Management 13th Edition Schermerhorn Solutions Manual Download

Schermerhorn & Bachrach / Management, 13th Instructor’s Guide
Management 13th Edition

Schermerhorn Solutions Manual
Full download at link:
Solution Manual: https://testbankpack.com/p/solution-manual-for-

management-13th-edition-schermerhorn-bachrach-1118841514-
9781118841518/
Test Bank: https://testbankpack.com/p/test-bank-for-management-

13th-edition-schermerhorn-bachrach-1118841514-9781118841518/
Chapter 6
ENTREPRENEURSHIP AND NEW VENTURES
Takeaway Questions & Learning Objectives
In studying this chapter, students should consider the following questions and be able to complete the
accompanying objectives:
Takeaway 1: What is entrepreneurship and who are the entrepreneurs?

Learning Objective: Define entrepreneurship and identify entrepreneurs.
Takeaway 2: How do small businesses get started and what problems do they face?
Learning Objective: Describe how small businesses get started and common problems they face.
Takeaway 3: How do entrepreneurs start, legally structure, and finance new businesses?
Learning Objective: Explain how entrepreneurs plan, legally structure, and fund new business
ventures.
Copyright © 2015 John Wiley & Sons, Inc. 6-1

Overview
The objective of this chapter is to familiarize a student with the nature of entrepreneurship, small
business, and new venture creation, so one can consider starting a business and, by doing so, make a
personal contribution to society.
Entrepreneurship is an important aspect of the contemporary business world. It occurs for individuals and
within organizations, both large and small. Entrepreneurship fuels success in a highly competitive
business environment.
The chapter begins by defining the terms entrepreneurship and entrepreneur, and then discusses the
characteristics, attitudes, background and interests of entrepreneurs. The roles of women and minorities in
entrepreneurship are described next, and common myths about entrepreneurs are examined. The unique
form of social entrepreneurship is examined, along with the entrepreneurs who are in this movement. The
chapter then focuses on ways of establishing small businesses, with particular emphasis being placed on
entrepreneurial opportunities that may be developed through the Web, and with family businesses.
Consideration is also given to the reasons for small business failures, and the types of aid available to
these start-ups. Next, the chapter discusses important issues that arise in the creation of new business
ventures, and describes the life cycle of the entrepreneurial firm and the managerial challenges that are
encountered at each stage of the life cycle. The chapter concludes by examining practical managerial
matters, such as, the mechanics of writing a business plan, the choice of a legal form of business
ownership, and the options for financing the business.
Lecture Outline
Teaching Objective: The goal of this chapter is to provide students with a solid understanding of
entrepreneurship and the nature and dynamics of new venture creation.
Suggested Time: One to two hours of class time is suggested for presenting this material.
Takeaway Question 1: What is entrepreneurship and who are the entrepreneurs?

Who are the entrepreneurs?
Characteristics of entrepreneurs
Female and minority entrepreneurs
Social entrepreneurship
Takeaway Question 2: How do small businesses get started and what problems do they face?
How small businesses get started
Why small businesses fail
Family-owned small businesses
Small business development

Takeaway Question 3: How do entrepreneurs start, legally structure, and finance new businesses
Life cycles of entrepreneurial firms
Writing a business plan
Choosing the form of ownership
Financing a new venture
Supporting Materials
Figures
• Figure 6.1: Personality Traits and Characteristics of Entrepreneurs
• Figure 6.2: Eight Reasons Why Many Small Businesses Fail
• Figure 6.3: Stages in the Life Cycle of an Entrepreneurial Firm
Thematic Boxes
• Analysis: Minority Entrepreneurs Lead the Way
• Choices: Students are Crowdfunding Their Human Capital
• Ethics: Entrepreneurship Meets Caring Capitalism Meets Big Business
• Insight: Self-Management Keeps You Growing
• Wisdom: Grad-School Startup Takes on Global Competitors
• Issues and Trends: Etsy Turns “Handmade” into Entrepreneurship
• Management and Popular Culture: Would-Be Entrepreneurs Dive for Dollars in the Shark Tank
Management Learning Review

• Summary
• Self-Test
Management Skills & Competencies

• Evaluate Career Situations: What Would You Do?
• Reflect on the Self-Assessment: Entrepreneurial Orientation
• Contribute to the Class Exercise: Entrepreneurs Among Us
• Manage a Critical Incident: Craft Brewery In – or Out – of the Money?
• Collaborate on the Team Activity: Community Entrepreneurs
• Analyze the Case Study: In-N-Out Burger- Building Them Better
Lecture Notes
THE NATURE OF ENTREPRENEURSHIP

Takeaway 1: What is entrepreneurship and who are the entrepreneurs?
Learning Objective: Define entrepreneurship and identify entrepreneurs.

Entrepreneurship describes strategic thinking and risk-taking behavior that results in the
creation of new opportunities,
WHO ARE THE ENTREPRENEURS?
The classic entrepreneur is a risk-taking individual who takes action to pursue opportunities and
situations others may fail to recognize as such or may even view as problems or threats.
A serial entrepreneur starts and runs new ventures, over and over, moving from one interest and
opportunity to the next.
A first-mover advantage comes from being first to exploit a niche or enter a market.
To illustrate the wide-ranging ventures and backgrounds of entrepreneurs, the text briefly profiles
the accomplishments of four entrepreneurs: Anita Roddick, Caterina Fake, Earl Graves, and
Shawn Corey Carter.
CHARACTERISTICS OF ENTREPRENEURS
Entrepreneurs are found in a variety of settings, including:

• Founders of new business enterprises that achieve large-scale success.
• People who buy a local franchise outlet, open a small retail shop, or go into a self-employed
service business.
• People who assume responsibility for introducing a new product or a change in operations in
an existing organization.
The box on p. 126 of the text describes the myths about entrepreneurs, including:
• Entrepreneurs are born, not made. Not true! Talent gained and enhanced by experience is a
foundation for entrepreneurial success.
• Entrepreneurs are gamblers. Not true! Entrepreneurs are risk takers, but the risks are
informed and calculated.
• Money is the key to entrepreneurial success. Not true! Money is no guarantee of success.
There’s a lot more to it than that; many entrepreneurs start with very little.
• You have to be young to be an entrepreneur. Not true! Age is no barrier to entrepreneurship;
with age often comes experience, contacts, and other useful resources.
• You have to have a degree in business to be an entrepreneur. Not true! You may not need a
degree at all. Although a business degree is not necessary, it helps to study and understand
business fundamentals.
ATTITUDES AND PERSONAL INTERESTS

FIGURE 6.1 in the textbook identifies typical personality traits and characteristics of
entrepreneurs. These traits and characteristics include:
• Internal locus of control –– entrepreneurs believe that they control their own destiny;
they are self-directing and like autonomy.
• High energy level –– entrepreneurs are persistent, hard working, and willing to exert
extraordinary efforts to succeed.
• High need for achievement –– entrepreneurs are motivated to act individually to
accomplish challenging goals; they thrive on performance feedback.
• Tolerance for ambiguity –– entrepreneurs are risk takers; they tolerate situations with
high degrees of uncertainty.
• Self-confidence –– entrepreneurs feel competent, believe in themselves, and are willing to
make decisions.
• Passion and action-orientation –– entrepreneurs try to act ahead of problems; they want
to get things done and not waste valuable time.
• Self-reliance and desire for independence –– entrepreneurs want independence; they are
self-reliant; they want to be their own bosses, not work for others.
• Flexibility ⎯ entrepreneurs are willing to admit problems and errors, and are willing to
change a course of action when plans are not working.
DISCUSSION TOPIC
To make the discussion of entrepreneurship more personally meaningful for students, ask them to
describe themselves in terms of each of the above characteristics of entrepreneurs. Also ask if any of
the students are thinking about becoming entrepreneurs and whether there are any students who are
not likely or interested in becoming entrepreneurs. Have these two opposing groups of students
describe themselves to the class in terms of the above characteristics, and then have the class examine
the two descriptions for any differences.
BACKGROUND, EXPERIENCES, AND INTERESTS
Entrepreneurs also tend to have unique backgrounds and experiences, including:
• Childhood experiences and family environment

• Entrepreneurs tend to have parents who were entrepreneurs or self-employed.
• Entrepreneurs tend to be raised in families that encourage responsibility, initiative,
and independence.
• Career or work history
• Entrepreneurs often try more than one business venture.
• Entrepreneurs tend to have prior career or personal experience in the business area or
industry in which they develop an entrepreneurial venture.
• Windows of career opportunity
• Most entrepreneurs start their businesses between the ages of 22 and 45; however,
age is no barrier.

• Deeply embedded life interests

• Entrepreneurs have strong interests in creative production and enterprise control.
• Entrepreneurs seek independence and the sense of mastery that comes with success.
DISCUSSION TOPIC
Ask the students if they know any entrepreneurs. If they do, have them describe their perceptions of
these entrepreneurs with respect to the above myths. Do the myths fit or not? Why or why not?
WOMEN AND MINORITY ENTREPRENEURS
When economists speak about entrepreneurs they differentiate between those who are driven by
the quest for new opportunities and those who are driven by absolute need. Those in the latter
group pursue necessity-based entrepreneurship; they start new ventures because they have few
or no employment and career options elsewhere.
The National Foundation for Women Business Owners notes that women own close to 8 million
businesses, which account for over 6% of U.S. employment and are forecast to create one third of
the 15+ million new jobs predicted by 2018. Among women leaving the private sector
employment to work on their own
• 33% said they were not being taken seriously by their prior employer.
• 29 % had experienced glass-ceiling issues.
Women of color often seek entrepreneurial opportunities as a result of:

• Glass ceiling problems that are most frequently traced to not being recognized or valued
by their prior employers.
• Not being taken seriously.
• Seeing others promoted ahead of them.
Minority-owned businesses are one of the fastest growing sectors of the United States economy.
▪ The census identified almost 2 million small firms owned by African-Americans,
a growth of 60% over prior numbers and representing 7% of all businesses.
▪ Among 2010 start-ups, 9% were led by African Americans and 23% by Latinos.
▪ Less than 1% of the venture capital in the U.S. goes to minority entrepreneurs.
SOCIAL ENTREPRENEURSHIP
Social entrepreneurship is a unique form of ethical entrepreneurship that seeks novel ways to
solve pressing social problems.
Social entrepreneurs that take risks to find new ways to solve social problems share many
characteristics with other entrepreneurs. However, they are motivated by a social mission and
pursue innovations that help make lives better for people who are disadvantaged.

Social problems include poverty, illiteracy, poor health, and social oppression.
ENTREPRENEURSHIP AND SMALL BUSINESS

Takeaway 2: How do small businesses get started and what problems do they face?
Learning Objective: Describe how small businesses get started and common problems they face.
A small business is commonly defined as one with 500 or fewer employees, is independently
owned and operated, and does not dominate its industry.
Almost 99 percent of American businesses are classified as small.
HOW SMALL BUSINESSES GET STARTED
Some of the reasons why entrepreneurs launch their own businesses include:
• Wanting to be your own boss and control your future.
• Going to work for a family-owned business.
• Seeking to fulfill a dream.
The common ways for an entrepreneur to become involved in a small business are:
• Start a small business.
• Buy an existing small business.
• Buy and run a franchise –– where a business owner sells to another person the right to
operate the same business in another location, under the original owner’s business name and
guidance.
A small business startup is a new venture that the entrepreneur is hoping will take shape and be
successful as things move forward.
Startups that take advantage of things like open-source software and free Web services, while
staying small and striving to keep all operations as simple as possible are called lean startups.
WHY SMALL BUSINESSES FAIL
Small businesses have a high failure rate –– 60 to 80% of new businesses fail in their first five
years of operation.
As shown in FIGURE 6.2 of the text, the reasons for small business failure include:
• Insufficient financing—not having enough money available to maintain operations while still
building the business and gaining access to customers and markets.
• Lack of experience—not having sufficient know-how to run a business in the chosen market
or geographical area.

