A-Fella Records with rapper Jay-Z and Kareem “Biggs” Burke, entrepreneur Damon Dash
launched several other business ventures including film making, an urban lifestyle magazine,
watches, a line of MP3 players, and a clothing line called Rocawear, which alone generates
$350 million in annual sales for Dash Ventures. “Don’t accept ‘no’ for an answer,” Dash
 advises other entrepreneurs. “No one wanted to give me an opportunity, so I had to do it my
own way.” A study by the Small Business Administration reported that minorities now own 15
percent of all businesses.
Minority-owned businesses generate $591 billion in annual revenues and employ more than
4.51 million workers with a payroll of more than $96 billion. The future is promising for this
new generation of minority entrepreneurs, who are better educated, have more business
experience, and are better prepared for business ownership than their predecessors.

4.Immigrant Entrepreneurs

The United States has always been a melting pot of diverse cultures, and many immigrants
have been drawn to this nation by its promise of economic freedom. Unlike the unskilled
“huddled masses” of the past, today’s immigrants arrive with more education and experience.
Although many of them come to the United States with few assets, their dedication and desire
to succeed enable them to achieve their entrepreneurial dreams.
After emigrating from Ukraine, Dr. Alexander Krilov became the business manager for Los
Angeles Lakers basketball star Stanislav Medvedenko. That experience gave Krilov and his
wife, Julia Butler, the idea to take traditional Russian nested dolls and put the images of famous
National Basketball Association (NBA) players on them. Getting approval from the New
crafters Nesting NBA took time, but Krilov and Butler persevered and won the rights to create
nested dolls. Dolls with portrait-quality images of many NBA stars. Since then, their company,
New crafters Nesting Dolls, has forged similar deals with Major League Baseball and the
National Hockey League as well as Elvis Presley and I Love Lucy properties and generates
more than $1 million in annual sales.

5.Part-Time Entrepreneurs

Starting a part-time business is a popular gateway to entrepreneurship. Part-time entrepreneurs

have the best of both worlds: They can ease into business for themselves without sacrificing the
security of a steady paycheck and benefits. Approximately 15 million Americans are self-
employed part-time. A major advantage of going into business part time is the lower risk in
case the venture flops. Many part-timers are “testing the entrepreneurial waters” to see whether
 their business ideas will work, whether there is sufficient demand for their products and
services, and whether they enjoy being self-employed. As they grow, many part-time
enterprises absorb more of the entrepreneur’s time until they become full-time businesses.
Joe Carmen decided to keep his job at a technology firm when he started his online guitar string
company, String This! Inc. Carmen created a Web site and filled customer orders in the
evenings and on weekends. Two years after start-up, however, Carmen transformed his
business into a full-time venture when his company downsized and he was laid off.

6.Home-Based Businesses

Home-based businesses are booming! Fifty-three percent of all businesses are home based, but
about 91 percent of them are very small with no employees other than the principal. Several
factors make the home the first-choice location for many entrepreneurs:
Operating a business from home keeps start-up and operating costs to a minimum. Home-based
companies allow owners to maintain a flexible lifestyle and work style. Many home-based
entrepreneurs relish being part of the “open-collar workforce.” Technology, which is
transforming many ordinary homes into “electronic cottages,” allows entrepreneurs to run a
wide variety of businesses from their homes. Many entrepreneurs use the Internet to operate e-
commerce businesses from their homes that literally span the globe.
In the past, home-based businesses tended to be rather unexciting cottage industries such as
crafts or sewing. Today’s home-based businesses are more diverse; modern home based
entrepreneurs are more likely to be running high-tech or service companies with millions of
dollars in sales. The average home-based entrepreneur works 61 hours a week and earns an
income of $63,000.
Studies by Link Resources Corporation, a research and consulting firm, suggest that the success
rate for home-based businesses is high: 85 percent of such businesses are still in operation after
three years.

7.Family Businesses

A family-owned business is one that includes two or more members of a family with financial
control of the company. Family businesses are an integral part of our economy. Of the 25
 million businesses in the United States, 90 percent are family-owned and managed. These
companies account for 60 percent of total U.S. employment and 78 percent of all new jobs, pay
65 percent of all wages, and generate 50 percent of the nation’s GDP. Not all of them are small;
37 percent of the Fortune 500 companies are family businesses.
“When it works right,” says one writer, “nothing succeeds like a family firm. The roots run
deep, embedded in family values. The flash of the fast buck is replaced with long-term plans.
Tradition counts.” Despite their magnitude, family businesses face a major threat, a threat from
within: management succession. Only 30 percent of family businesses survive to the second
generation, just 12 percent make it to the third generation, and only 3
percent survive into the fourth generation and beyond. Business periodicals are full of stories
describing bitter disputes among family members that have crippled or destroyed once-thriving
businesses. To avoid such senseless destruction of valuable assets, founders of family
businesses should develop plans for management succession long before retirement looms
before them.