• Lack of expertise—not having expertise in the essentials of business operations, including

finance, purchasing, selling, and production.
• Lack of strategy and strategic leadership—not taking the time to craft a vision and mission,
nor to formulate and properly implement a strategy.
• Poor financial control—not keeping track of the numbers, and failure to control business
finances and use existing monies to best advantage.
• Growing too fast—not taking the time to consolidate a position, fine-tune the organization,
and systematically meet the challenges of growth.
• Lack of commitment—not devoting enough time to the requirements of running a competitive
business.
• Ethical failure—falling prey to the temptations of fraud, deception, and embezzlement.
FAMILY-OWNED SMALL BUSINESSES
Family businesses are owned and financially controlled by family members.
Family businesses represent the largest percentage of businesses operating worldwide. The
Family Firm Institute reports that, in the United States, family businesses account for 78% of new
job creation and 60% of the nation’s employment.
DISCUSSION TOPIC
Ask the students if any of their families have their own businesses. For those students whose families
do have their own businesses, ask them to describe for the class some of the challenges and joys that
they have witnessed or experienced with a family-owned business. This discussion can be used as a
bridge to the following material.
When everything works properly, the family firm is almost an ideal situation.
While family businesses must solve the same problems of other small or large businesses, they
must also address a set of unique problems.
▪ The family business feud occurs when members of the controlling family get into
disagreements about work responsibilities, business strategy, operating approaches, finances,
or other matters.
▪ The succession problem involves transferring leadership from one generation to the next.
The key management question in the succession problem is: How will the assets be distributed
and who will run the business when the current head leaves?
About 30% of family firms survive to the second generation; only about 12% survive to the third;
and only 3% are expected to survive beyond the third generation.

The succession problem should be addressed ahead of time with a succession plan, which is a
formal statement that describes how the leadership transition and related financial matters will be
handled when the time for changeover arrives. The succession plan should include:
• Procedures for choosing or designating the firm’s new leadership.
• Legal aspects of any ownership transfer.
• Any financial and estate plans relating to the transfer.
SMALL BUSINESS DEVELOPMENT
To help overcome the challenges of starting a small business there is assistance available.
A business incubator offers space, shared administrative services, and management advice at
reduced costs with the goal of helping new businesses become healthy enough to survive on their
own.
The Small Business Administration (SBA) works with state and local agencies to set up Small
Business Development Centers, which offers business owners guidance on how to set up and
manage business operations.
NEW VENTURE CREATION

Takeaway 3: How do entrepreneurs start, legally structure, and finance new businesses?
Learning Objective: Explain how entrepreneurs plan, legally structure, and fund new business ventures.
Can the entrepreneur identify a market niche or a new market that is being missed by other
established firms?
Can the entrepreneur generate a first-mover advantage by exploiting a niche or entering a market
before competitors?
LIFE CYCLES OF ENTREPRENEURIAL FIRMS
FIGURE 6.3 of the text describes the stages that are common in the life cycles of entrepreneurial
firms:
• Birth stage –– the entrepreneur struggles to get the new venture established and survive long
enough to test the viability of the underlying business model in the marketplace.
• Breakthrough stage –– the business model begins to work well, growth is experienced, and
the complexity of managing the business operation expands significantly.
• Maturity stage –– the entrepreneur experiences the advantages of market success and
financial stability, while also facing continuing management challenges of remaining
competitive in a changing environment.

WRITING A BUSINESS PLAN
New venture creation can benefit greatly from having a good business plan that describes all the
details necessary to set the direction for a new business and to obtain the necessary financing to
operate it.
The box on page 137 of the text explains why you need a business plan:
• It makes you identify and confront the potential strengths and weaknesses of your proposed
business.
• It makes you examine the market potential for your business’s products or services.
• It makes you examine the strengths and weaknesses of the competitors for your proposed
business.
• It helps you clarify the mission and key directions for the business, helping you to stay
focused.
• It helps you determine how much money will be needed to launch and operate the business.
• It helps you communicate more confidently and credibly with potential lenders and investors.
Every business plan should include the following items:
• Executive summary—overview of the business purpose and highlight of key elements of the
plan.
• Industry analysis—nature of the industry, including economic trends, important legal or
regulatory issues, and potential risks.
• Company description—mission, owners, and legal form.
• Products and services description—major goods or services, with competitive uniqueness.
• Market description—size of market, competitor strengths and weaknesses, five-year sales
goals.
• Marketing strategy—product characteristics, distribution, promotion, pricing, and market
research.
• Operations description—manufacturing or service methods, supplies and suppliers, and
control procedures.
• Staffing description—management and staffing skills needed and available, compensation,
human resource systems.
• Financial projection—cash flow projections for one to five years, break-even points, and
phased investment capital.
• Capital needs—amount of funds needed to run the business, amount available and amount
requested from new sources.
• Milestones—a timetable of dates showing when key stages of new venture will be completed.
CHOOSING THE FORM OF OWNERSHIP

One of the important decisions in starting a new business venture is choosing the legal form of
ownership. Alternative ownership forms include the following:
• A sole proprietorship is an individual or a married couple pursuing business for a profit. The
business owner is personally liable for business debts and claims.
• A partnership is formed when two or more people agree to contribute resources to start and
operate a business together. Business partners agree on the contribution of resources and
skills to the new venture, and on the sharing of profits and losses.
1. In a general partnership, the partners share management responsibilities.
2. In a limited partnership, a general partner manages the business and one or more
“limited” partners do not participate in day-to-day management of the business.
3. In a limited liability partnership, limits are placed on the liability of one partner for
the negligence of another partner.
• A corporation is a legal entity that exists separate from its owners. This separates the owners
from personal liability and gives the firm a life of its own beyond that of its owners.
• A limited liability corporation (LLC) is a hybrid legal form of business that combines the
advantages of the sole proprietorship, partnership, and corporation. For liability purposes, the
LLC functions like a corporation. For tax purposes, the LLC functions like a proprietorship or
partnership, depending on the number of owners.
FINANCING THE NEW VENTURE
There are two major ways the entrepreneur can obtain outside financing for a new venture:
• Debt financing involves going into debt by borrowing money from another person, a bank,
or financial institution and repaying it over time with interest.
• Equity financing involves exchanging ownership shares in the business to outsiders in return
for outside investment monies.
Equity financing is usually obtained from venture capitalists –– companies that pool capital and
make investments in new ventures in return for an equity stake in the business.
Venture capitalists tend to focus on relatively large investments and they usually take a
management role in order to grow the business and add value as soon as possible.
Sometimes an entrepreneurial venture becomes a candidate for an initial public offering (IPO),
in which shares of stock in the business are first sold to the public and then begin trading on a
major stock exchange.
A successful IPO enhances the value of the original investments of the venture capitalist and the
entrepreneur.
When venture capital is not available to the entrepreneur, the angel investor, a wealthy individual
who is willing to invest a portion of this wealth in return for equity in a new venture, is a

financing option. The presence of angel investors can help attract venture capital funding that
might not be available otherwise.
A new alternative is equity-based crowd funding which involves new ventures going online to
sell equity stakes in their businesses to crowds of investors.
Takeaway Summary
Takeaway Question 1: What is entrepreneurship and who are the entrepreneurs?

• Entrepreneurship is risk-taking behavior that results in the creation of new opportunities.
• A classic entrepreneur is someone who takes risks to pursue opportunities in situations others may
view as problems or threats.
• A serial entrepreneur is someone who starts and runs businesses and other organizations one after
another.
• Entrepreneurs tend to be creative people who are self-confident, determined, resilient, adaptable, and
driven to excel; they like to be masters of their own destinies.
• Females and minorities are well represented among entrepreneurs, with some being driven by
necessity or the lack of alternative career options.
• Social entrepreneurs set up social enterprises to pursue novel ways to help solve social problems.
For Discussion: If necessity is the mother of invention,” will a poor economy result in lots of
entrepreneurship and new small business startups?
Takeaway Question 2: How do small businesses get started and what common problems do they
face?
• Entrepreneurship results in the founding of many small businesses that offer job creation and other
benefits to local economies.
• The Internet has opened a whole new array of entrepreneurial possibilities for small businesses.
• Family businesses, ones owned and financially controlled by family members, represent the largest
percentage of businesses operating worldwide; they sometimes suffer from the succession problem.
• Small businesses have a high failure rate with as many as 60 to 80% failing within five years; many
failures are the result of poor management.
• Entrepreneurs and small business owners can often get help in the start-up stages by working with
business incubators and Small Business Development Centers in their local communities.
For Discussion: Given that so many small businesses fail due to poor management practices, what type of
advice and assistance should a Small Business Development Center offer to boost their success rate?
Takeaway Question 3: How do entrepreneurs start, legally structure, and finance new business
ventures?
• Entrepreneurial firms tend to follow the life-cycle stages of birth, breakthrough, and maturity, with
each stage offering different management challenges.
• A new start-up should be guided by a good business plan that describes the intended nature of the
business, how it will operate, and how financing will be obtained.

• An important choice is the form of business ownership for a new venture, with the proprietorship,
corporate, and limited liability forms offering different advantages and disadvantages.
• Two basic ways of financing a new venture are through debt financing – by taking loans, and equity
financing – exchanging ownership shares in return for outside investment.
• Venture capitalists pool capital and make investments in new ventures in return for an equity stake in
the business; an angel investor is a wealthy individual who is willing to invest money in return for
equity in a new venture.
For Discussion: If an entrepreneur has a good idea and his or her startup is starting to take off, is it better
to take an offer for equity financing from an angel investor or try to get a business loan from a bank?
KEY TERMS
Advertising model: a proven business model that creates a website attractive to visitors and then advertisers pay to
be displayed there.
Angel investor: a wealthy individual who is willing to make a personal investment in return for equity in a new
venture.
Brokerage model: bringing buyers and sellers together for online business transactions and taking a percentage
from the sales.
Business incubator: a special facility that offers space, shared services, and advice to help get small businesses
started.
Business model: a web-based model for making a profit by generating revenues that are greater than costs.
Business plan: a plan that describes all the details necessary to obtain start-up financing and operate a new business.
Classic entrepreneur: someone willing to pursue opportunities in situations others view as problems or threats.
Corporation: a legal entity that exists separate from its owners.
Debt financing: involves going into debt by borrowing money from another person, a bank, or financial institution
and repaying it over time with interest.
Entrepreneurship: describes strategic thinking and risk-taking behavior that results in the creation of new
opportunities.
Equity based crowd funding: new ventures going on line to sell equity stakes in their businesses to crowds of
investors.
Equity financing: involves exchanging ownership shares in the business to outsiders in return for outside
investment monies.
Family business: a business that is owned and financially controlled by family members.
Family business feud: occurs when family members have major disagreements over how the business should be
run.
First-mover advantage: entrepreneurial skill in moving quickly to spot, exploit, and deliver a product or service to
a new market or an unrecognized niche in an existing one.
Franchise: a business owner sells to another the right to operate the same business in another location, under the
original owner’s business name and guidance.
Intrapreneurs: people within larger organizations that step forward and take risk to introduce a new product or
process, or pursue innovations that can change the organization in significant ways.
Initial public offering (IPO): an initial selling of shares of stock to the public at large.
Lean startups: a startup that uses things like open-source software, while staying small and striving to keep
operations as simple as possible.