8.Copreneurs

“Copreneurs” are entrepreneurial couples who work together as co-owners of their businesses.
Unlike the traditional “Mom and Pop” team (Pop as “boss” and Mom as “subordinate”),
Copreneurs “are creating a division of labor that is based on expertise as opposed to gender,”
says one expert.
Studies show that companies co-owned by spouses represent one of the fastest-growing
business sectors.
Managing a small business with a spouse may appear to be a recipe for divorce, but most
copreneurs say otherwise. “There is nothing more exciting than nurturing a business and
watching it grow with someone you love,” says Marcia Sherrill, who, with her husband,
William Kleinberg, runs Kleinberg Sherrill, a leather goods and accessories business.
Successful copreneurs learn to build the foundation for a successful working relationship before
they ever launch their companies. Some of the characteristics they rely on include the
following:

 An assessment of whether their personalities will mesh—or conflict—in a business setting.

 Mutual respect for each other and one another’s talents.
 Compatible business and life goals—a common vision.
 A view that they are full and equal partners, not a superior and a subordinate.
 Complementary business skills that each acknowledges and appreciates and that lead to a unique
business identity for each spouse.
 The ability to keep lines of communication open, talking and listening to each other about
personal as well as business issues.
 A clear division of roles and authority, ideally based on each partner’s skills and abilities, to
minimize conflict and power struggles.
 The ability to encourage each other and to lift up a disillusioned partner.
 Separate workspaces that allow them to escape when the need arises.
 Boundaries between their business life and their personal life so that one doesn’t consume the
other.
 A sense of humor.
 The realization that not every couple can work together.

Although copreneuring isn’t for everyone, it works extremely well for many couples and often
leads to successful businesses. “Both spouses are working for a common purpose but also
focusing on their unique talents,” says a family business counselor. “With all these skills put
together, one plus one equals more than two.”

9. Corporate Castoffs

Concentrating on shedding the excess bulk that took away their flexibility and speed, many
large American corporations have been downsizing in an attempt to regain their competitive
edge. For decades, one major corporation after another has announced layoffs, and not just
among blue-collar workers. Companies are cutting back their executive ranks as well.
Millions of people have lost their jobs, and these corporate castoffs have become an important
source of entrepreneurial activity. Some 20 percent of these discharged corporate managers
have become entrepreneurs, and many of those left behind in corporate America would like to
join them. Many corporate castoffs are deciding that the best defense against future job
insecurity is an entrepreneurial offense.
10.Corporate Dropouts

The dramatic downsizing of corporate America has created another effect among the
employees left after restructuring: a trust gap. The result of this trust gap is a growing number
of dropouts from the corporate structure who then become entrepreneurs. Although their
workdays may grow longer and their incomes may shrink, those who strike out on their own
often find their work more rewarding and more satisfying because they are doing what they
enjoy. Other entrepreneurs are inspired to launch their companies after being treated unfairly by
large, impersonal corporate entities.
Because they have college degrees, a working knowledge of business, and years of
management experience, both corporate dropouts and castoffs may ultimately increase the
small business survival rate. A recent survey by Richard O’Sullivan found that 64 percent of
people starting businesses have at least some college education, and 14 percent have advanced
degrees. Better-trained, more experienced entrepreneurs are less likely to fail.

11. Social Entrepreneurs

Social entrepreneurs use their skills not only to create profitable business ventures, but also to
achieve social and environmental goals for the common good. Their businesses often have a
triple bottom line that encompasses economic, social, and environmental objectives. These
entrepreneurs see their businesses as mechanisms for achieving social goals that are important
to them as individuals.

12.Retiring baby boomers

Because peoples are living longer and remaining active as they grow elder, the ranks of older
entrepreneurs are growing. Surveys shows those people’s ages 55-64 actually succeed that of
people age 20-34. One advantage that older entrepreneurs have is wisdom that is being forged
by experience.