Limited liability corporation: a hybrid legal form of business combining advantages of a sole proprietorship or a
partnership with the liability advantages of a corporation.
Merchant model: a web-based business model that sells products directly to customers through the Web.
Mompreneurs: those who pursue business opportunities they spot as mothers.
Necessity-based entrepreneurship: takes place because other employment options do not exist.
Partnership: formed when two or more people agree to contribute resources to start and operate a business
together.
Serial entrepreneur: starts and runs businesses and nonprofits over and over again, moving from one interest and
opportunity to the next.
Small business: commonly defined as one with 500 or fewer employees, that is independently owned and operated,
and that does not dominate its industry.
Small Business Development Centers : organizations founded by the U.S. Small Business Administration to
provide advice to new and existing small businesses.
Social entrepreneur: a person that takes risks to find new ways to solve pressing social problems.
Social entrepreneurship: a unique form of ethical entrepreneurship that seeks new ways to solve pressing social
problems.
Startup: a new and temporary venture that is trying to discover a profitable business for future success.
Sole proprietorship: an individual pursing business for a profit.
Succession plan: a formal statement that describes how the leadership transition and related financial matters will
be handled when the time for changeover arrives.
Succession problem: involves transferring leadership from one generation to the next.
Venture capitalists: companies or individuals that make investments in new ventures in return for equity stake in
the business.
SELF-TEST ANSWERS
1. ____________ is among the personality characteristics commonly found among entrepreneurs.

(a) External locus of control (b) Inflexibility (c) Self-confidence (d) Low self-reliance
2. When an entrepreneur is comfortable with uncertainty and willing to take risks, these are indicators
of someone with a (n) ____________.
(a) high tolerance for ambiguity (b) internal locus of control (c) need for achievement (d) action-
orientation
3. Somewhere around ____________ % of American businesses meet the definition of “small

business” used by the Small Business Administration.
(a) 40 (b) 99 (c) 75 (d) 81
4. When a business owner sells to another person the right to operate that business in another location,
this is a business form known as ____________.
(a) conglomerate (b) franchise (c) joint venture (d) limited partnership
5. A small business owner who is concerned about passing the business on to heirs after retirement or
death should prepare a formal ____________ plan.
(a) retirement (b) succession (c) franchising (d) liquidation

6. What is one of the most common reasons why new small business start-ups often fail?
____________.
(a) The founders lack of business expertise. (b) The founders are too strict with financial controls.
(c) The founders don’t want fast growth. (d) The founders don’t have high ethical standards.
7. When a new business is quick to act and captures a market niche before competitors, this is called
____________.
(a) intrapreneurship (b) an initial public offering (c) succession planning (d) first-mover advantage
8. When a small business is just starting up, the business owner is typically most focused on
____________.
(a) gaining acceptance in the marketplace (b) an initial public offering (c) succession planning (d)
first mover advantage
9. At which stage in the life cycle of an entrepreneurial firm does the underlying business model begin
to work well and growth starts to occur?
(a) birth (b) early childhood (c) maturity (d) breakthrough

10. A venture capitalist who receives an ownership share in return for investing in a new business is
providing ________________ financing.
(a) debt (b) equity (c) corporate (d) partnership
11. In ____________ financing, a business owner borrows money as a loan that must eventually be
repaid, along with agreed-upon interest.
(a) debt (b) equity (c) partnership (d) limited
12. The people who take ownership shares in a new venture in return for providing the entrepreneur with
critical start-up funds are called _____________.
(a) business incubators (b) angel investors (c) SBDCs (d) intrapreneurs
13. The __________ form of small business ownership protects the owners from any personal losses
greater than their original investments; while the _____________ form separates them completely
from any personal liabilities.
(a) sole proprietorship, partnership (b) general partnership, sole proprietorship (c) limited
partnership, corporation (d) corporation, general partnership
14. The first component of a good business plan is usually a/an ____________.
(a) industry analysis (b) marketing strategy (c) executive-summary of mission and business model
(d) set of financial milestones
15. If a new venture has reached the point where it is pursuing an IPO, the firm is most likely
____________.
(a) going into bankruptcy (b) trying to find an angel investor (c) filing legal documents to become a
LLC (d) successful enough that the public at large will want to buy its shares
16. What is the relationship between diversity and entrepreneurship?

Entrepreneurship is rich with diversity. It is an avenue for business entry and career success that is
pursued by many women and members of minority groups. Data show that almost 40% of U.S.
businesses are owned by women. Many report leaving other employment because they had limited
opportunities. For them, entrepreneurship made available the opportunities for career success that
they had lacked. Minority-owned businesses are one of the fastest-growing sectors, with the growth
rates highest for Hispanic-owned, Asian-owned, and African American-owned businesses, in that
order.
17. What are the major stages in the life cycle of an entrepreneurial firm, and what are the management
challenges at each stage?
The three stages in the life cycle of an entrepreneurial firm are birth, breakthrough, and maturity. In
the birth stage, the leader is challenged to get customers, establish a market, and find the money
needed to keep the business going. In the breakthrough stage, the challenges shift to becoming and
staying profitable and managing growth. In the maturity stage, a leader is more focused on
revising/maintaining a good business strategy and more generally managing the firm for continued
success, and possibly for more future growth.

18. What are the advantages of a limited partnership form of small business ownership?
The limited partnership form of small business ownership consists of a general partner and one or
more “limited partners.” The general partner(s) play an active role in managing and operating the
business; the limited partners do not. All contribute resources of some value to the partnership for
the conduct of the business. The advantage of any partnership form is that the partners may share in
profits, but their potential for losses is limited by the size of their original investments.
19. What is the difference, if any, between a venture capitalist and an angel investor?
A venture capitalist, often a business, makes a living by investing in and taking large ownership
interests in fledgling companies, with the goal of large financial gains eventually, when the company
is sold. An angel investor is an individual who is willing to make a financial investment in return for
some ownership in the new firm.
20. Assume for the moment that you have a great idea for a potential Internet-based start-up business. In
discussing the idea with a friend, she advises you to be very careful to tie your business idea to
potential customers and then describe it well in a business plan. “After all,” she says, “you won’t
succeed without customers, and you’ll never get a chance to succeed if you can’t attract financial
backers through a good business plan.” With these words to the wise, you proceed. What questions
will you ask and answer to ensure that you are customer-focused in this business? What are the
major areas that you would address in writing your initial business plan?
My friend is right—it takes a lot of forethought and planning to prepare the launch of a new business
venture. In response to the question of how to ensure that I am really being customer-focused, I would
ask and answer for myself the following questions. In all cases I would try to frame my business
model so that the answers are realistic, but still push my business toward a strong customer
orientation. The “customer” questions might include: “Who are my potential customers? What
market niche am I shooting for? What do the customers in this market really want? How do these
customers make purchase decisions? How much will it cost to produce and distribute my
product/service to these customers? How much will it cost to attract and retain customers?” After
preparing an overall executive summary, which includes a commitment to this customer orientation, I
would address the following areas in writing up my initial business plan: a company description—
mission, owners, and legal form—as well as an industry analysis, product and services description,
marketing description and strategy, staffing model, financial projections with cash flows, and capital
needs.
MANAGEMENT SKILLS AND COMPETENCIES
EVALUATE CAREER SITUATIONS: WHAT WOULD YOU DO?
1. Becoming your own boss