Follow These Rules for a Successful Home-Based Business

Rule 1.Do your homework..
Much of a home-based business’s potential for success depends on how much preparation an
entrepreneur makes before ever opening for business. The public library is an excellent source for
research on customers, industries, competitors, and the like.
Rule 2. Find out what your zoning restrictions are.
In some areas local zoning laws make running a business from home illegal. Avoid headaches by
checking these laws first. You can always request a variance.
Rule 3. Choose the most efficient location for your office.
About half of all home-based entrepreneurs operate out of spare bedrooms. The best way to determine
the ideal office location is to examine the nature of your business and your clients. Avoid locating your
business in your bedroom or your family room.
Rule 4. Focus your home-based business idea.
Avoid the tendency to be “all things to all people.” Most successful home-based businesses focus on a
particular customer group or on some specialty.
Rule 5. Discuss your business rules with your family.
Running a business from your home means you can spend more time with your family and that your
family can spend more time with you. Establish the rules for interruptions up front.
Rule 6. Select an appropriate business name.
Your first marketing decision is your company’s name, so make it a good one! Using your own name is
convenient, but it’s not likely to help you sell your product or service.
Rule 7. Buy the right equipment.
Modern technology allows a home-based entrepreneur to give the appearance of any Fortune 500
company, but only if you buy the right equipment. A well equipped home office should have a separate
telephone line, a computer, a laser or inkjet printer, a fax machine (or board), a copier, a scanner, and an
answering machine (or voice mail), but realize that you don’t have to have everything from Day One.
Rule 8. Dress appropriately.
Being an “open-collar worker” is one of the joys of working at home. But when you need to dress up (to
meet a client, make a sale, meet your banker, close a deal), do it! Avoid the tendency to lounge around
in your bathrobe all day.
Rule 9. Learn to deal with distractions.
The best way to fend off the distractions of working at home is to create a business that truly interests
you. Budget your time wisely. Your productivity determines your company’s success.
Rule 10. Realize that your phone can be your best friend . . . or your worst enemy.
As a home based entrepreneur, you’ll spend lots of time on the phone. Be sure you use it productively.
Rule 11. Be firm with friends and neighbors.
 Sometimes friends and neighbors get the mistaken impression that because you’re at home, you’re not
working. If one drops by to chat while you’re working, tactfully ask them to come back “after work.”
Rule 12. Take advantage of tax breaks.
Although a 1993 Supreme Court decision tightened considerably the standards for business deductions
for an office at home, many home-based entrepreneurs still qualify for special tax deductions on
everything from computers to cars. Check
with your accountant.
Rule 13. Make sure you have adequate insurance coverage.
Some homeowner’s policies provide adequate coverage for business-related equipment, but many
home-based entrepreneurs have inadequate coverage on their business assets. Ask your agent about a
business owner’s policy (BOP), which may cost as little as $300 to $500 per year.
Rule 14. Understand the special circumstances under which you can hire outside employees.
Sometimes zoning laws allow in-home businesses but they prohibit hiring employees. Check zoning
laws carefully.
Rule 15. Be prepared if your business requires clients to come to your home.
Dress appropriately (no pajamas!). Make sure your office presents a professional image.
Rule 16. Get a post office box.
With burglaries and robberies on the rise, you’re better off using a “P.O. Box” address rather than your
specific home address. Otherwise you may be inviting crime.
Rule 17. Network, network, network.
Isolation can be a problem for home-based entrepreneurs, and one of the best ways to combat it is to
network. It’s also a great way to market your business.
Rule 18. Be proud of your home-based business.
Merely a decade ago there was a stigma attached to working from home. Today, home-based
entrepreneurs and their businesses command respect. Be proud of your company!

The Ten Deadly Mistakes of Entrepreneurship

Because of their limited resources, inexperienced management, and lack of financial stability,
small businesses suffer a mortality rate significantly higher than that of larger, established
businesses. Exploring the circumstances surrounding business failure may help you to avoid it.

1. Management mistakes. In most small businesses, poor management is the primary cause of
business failure. Sometimes the manager of a small business does not have the capacity to
operate it successfully. The owner lacks the leadership ability, sound judgment, and knowledge
necessary to make the business work. Many managers simply do not have what it takes to run a
small enterprise. “What kills companies usually has less to do with insufficient money, talent, or
information than with something more basic: a shortage of good judgment and understanding at
the very top,” says one business researcher.

2. Lack of experience. Small business managers need to have experience in the field they want
to enter. For example, if an entrepreneur wants to open a retail clothing business, he or she
should first work in a retail clothing store. This will provide practical experience as well as
knowledge about the nature of the business, which can spell the difference between failure and
success.
One aspiring entrepreneur who wanted to launch a restaurant went to work for a national chain
known for its high-quality management training program after he graduated from college. After
completing the training program, he took on a variety of tasks, from cook to manager, in one of
the chain’s restaurants. He took advantage of every subsequent training opportunity the company
offered and asked lots of questions. He began developing a business plan based on his idea for a
restaurant, and after nearly five years, he left to start his own restaurant. He credits the
knowledge and experience he gained during that time for much of his success in the business.
Ideally, a prospective entrepreneur should have adequate technical ability (a working knowledge
of the physical operations of the business and sufficient conceptual ability); the power to
visualize, coordinate, and integrate the various operations of the business into a synergistic
whole; and the skill to manage the people in the organization and motivate them to higher levels
of performance.

3. Poor financial control. Sound management is the key to a small company’s success, and
effective managers realize that any successful business venture requires proper financial control.
Business success also requires having a sufficient amount of capital on hand at start-up.
Undercapitalization is a common cause of business failure because companies run out of capital
before they are able to generate positive cash flow. Many small business owners make the
mistake of beginning their businesses on a “shoestring,” which can be a fatal error. Entrepreneurs
tend to be overly optimistic and often misjudge the financial requirements of going into business.
As a result, they start off undercapitalized and can never seem to catch up financially as their
companies consume increasing amounts of cash to fuel their growth.
Another aspect of adequate financial control is implementing proper cash management
techniques. Many entrepreneurs believe that profit is what matters most in a new venture, but
cash is the most important financial resource a company owns.
Maintaining adequate cash flow to pay bills on time is a constant challenge for entrepreneurs,
especially those in the turbulent start-up phase or for established companies experiencing rapid
growth. Fast-growing companies devour cash fast! Poor credit screening, sloppy debt collection
practices, and undisciplined spending habits are common factors in many business bankruptcies.
One Internet company that ultimately went bust spent valuable cash on frivolous items such as a
$40,000 conference table and a huge office aquarium that cost $4,000 a month to maintain.83
4. Weak marketing efforts. Sometimes entrepreneurs make the classic “Field of Dreams
mistake.” Like Kevin Costner’s character in the movie, they believe that if they “build it,”
customers automatically “will come.” Although the idea makes for a great movie plot, in
business, it almost never happens. Building a growing base of customers requires a sustained,
creative marketing effort. Keeping them coming back requires providing them with value,
quality, convenience, service, and fun—and doing it all quickly. As you will see in Chapter 6,
“Building a Guerrilla Marketing Plan,” small companies do not have to spend enormous sums of
money to sustain a successful marketing effort. Creative entrepreneurs find innovative ways to
market their businesses effectively to their target customers without breaking the bank.

5. Failure to develop a strategic plan. Too many small business managers neglect the process of
strategic planning because they think that it is something that benefits only large companies. “I
don’t have the time” or “We’re too small to develop a strategic plan,” they rationalize. Failure to
plan, however, usually results in failure to survive.
Without a clearly defined strategy, a business has no sustainable basis for creating and
maintaining a competitive edge in the marketplace. Building a strategic plan forces an
entrepreneur to assess realistically a proposed business’s potential. Is it something customers are
willing and able to purchase? Who is the target customer? How will the business attract and keep
those customers? What is the company’s basis for serving customers’ needs better than existing
companies? How will the business gain a sustainable edge over its rivals?

6. Uncontrolled growth. Growth is a natural, healthy, and desirable part of any business
enterprise, but it must be planned and controlled. Management expert Peter Drucker says that
start-up companies can expect to outgrow their capital bases each time sales increase 40 to 50
percent.84 Ideally, expansion should be financed by the profits they generate (“retained
earnings”) or by capital contributions from the owners, but most businesses wind up borrowing
at least a portion of the capital investment.
Expansion usually requires major changes in organizational structure, business practices such as
inventory and financial control procedures, personnel assignments, and other areas. The most
important change, however, occurs in managerial expertise.
As the business increases in size and complexity, problems increase in magnitude, and the
entrepreneur must learn to deal with them. Sometimes entrepreneurs encourage rapid growth,
only to have the business outstrip their ability to manage it.

Robert Schell, whose e-commerce consulting company, Avico, was growing fast enough to make
Inc. magazine’s list of the 500 fastest-growing companies in the United States, discovered too
late the perils of rapid growth. Expanding too rapidly stretched the company’s resources beyond
their capacity and Schell’s ability to control the business, and he was forced to lay off all of his
employees and close the company. Schell, who now owns another company, Prizm, that also has
made it to the Inc. 500 list, has used what he learned from his previous failure to avoid making
the same mistakes again. “If a company doesn’t have the right foundation, it can fall apart like a
house of cards,” he says

7. Poor location. For any business, choosing the right location is partly an art and partly a
science. Too often, business locations are selected without proper study, investigation, and
planning. Some beginning owners choose a particular location just because they noticed a vacant
building. The location question is much too critical to leave to chance. Especially for retailers,
the lifeblood of the business—a sale—is influenced heavily by choice of location.

8. Improper inventory control. Normally, the largest investment a small business owner makes
is in inventory, yet inventory control is one of the most neglected managerial responsibilities.
Insufficient inventory levels result in shortages and stock outs, causing customers to become
disillusioned and leave. A more common situation is that the manager has not only too much
inventory, but also too much of the wrong type of inventory. Many small firms have an excessive
amount of cash tied up in an accumulation of useless inventory. Computerized point-of-sale
systems are now priced low enough to be affordable for small businesses, and they can track
items as they come in and go out, allowing business owners to avoid inventory problems.

9. Incorrect pricing. Establishing prices that will generate the necessary profits means that
business owners must understand how much it costs to make, market, and deliver their products
and services. Too often, entrepreneurs simply charge what competitors charge or base their
prices on some vague idea of “selling the best product at the lowest price,” both of which
approaches are dangerous. Small business owners usually under price their products and
services. The first step in establishing accurate prices is to know what a product or service costs
to make or to provide. Then, business owners can establish prices that reflect the image they
want to create for their companies, always, of course, with an eye on the competition.

10. Inability to make the “Entrepreneurial Transition.” Making it over the “entrepreneurial
start-up hump” is no guarantee of business success. After the start-up, growth usually requires a
radically different style of management, one that entrepreneurs are not necessarily good at. The
very abilities that make an entrepreneur successful often lead to managerial ineffectiveness.
Growth requires entrepreneurs to delegate authority and to relinquish hands-on control of daily
operations, something many entrepreneurs simply cannot do. Growth pushes them into areas
where they are not capable, yet they continue to make decisions rather than involve others.