2. Becoming a social entrepreneur
3. Making your startup legal

Student answers may vary based upon their orientation towards entrepreneurship, their tolerance for risk
and ambiguity, and their personal values.
SELF ASSESSMENT: THE ENTREPRENEURIAL ORIENTATION INVENTORY
Scoring
Give yourself 10 points for each of the following answers: 1a, 2a, 3c, 4a, 5a, 6a, 7c, 8a, 9c, 10c, 11b, and
12c; total the scores and enter the results here [I = _____]. Give yourself 8 points for each of the
following answers: 3b, 8b, and 9b; total the scores and enter the results here [II = _____]. Give yourself 6
points for each of the following answers: 2b and 5b; total the scores and enter the results here [III =
_____ ]. Give yourself 5 points for this answer: 1b; enter the result here [IV = _____]. Give yourself 4
points for this answer: 5c; enter the result here [V = _____]. Give yourself 2 points for each of the
following answers: 2c, 3a, 4b, 6c, 9d, 10b, 11a, and 12b; total the scores and enter the results here [VI =
_____]. Any other scores are worth 0 points. Total your summary scores for I + II + III + IV + V + VI and
enter the result here [EP = _____].
Interpretation
This assessment offers an impression of your entrepreneurial profile, or EP. It compares your
characteristics with those of typical entrepreneurs. Your instructor can provide further information on
each question, as well as some additional insights into the backgrounds of entrepreneurs. You may locate
your EP score on the following grid.
100+ = Entrepreneur extraordinaire
80–99 = Entrepreneur
60–79 = Potential entrepreneur
0–59 = Entrepreneur in the rough
Instructor’s Note
In discussing this assessment, emphasize that “capitalist societies depend on entrepreneurs to provide the
drive and risk-taking necessary for the system to supply people with the goods and services they need.”
Point out that “entrepreneurs have some common characteristics, including independence, willingness to
take risks, self-confidence, eagerness to see results, energy, and good organizational abilities. In a phrase,
they are high achievers. Driven by these personal characteristics, entrepreneurs establish and manage
small businesses in order to gain control over their lives, become self-fulfilled, reap unlimited profits, and
gain recognition from society.”
“Although most entrepreneurs are men, U.S. Department of Labor statistics show that women are
opening businesses at a rate five times faster than men. Many of these women entrepreneurs are ‘baby
boomers,’ frustrated with the discrimination and the barriers of corporate cultures. Curiously,
entrepreneurs ⎯ both men and women ⎯ tend to be shorter than average. The average age of
entrepreneurs has declined steadily over the last two decades. Most launch their business when they reach
their 30s, after gaining enough capital and experience to step out on their own. The National Federation of
Independent Businesses (NGIB) found that 45 percent of all new businesses were started by people 30
years old or younger. Most studies found that 75 percent of all entrepreneurs are married. Some

researchers conclude that successful entrepreneurs must have very supportive spouses. Studies also show
that entrepreneurs are often the oldest children in their families. Only children also rank high in
entrepreneurial potential.
“Survey results support the stereotype of the immigrant entrepreneur who has come to ‘the land
of opportunity’ to build a business. Often, immigrants believe they do not fit in with American culture,
and business ownership can help bridge the cultural gap. Furthermore, entrepreneurs often come from
backgrounds where the family struggled to make ends meet. Perhaps this is how many entrepreneurs
acquired the ability to gain maximum benefits from limited resources. It appears that meager beginnings
are a source of motivation for many. Entrepreneurs also appear to learn by example. Children whose
parents (or at least one parent) are self-employed are much more likely to create businesses of their own.
In the ‘nature vs. nurture’ argument in entrepreneurship, ‘nurture’ wins hands down.
“Most entrepreneurs complete four years of college. Although the stereotype of the high school
dropout who builds a business empire is popular, it is not usually true. In fact, a growing number of
entrepreneurs have earned master’s degrees. Entrepreneurs appear to recognize the value of an education
in helping them launch their businesses” (Scarborough and Zimmerer, 1991).
Relevant information on each question included in this assessment is provided below.
1. “Most entrepreneurs work while in school, earning at least one-half of their college expenses.
Not only do they work while attending school, many head their own business ventures.
Campus entrepreneurship has become so popular that students have formed a national
Association of Collegiate Entrepreneurs, and its ranks are swelling.”
2. “Despite their busy work schedules in school, entrepreneurs manage to keep their grades up.
One recent survey found that only 38 percent were average or below-average performers.”
3. “It is a myth that the primary motivating force behind most entrepreneurs is profit. Of course,
earning a profit is necessary for business survival, but it is not the driving force. Today,
entrepreneurs are most likely to cite dissatisfaction with working for someone else or lack of
control over their lives as key reasons for starting businesses.”
4. “Entrepreneurs are not afraid of hard work. They are willing to do whatever it takes to get the
job done. Further, entrepreneurs do not separate work and play. Their work is a source of fun
and excitement.”
5. “Entrepreneurs usually are good organizers. Building a business from scratch requires
valuable organizing skills. Putting together the pieces of a business puzzle ⎯ employees,
financing, inventory, and so on⎯requires someone who can visualize the proper way to
organize them.”
6. “No doubt about it, entrepreneurs are optimistic. Sometimes, however, their excessive
optimism gets them into trouble.”
7. “Entrepreneurs are fiercely independent. They are extremely reluctant to ask for outside
professional help. When faced with a difficult problem, most entrepreneurs simply roll up
their sleeves and get to work. And, they don’t quit until the problem has been solved.”
8. “Entrepreneurs are intense competitors, and losing is not an acceptable outcome. Many
embrace the feeling expressed by Vince Lombardi, who said ‘Winning isn’t everything; it’s
the only thing.’ Of course, entrepreneurs don’t always win, but when they fail, they tend to
view it as a learning experience. Many owners of successful businesses failed at least once
before establishing a foothold. The threat of failure seems to motivate many entrepreneurs to
do everything in their power to avoid it.”