Putting Failure into Perspective

Because they are building businesses in an environment filled with uncertainty and shaped by
rapid change, entrepreneurs recognize that failure is likely to be part of their lives, but they are
not paralyzed by that fear. “The excitement of building a new business from scratch is greater
than the fear of failure,” says one entrepreneur who failed in business several times before finally
succeeding.87 Entrepreneurs use their failures as a rallying point and as a means of refocusing
their business ventures for success. They see failure for what it really is: an opportunity to learn
what does not work. Successful entrepreneurs have the attitude that failures are simply stepping
stones along the path to success
Failure is a natural part of the creative process. The only people who never fail are those who
never do anything or never attempt anything new. Baseball fans know that Babe Ruth held the
record for career home runs (714) for many years, but how many know that he also held the
record for strikeouts (1,330)? Successful entrepreneurs know that hitting an entrepreneurial home
run requires a few strikeouts along the way, and they are willing to accept them. Failure is an
inevitable part of being an entrepreneur, and true entrepreneurs don’t quit when they fail. One
entrepreneur whose business burned through $800 million of investors’ money before folding
says, “If you’re an entrepreneur, you don’t give up when times get tough.”
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. They know that business success
does not depend on their ability to avoid making mistakes but on their ability to be open to the
lessons each mistake teaches. They learn from their failures and use them as fuel to push
themselves closer to their ultimate target. Entrepreneurs are less worried about what they might
lose if they try something and fail than about what they might lose if they fail to try.
Entrepreneurial success requires both persistence and resilience, the ability to bounce back from
failure. Thomas Edison discovered about 1,800 ways not to build a light bulb before hitting on a
design that worked. Walt Disney was fired from a newspaper job because, according to his boss,
he “lacked imagination and had no good ideas.” Disney also went bankrupt several times before
he created Disneyland. R. H. Macy failed in business seven times before his retail store in New
York City became a success. In the spirit of true entrepreneurship, these visionary business
leaders refused to give up in the face of failure; they simply kept trying until they achieved
success.
 How to Avoid the Pitfalls
We have seen the most common reasons behind many small business failures. Now we must
examine the ways to avoid becoming another failure statistic and gain insight into what makes a
successful business. The suggestions for success follow naturally from the causes of business
failure.
Know Your Business in Depth
We have already emphasized the need for the right type of experience in the business you plan to
start. Get the best education in your business area you possibly can before you set out on your
own. Become a serious student of your industry. Read everything you can that relates to your
industry—trade journals, business periodicals, books, research reports— and learn what it takes
to succeed in it. Personal contact with suppliers, customers, trade associations, and others in the
same industry is another excellent way to get that knowledge. Smart entrepreneurs join industry
trade associations and attend trade shows to pick up valuable information and to make key
contacts before they open their doors for business.
Successful entrepreneurs are like sponges, soaking up as much knowledge as they can
from a variety of sources.

Develop a Solid Business Plan

For any entrepreneur, a well-written business plan is a crucial ingredient in preparing for
business success. Without a sound business plan, a firm merely drifts along without any real
direction. Yet entrepreneurs, who tend to be people of action, too often jump right into a business
venture without taking time to prepare a written plan outlining the essence of the business.
Unfortunately, most entrepreneurs never take the time to develop a solid business plan. Not only
does a plan provide a pathway to success, but it also creates a benchmark against which an
entrepreneur can measure actual company performance. Resources to create a business plan,
including software such as Business Plan Pro, which may accompany this book, are available
to help aspiring and current business owners create their business plans. Building a successful
business begins with implementing a sound business plan with laser-like focus. A business plan
allows entrepreneurs to replace sometimes-faulty assumptions with facts before making the
decision to go into business. The planning process forces entrepreneurs to ask and then answer
some difficult, challenging, and crucial questions.
Manage Financial Resources
The best defense against financial problems is to develop a practical information system and then
use this information to make business decisions. No entrepreneur can maintain control over a
business unless he or she is able to judge its financial health.
The first step in managing financial resources effectively is to have adequate start-up capital.
Too many entrepreneurs begin their businesses with too little capital. One experienced business
owner advises, “Estimate how much capital you need to get the business going and then double
that figure.” His point is well taken; it almost always costs more to launch a business than any
entrepreneur expects.
The most valuable financial resource to any small business is cash. Although earning a profit is
essential to its long-term survival, a business must have an adequate supply of cash to pay its
bills and obligations. Some entrepreneurs count on growing sales to supply their company’s cash
needs, but this almost never happens. Growing companies usually consume more cash than they
generate, and the faster they grow, the more cash they gobble up! Business history is littered with
failed companies whose founders had no idea how much cash their businesses were generating
and were spending cash as if they were certain there was “plenty more where that came from

Understand Financial Statements

Every business owner must depend on records and financial statements to know the condition of
her or his business. All too often entrepreneurs use these only for tax purposes and not as vital
management control devices. Truly to understand what is going on in the business, an owner
must have at least a basic understanding of accounting and finance.
When analyzed and interpreted properly, these financial statements are reliable indicators of a
small firm’s health. They can be quite helpful in signaling potential problems. For example,
declining sales, slipping profits, rising debt, and deteriorating working capital are all symptoms
of potentially lethal problems that require immediate attention.