9. “Entrepreneurs are risk-takers, and they recognize that failure is a possibility (although most
believe it a small one).”
10. “Entrepreneurs are definitely self-starters. They are much more energetic and enthusiastic
than average, especially where their work is concerned.”
11. “Entrepreneurs have a need to be in control of a situation. They are much more likely to take
a chance on events they can affect themselves rather than on some externally imposed
situation. Bold self-confidence allows an entrepreneur to believe that she can turn the odds in
her favor if given the opportunity.”
12. “Despite widely held beliefs to the contrary, entrepreneurs are not extreme risk-takers.
Studies show that they set reasonable, attainable goals and take calculated risks to reach
them. They gamble only when they believe the odds of winning are in their favor.”
(Source: Instrument adapted from Scarborough, N.M, and Zimmerer, T.W. Effective Small Business Management,
3rd ed. Columbus: Merrill, 1991, pp. 26--27. Used by permission.)
CONTRIBUTE TO THE CLASS EXERCISE: THE ENTREPRENEURS AMONG US
Student experience will affect answers and outcomes thus team answers and deliverables will vary by
group and individual.
MANAGE A CRITICAL INCIDENT: CRAFT BREWERY IN – OR OUT – OF THE MONEY?
As the loan officer of a small community bank, you’ve just been approached for a commercial business
loan. A group of three entrepreneurs are asking for $250,000 to start a craft brewery producing beers with
a local flavor. There is already one microbrewery in your town of 20,000 full-timers and another 20,000
university students. It has been linked with a popular tavern and music venue for several years, and
recently expanded its brewing capacity to allow distribution into regional markets. The entrepreneurs
proposing the new craft brewery include a brewer who learned his trade in Portland, Oregon, and won a
national award for a strong, vanilla-mint specialty brew. The plan is to take his expertise and create spin-
off brews that will be both national award-winners and local favorites. They want the bank financing to
purchase and equip a brewing facility on the outskirts of town.
Questions
What will you look for as positive and negative signals in the business plan? When you meet with the
would-be entrepreneurs, what will be the first five questions you will ask and what answers will you want
to receive before deciding whether to lend them the funds? Overall, what are the major risks associated
with this proposal and what is the probability of it being successful enough to justify a startup loan?
This is an excellent exercise to divide class in different teams and have role plays. Some plays banker and
some plays the entrepreneurs. Students’ answers will vary.

Some of the positives that students should identify are factors such as a brewer who learned his trade in
Portland, Oregon, and won a national award for a strong, vanilla-mint specialty brew; growing demand
for craft brews; and national and local potential. Some of the negatives should include competition with
first mover advantage; established link with local tavern and expansion of the competition; and relatively
a small town so limited market potential locally.
Some of the initial questions that students should come up with are: what is the market potential and their
five year revenue projection; what risks have they identified; what personal capital are they putting up;
how do they plan to sustain their business; and what are their costs and margins.
Major risks are the negatives identified above and the potential for success depends on the five year cost-
revenue projections and market analysis for growth.
COLLABORATE ON THE TEAM ACTIVITY: COMMUNITY ENTREPRENEURS
Entrepreneurs are everywhere. Some might live next door to you, many own and operate the small
businesses in and around your community, and you might even be one of them—or aspiring to be.
Question
Who are the entrepreneurs in your community and what are they accomplishing?
Instructions
1. Read the local news, talk to your friends and other locals, and think about where you shop. Make a list
of the businesses and other organizations that have an entrepreneurial character.
Be as complete as possible—look at both commercial businesses and nonprofits.
2. For each of the organizations, do further research to identify the people who are the entrepreneurs
responsible for them.
3. Contact as many of the entrepreneurs as possible and interview them. Try to learn how they got started,
why, what obstacles or problems they encountered, and what they learned about entrepreneurship that
could be passed along to others. Ask for their “founding stories” and ask for advice they might give to
aspiring entrepreneurs.
4. Analyze your results for class presentation and discussion. Look for patterns and differences in terms of
the entrepreneurs as people, their entrepreneurial experiences, and potential insights into business versus
social entrepreneurship.
5. Consider writing short cases of the entrepreneurs you find especially interesting. What kinds of stories
would you tell? How would these stories probably end?
Student answers will vary.