Learn to Manage People Effectively

No matter what kind of business you launch, you must learn to manage people. Every business
depends on a foundation of well-trained, motivated employees. No business owner can do
everything alone. The people an entrepreneur hires ultimately determine the heights to which the
company can climb—or the depths to which it can plunge. Attracting and retaining a corps of
quality employees is no easy task, however. It remains a challenge for every small business
owner. “In the end, your most dominant sustainable resource is the quality of the people you
have,” says one small business expert.”

Keep in Tune with Yourself

“Starting a business is like running a marathon. If you’re not physically and mentally in shape,
you’d better do something else,” says one business consultant.93 The success of your business
will depend on your constant presence and attention, so it is critical to monitor your health
closely. Stress is a primary problem, especially if it is not kept in check.
Successful entrepreneurs recognize that their most valuable asset is their time, and they learn to
manage it effectively to make themselves and their companies more productive.
None of this, of course, is possible without passion—passion for their businesses, their products
or services, their customers, their communities. Passion is what enables a failed entrepreneur to
get back up, try again, and make it to the top.

How to Enhance Creativity

Enhancing Organizational Creativity
Creativity doesn’t just happen in organizations; entrepreneurs must establish an environment in
which creativity can flourish for themselves and for their workers. New ideas are fragile
creations, but the right company culture can encourage people to develop and cultivate them.
Ensuring that workers have the freedom and the incentive to be creative is one of the best ways
to achieve innovation. “Developing a corporate culture that both fosters and rewards creativity . .
is critical because companies must be able to churn out innovations at a fast pace since
technology has shortened product life cycles,” says Geoff Yang, successful entrepreneur and
venture capitalist. Entrepreneurs can stimulate their own creativity and encourage it among
workers by following these suggestions, which are designed to create a culture of innovation.
1. Include Creativity as a Core Company Value Entrepreneurs have the responsibility of
establishing an innovative culture in their companies, and setting a creative tone in an
organization begins with the company’s mission statement. Entrepreneurs should
 incorporate creativity and innovation into their companies’ mission statements and affirm
their commitment to them in internal communications. If creativity and innovation are
vital to a company’s success (and they usually are!), they should be a natural part of the
performance appraisal process.

2. Embracing Diversity One of the best ways to cultivate a culture of creativity is to hire a
diverse workforce. When people solve problems or come up with ideas, they do so within
the framework of their own experience. Hiring people from different backgrounds,
cultural experiences, hobbies, and interests provides a company with a crucial raw
material needed for creativity. Smart entrepreneurs enhance organizational creativity by
hiring beyond their own comfort zones.