CASE STUDY: IN-N-OUT BURGER: BUILDING A BETTER BURGER
Discussion Questions
1. Rich Snyder was twenty-four years old when he assumed leadership of In-N-Out after his father passed
away. In what ways do you think his young age was an asset or a liability for his leadership? Does age
really matter in entrepreneurship?
A company with a strong culture won't be as quickly affected by an immature leader; however
Snyder seems to have all of the qualifications mentioned in the chapter including a family
background in entrepreneurship, so his young age may have been an energizing factor.
2. In an era of fusion cuisine and extreme fajitas, is In-N-Out’s long-term strategy of offering only four
simple food items still on track? How about the firm’s approach to employees? Does it give them an edge
over the fast-food competition?
This organization has minimized this risk and actually turned it into a competitive advantage.
Technically the company offers only four food items on its menu. However, the not so secret
“secret menu” offers many additional items that allow patrons to customize their meals.
Although there are copies of this secret menu for sale on E-Bay at a suggested bid of $14.99, In-
N-Out-Burger actually lists these choices on its website. These options go far beyond those
offered at most fast food chains and include such selections as half of a burger (ideal for
children) and no salt added to one’s fries.
3. Problem Solving A would-be entrepreneur walks into your bank and asks to receive financing for a
business plan modeled after In-N-Out’s approach and extremely simple menu. But all the ingredients
would come from local suppliers and growers within a 30-mile radius of town. Is this a winning recipe
deserving of financing from your bank? What would you like to see in the business plan before approving
the loan?
As a banker, I would know that the restaurant business has the highest rate of failure among all
types of small businesses. I would be interested in how much research this person had done on
the consumer demand for this type of restaurant and the availability of local suppliers. Fast food
is a mature over capacity industry that has many strong, well-capitalized competitors. An
additional consideration would be the viability and limitations of using only suppliers located
within thirty miles. With today’s transportation efficiencies and effective supply chain distribution
systems, this may unnecessarily limit the entrepreneur’s ability to purchase goods at competitive
prices. Low pricing in consumer minds is almost synonymous with fast food. While this is an
interesting concept, it is probably better suited to a traditional style restaurant where he could
appeal to this niche target market than to the fast food sector. As this business plan was
presented, I would not risk the bank’s funds supporting this proposal.

4. Further Research Imagine you were asked by In-N-Out Burger to research current industry and
social trends, and consumer values and tastes. Write an ad campaign that coincides with the current
market landscape and still adheres to In-N-Out’s core values: quality, consistency, friendliness, and
cleanliness. How would your ad appeal to customers in ways that the ads from the big chains—
McDonald’s, Wendy’s, and Burger King—do not? How would you use social media as part of this ad
campaign? And, what can you do that would make this ad so attractive that it goes viral on YouTube?
While students’ answers may vary depending on where they obtain their information on fast food
industry trends, this organization has “promoted” itself quite successfully through sales
promotion such as T-shirts, bumper stickers, etc. and word of mouth from satisfied customers.
Students need to keep in mind that these techniques have helped to hold down costs and should be
utilized to the fullest especially through the use of social media.

Management 13th Edition Schermerhorn Solutions Manual Download

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Management 13th Edition Schermerhorn Solutions Manual Download

Uploaded by

Copyright:

Available Formats

Schermerhorn & Bachrach / Management, 13th Instructor’s Guide

Management 13th Edition

Full download at link:

Solution Manual: https://testbankpack.com/p/solution-manual-for-

Test Bank: https://testbankpack.com/p/test-bank-for-management-

Takeaway Questions & Learning Objectives

Takeaway 1: What is entrepreneurship and who are the entrepreneurs?

Copyright © 2015 John Wiley & Sons, Inc. 6-1

Takeaway Question 1: What is entrepreneurship and who are the entrepreneurs?

Copyright © 2015 John Wiley & Sons, Inc. 6-2

Management Learning Review

Management Skills & Competencies

THE NATURE OF ENTREPRENEURSHIP

Copyright © 2015 John Wiley & Sons, Inc. 6-3

WHO ARE THE ENTREPRENEURS?

Entrepreneurs are found in a variety of settings, including:

ATTITUDES AND PERSONAL INTERESTS

Copyright © 2015 John Wiley & Sons, Inc. 6-4

BACKGROUND, EXPERIENCES, AND INTERESTS

Entrepreneurs also tend to have unique backgrounds and experiences, including:

• Childhood experiences and family environment

Copyright © 2015 John Wiley & Sons, Inc. 6-5

• Deeply embedded life interests

WOMEN AND MINORITY ENTREPRENEURS

Women of color often seek entrepreneurial opportunities as a result of:

Copyright © 2015 John Wiley & Sons, Inc. 6-6

ENTREPRENEURSHIP AND SMALL BUSINESS

Almost 99 percent of American businesses are classified as small.

HOW SMALL BUSINESSES GET STARTED

WHY SMALL BUSINESSES FAIL

Copyright © 2015 John Wiley & Sons, Inc. 6-7

• Lack of expertise—not having expertise in the essentials of business operations, including

FAMILY-OWNED SMALL BUSINESSES

Family businesses are owned and financially controlled by family members.

Copyright © 2015 John Wiley & Sons, Inc. 6-8

SMALL BUSINESS DEVELOPMENT

NEW VENTURE CREATION

LIFE CYCLES OF ENTREPRENEURIAL FIRMS

Copyright © 2015 John Wiley & Sons, Inc. 6-9

WRITING A BUSINESS PLAN

Every business plan should include the following items:

CHOOSING THE FORM OF OWNERSHIP

Copyright © 2015 John Wiley & Sons, Inc. 6-10

FINANCING THE NEW VENTURE

Copyright © 2015 John Wiley & Sons, Inc. 6-11

Takeaway Question 1: What is entrepreneurship and who are the entrepreneurs?

Copyright © 2015 John Wiley & Sons, Inc. 6-12

Copyright © 2015 John Wiley & Sons, Inc. 6-13

1. ____________ is among the personality characteristics commonly found among entrepreneurs.

3. Somewhere around ____________ % of American businesses meet the definition of “small

Copyright © 2015 John Wiley & Sons, Inc. 6-14

Copyright © 2015 John Wiley & Sons, Inc. 6-15

16. What is the relationship between diversity and entrepreneurship?

Copyright © 2015 John Wiley & Sons, Inc. 6-16

MANAGEMENT SKILLS AND COMPETENCIES

EVALUATE CAREER SITUATIONS: WHAT WOULD YOU DO?

1. Becoming your own boss

Copyright © 2015 John Wiley & Sons, Inc. 6-17

SELF ASSESSMENT: THE ENTREPRENEURIAL ORIENTATION INVENTORY

Copyright © 2015 John Wiley & Sons, Inc. 6-18

Copyright © 2015 John Wiley & Sons, Inc. 6-19

CONTRIBUTE TO THE CLASS EXERCISE: THE ENTREPRENEURS AMONG US

MANAGE A CRITICAL INCIDENT: CRAFT BREWERY IN – OR OUT – OF THE MONEY?

Copyright © 2015 John Wiley & Sons, Inc. 6-20