3. Expecting Creativity Employees tend to rise—or fall—to the level of expectations

entrepreneurs have of them. One of the best ways to communicate the expectation of
creativity is to give employees permission to be creative. At one small company that
manufactures industrial equipment, the owner put a “brainstorming board” in a break
area. Anyone facing a sticky problem simply posts it on a brightly colored piece of paper
on the board. Other workers are invited to share ideas and suggestions by writing them on
white pieces of paper and posting them around the problem. The board has generated
many creative solutions that otherwise would not have come up.
4. Expecting and Tolerating Failure Creative ideas will produce failures as well as
successes. People who never fail are not being creative. Creativity requires taking
chances, and managers must remove employees’ fear of failure. The surest way to quash
creativity throughout an organization is to punish employees who try something new and
fail.
5. Encouraging Curiosity Entrepreneurs and their employees constantly should ask “what
if . . .” questions and to take a “maybe we could . . .” attitude. Doing so allows them to
break out of assumptions that limit creativity.
6. Creating a Change of Scenery Periodically The physical environment in which people
work has an impact on their level of creativity. The cubicles made so famous in the
Dilbert cartoon strip can suck the creativity right out of a workspace. Transforming a
 typical office space—even one with cubicles—into a haven of creativity does not have to
be difficult or expensive. Covering bland walls with funny posters, photographs, murals,
or other artwork, adding splashes of color and incorporating live plants can enliven a
workspace and enhance creativity. When Michael Sachs, founder of Sg2, a health care
consulting company, conducts routine business meetings, he assembles the group in the
company’s boardroom in the company’s Evanston, Illinois, headquarters. However, when
he needs a creative solution or wants to stimulate innovation, he takes his team offsite to
the Catalyst Ranch, a unique meeting space in downtown Chicago. The room’s walls are
decorated in bright colors, rich fabrics, and paper cuttings. Brightly colored furnishings
abound, and mixed in with the plentiful supply of whiteboards and markers are toys—
from Hula-Hoops and Play-Doh to Slinkies and sailboats. Natural light floods the space,
where teams of workers can escape the pressures of the office and feel free to relax and
let their creativity flow freely. Even if going to an offsite location is not practical,
entrepreneurs can still stimulate creativity by starting meetings with some type ofshort,
fun exercise designed to encourage participants to think creatively.
7. Viewing Problems as Challenges Every problem offers the opportunity for innovation.
Entrepreneurs who allow employees to dump all of their problems on their desks to be
“fixed” do nothing to develop creativity within those employees.
8. Providing Creativity Training Almost everyone has the capacity to be creative, but
developing that capacity requires training. One writer claims, “What separates the
average person from Edison, Picasso, or even Shakespeare isn’t creative capacity—it’s
the ability to tap that capacity by encouraging creative impulses and then acting upon
them.” Training accomplished through books, seminars, workshops, and professional
meetings can help everyone learn to tap their creative capacity.
9. Providing Support Entrepreneurs must give employees the tools and the resources they
need to be creative. One of the most valuable resources is time. Cambridge Consultants, a
company that creates products for clients in five industries, allows employees to spend a
portion of their time working on “pet projects” that they find exciting and believe have
potential. In addition, Cambridge sets aside 10 percent of its annual revenue to provide
seed capital for spin-off companies based on employees’ most promising ideas. If the
spinoff succeeds, the employee gets to operate it and enjoy the profits, in which
 Cambridge shares. If it fails, the employee gets his or her old job back, and Cambridge
simply writes off the investment as a loss.29 Entrepreneurs should remember that
creativity often requires non work phases, and allowing employees the time to
“daydream” is an important part of the creative process.
10. Developing a Procedure for Capturing Ideas Workers in every organization come up
with creative ideas; however, not every organization is prepared to capture those ideas.
The unfortunate result is that ideas that might have vaulted a company ahead or made
people’s lives better simply evaporate. Without a structured approach for collecting of
employees’ creative concepts, a business leaves its future to chance. Clever entrepreneurs
establish processes within their companies that are designed to harvest the results of
employees’ creativity. George Calhoun, Chairman of Isco International, a company that
makes wireless communications products, routinely sends employees to work with
customers all over the globe, knowing that they will come back with insights and ideas
they otherwise might never have had. The company captures those ideas in “trip reports”
that employees make on their return.
11. Talking with Customers Innovative companies take the time to get feedback about how
they use the companies’ products or services, listening for new ideas. CLAAS KGaA, a
German manufacturer of agricultural equipment, operates practice centers in each of its
principal markets. These centers serve as model farms where farmers can test new
equipment and company officials can observe farmers first hand as they use CLAAS
products, sometimes in ingenious ways that company employees never could have
imagined.31

12. Looking for Uses for Your Company’s Products or Services in Other Markets
Focusing on the “traditional” uses of a product or service limits creativity—and a
company’s sales. Entrepreneurs can boost sales by finding new applications, often in
unexpected places, for their products and services.
13. Rewarding Creativity Entrepreneurs can encourage creativity by rewarding it when it
occurs. Financial rewards can be effective motivators of creative behavior, but
nonmonetary rewards such as praise, recognition, and celebration, usually offer more
powerful incentives for creativity.
 14. Modeling Creative Behavior Creativity is “caught” as much as it is “taught.”
Companies that excel at innovation find that the passion for creativity starts at the top.
Entrepreneurs who set examples of creative behavior, taking chances, and challenging the
status quo will soon find their employees doing the same.
Ten “Secrets” for Leading Creativity
Leaders at innovative companies know that their roles in stimulating creativity and establishing a
culture that embraces and encourages creativity are vital. Katherine Catlin, founder of a
consulting firm specializing in leadership and innovation, has identified the following
characteristics exhibited by leaders of innovation.
1. They think. These leaders invest time in thinking because they recognize the power of their
own creativity and the ideas it generates.
2. They are visionaries. These people are totally focused on the values, vision, and mission of
their companies and express them through their companies’ products and services as well as
through its culture. They are able to communicate to others exactly what they want to
accomplish.
3. They listen to customers. They recognize that customers or potential customers can be a
valuable source of new ideas for product or service development and improvement, sales
techniques, and market positioning.
4. They understand how to manage ideas. As they search for new ideas and creative solutions,
these managers look to a variety of sources—customers, employees, the board of directors, and
even their own dreams.
5. They are people-centered. These leaders hire people for their creative abilities and then place
them in a setting that enables that creativity to blossom. They see their employees and their
employees’ ideas as an important part of their companies’ competitive edge.
6. They maintain a culture of “change.” These leaders do not simply manage change; they
embrace it. They seek out change, recognizing that there is a constant need to improve.
7. They maximize team synergy, balance, and focus. Realizing that teamwork fosters creativity
and innovation, these leaders bring together people from diverse backgrounds into teams to
maximize their companies’ creative output.
8. They hold themselves and others accountable for extremely high standards of performance.
These leaders demand results of the highest quality from themselves and their employees
and are unwilling to settle for anything less.
9. They refuse to take “no” for an answer. These leaders persist in the face of adversity even
when others say it cannot be done.
10. They love what they do and have fun doing it. These leaders’ passion for their work is
contagious, empowering everyone in the organization to accomplish everything they possibly
can.
Enhancing Individual Creativity
Just as entrepreneurs can cultivate an environment of creativity in their organizations by using
the techniques described above, they can enhance their own creativity by using the following
techniques:

1. Allow yourself to be creative. As we have seen, one of the biggest obstacles to creativity
occurs when a person believes that he or she is not creative. Giving yourself the
permission to be creative is the first step toward establishing a pattern of creative
thinking. Refuse to give in to the temptation to ignore ideas simply because you fear that
someone else may consider them “stupid.” When it comes to creativity, there are no
stupid ideas!
2. Give your mind fresh input every day. To be creative, your mind needs stimulation. Do
something different each day—listen to a new radio station, take a walk through a park or
a shopping center, pick up a magazine you never read.
3. Observe the products and services of others companies, especially those in completely
different markets. Creative entrepreneurs often borrow ideas from companies that are in
businesses totally unrelated to their own. In the 1950s, Ruth and Elliott Handler, co-
founders of Mattel Inc., drew the inspiration for the best-selling doll of all time, Barbie
(named after the Handler’s daughter), from a doll called Lilli that was based on a shapely
character in a German comic strip and then borrowed the idea of dressing her in stylish
outfits from cardboard cut-out games that were popular in that era. Another example of
borrowing an idea occurred when Jean Nidetech made Weight Watchers a major force in
 the weight loss industry by applying the support group technique from Alcoholics
Anonymous to the diet plan she had developed.37

4. Recognize the creative power of mistakes. Innovations sometimes are the result of
serendipity, finding something while looking for something else, and sometimes they
arise as a result of mistakes. Creative people recognize that even their errors may lead to
new ideas, products, and services. Charles Goodyear worked for five years trying to
combine rubber with a variety of chemicals to prevent it from being too soft in hot
weather and too brittle in cold weather. One cold night in 1839, Goodyear was combining
rubber, sulfur, and white lead when he accidentally spilled some of the mixture on a work
stove. The substances melted together to form a new compound that had just the
properties Goodyear was looking for! Goodyear named the process he discovered
accidentally “vulcanization,” and today practically every product made from rubber
depends on it.38
5. Keep a journal handy to record your thoughts and ideas. Creative ideas are too valuable
to waste, so always keep a journal nearby to record them as soon as you get them.
Leonardo Da Vinci was famous for writing down ideas as they struck him. Patrick
McNaughton invented the neon blackboards restaurants use to advertise their specials, as
well as more than 30 other products, many of which are sold through the company that he
and his sister, Jamie, own. McNaughton credits much of his creative success to the fact
that he writes down every idea he gets and keeps it in a special folder. “There’s no such
thing as a crazy idea,” he insists.39
6. Listen to other people. No rule of creativity says that an idea has to be your own!
Sometimes the best business ideas come from someone else, but entrepreneurs are the
ones to act on them.
7. Listen to customers. Some of the best ideas for new products and services or new
applications of an existing product or service come from a company’s customers.
Entrepreneurs who take the time to listen to their customers often receive ideas they may
never have come up with on their own. At Lush Cosmetics, founder Mark Constantine
routinely draws ideas for new products or product names from the company’s loyal
customers (affectionately known as “Lushies”) in the company’s chat room.
8. Talk to a child. As we grow older, we learn to conform to society’s expectations about
many things, including creative solutions to problems. Children place very few
limitations on their thinking; as a result, their creativity is practically boundless.
(Remember all of the games you and your friends invented when you were young?)
Frustrated at not being able to use the small pieces of broken crayons, 11-year-old
Cassidy Goldstein invented a plastic crayon holder now sold in stores across the United
States. Inspired by the plastic tubes that keep roses fresh in transport, Goldstein
developed a plastic device capable of holding a crayon, no matter how small it is.

9. Keep a toy box in your office. Your box might include silly objects such as wax lips, a
yo-yo, a Slinky, fortune cookie sayings, feathers, a top, a compass, or a host of other
items. When you are stumped, pick an item at random from the toy box and think about
how it relates to your problem.

10. Read books on stimulating creativity or take a class on creativity. Creative thinking is a
technique that anyone can learn. Understanding and applying the principles of creativity
can improve dramatically the ability to develop new and innovative ideas.

Take some time off. Relaxation is vital to the creative process. Getting away from a
problem gives the mind time to reflect on it. It is often during this time, while the
subconscious works on a problem, that the mind generates many creative solutions. One
creativity expert claims that fishing is the ideal activity for stimulating creativity. “Your
brain is on high alert in case a fish is around,” he says, “but your brain is completely
relaxed. This combination is the time when you have the ‘Aha!’ moment.”