Section 1: The Challenge of Entrepreneurship

Section 1:
The Challenge of Entrepreneurship
Copyright © 2019, 2016, 2014 Pearson Education Ltd. All Rights Reserved
Essentials of Entrepreneurship and Small
Business Management
Ninth Edition, Global Edition
Chapter 1
The Foundations of
Entrepreneurship
Copyright © 2019, 2016, 2014 Pearson Education Ltd. All Rights Reserved.
Learning Objectives (1 of 3)
1. Define the role of the entrepreneur in business in the
United States and around the world.
2. Describe the entrepreneurial profile.
3-A. Describe the benefits of entrepreneurship.
3-B. Describe the drawbacks of entrepreneurship.
4. Explain the forces that are driving the growth of
entrepreneurship.
5. Explain the cultural diversity of entrepreneurship.
6. Describe the important role that small businesses play
in our nation’s economy.
7. Put failure into the proper perspective.
8. Explain how an entrepreneur can avoid becoming
another failure statistic.
9. Discover how the skills of entrepreneurship, including
critical thinking and problem solving, written and oral
communication, teamwork and collaboration, leadership,
creativity, and ethics and social responsibility, apply to
every career choice and every avenue of life.
The World of the Entrepreneur (1 of 2)
• Every year U.S. entrepreneurs launch more than 6.6
million new businesses.
• Entrepreneurial spirit - the most significant economic
development in recent history.
• Globally, nearly one in eight adults is actively engaged in
launching a business.
Entrepreneurial Activity across the Globe
Table 1.1 Entrepreneurship-Friendly Nations
Which nations provide the best environment for cultivating entrepreneurship? A recent study ranked 137
countries on the quality of the entrepreneurial ecosystem in each nation using the Global
Entrepreneurship and Development Index (GEDI), an index that includes a variety of factors that range
from the availability of capital and workforce quality to attitudes toward entrepreneurs and technology
available. The maximum GEDI score is 100.
GEDI Score, Top Ten Countries GEDI Score, Bottom Ten Countries
1. United States 83.4 128. Venezuela 13.0
2. Switzerland 78.0 129. Nicaragua 12.7
3. Canada 75.6 130. Malawi 125
4. Sweden 75.5 131. Guinea 12.1
5. Denmark 74.1 132. Burkina Faso 11.9
6. Iceland 73.5 133. Bangladesh 11.8
7. Australia 72.5 134. Mauritania 11.6
8. United Kingdom 71.3 135. Sierra Leone 11.4
9. Ireland 71.0 136. Burundi 11.4
10. Netherlands 67.8 137. Chad 8.8
Source: Global Entrepreneurship Index, The Global Entrepreneurship and Development Institute, 2017,
https://thegedi.org/global-entrepreneurship-and-development-index/.
The World of the Entrepreneur (2 of 2)
• Global Entrepreneurship Monitor (GEM) study:
– 12.6% of the U.S. population aged 18 to 64 is engaged
in entrepreneurial activity.
– 68% of working adults around the world perceive
entrepreneurs as having high status.
What is an Entrepreneur?
• Entrepreneur:
‒ One who creates a new business in the face of risk and
uncertainty for the purpose of achieving profit and
growth by identifying opportunities and assembling the
necessary resources to capitalize on them.
Percentage of Start-Up Companies in the United States
Source: Business Dynamics Statistics Data Tables: Firm Age, U.S. Department of Commerce, U.S.
Census Bureau, 2017, www.census.gov/ces/dataproducts/bds/data_firm.html.
Characteristics of Entrepreneurs
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 calculated risk takers.
3- Self-reliance. Entrepreneurs must fill multiple roles to make
their companies successful, especially in the early days of a
start-up. Because their resources usually are limited, they end
up performing many jobs themselves, even those they know little
about.
4- Confidence in their ability to succeed. Entrepreneurs
typically have an abundance of confidence in their ability to
succeed and are confident that they chose the correct career
path.
5- Determination. Some people call this characteristic “grit,” the
ability to focus intently on achieving a singular, long-term goal.
Studies show that grit is a reliable predictor of achievement and
success.
6- 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.
7- 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.
8- 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.
9- Skill at organizing. Building a company “from scratch” is
much like piecing together a giant puzzle. Entrepreneurs know
how to put the right people together to accomplish a task.
10- Tenacity. Obstacles, obstructions, and defeat typically do not
dissuade entrepreneurs from doggedly pursuing their visions.
They simply keep trying.
11- 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.
12- Creativity. One of the hallmarks of entrepreneurs is creativity.
They constantly come up with new product or service ideas,
unique ways to market their businesses, and innovative business
models.
13- Willingness to work hard. Entrepreneurs work hard to build
their companies, and there are no shortcuts around the workload
(book Outliers: The Story of Success/ The secret to success in
any field is to invest at least 10,000 hours practicing and honing
one’s skills.)
Figure 1.3 Most Important Qualities of an
Entrepreneur
Source: Ryan Westwood, “What Traits Do We Need to Succeed as Entrepreneurs?” Forbes, September 4, 2015,
www.forbes.com/sites/ryanwestwood/2015/09/04/what-traits-do-we-need-tosucceed-as-entrepreneurs/#4d7f537f8ff4 .
Entrepreneurship
• One characteristic of entrepreneurs stands out: diversity!
• Anyone – regardless of age, race, gender, color, national
origin, or any other characteristic – can become an
entrepreneur (although not everyone should).
Benefits of Entrepreneurship
• The opportunity to:

– Create your own destiny.
– Make a difference.
– Reach your full potential.
– Reap impressive profits.
– Contribute to society and to be recognized for your efforts.
– Do what you enjoy and to have fun at it.
Drawbacks ‫ب‬
( ‫لعيو‬77‫ )ا‬of Entrepreneurship
• Uncertainty of income
• Risk of losing your entire investment
• Long hours and hard work
• Lower quality of life until the business gets established
• High levels of stress
• Discouragement
Feeding the Entrepreneurial Fire (3 of 3)
• Entrepreneurs as heroes
• Entrepreneurial education
• Demographic and economic factors
• Shift to a service economy
• Technology advancements
• Independent lifestyle
• The Internet, cloud computing, and mobile marketing
• International opportunities – micromultinationals
Figure 1.4 Global Entrepreneurial Activity by
Age Group
Source: Based on Zoltán J. Ács, László Szerb, and Erkko Autio, Global Entrepreneurship Index, 2016, Global
Entrepreneurship and Development Institute, p. 2.
Figure 1.5 U.S. Online Retail Sales
Source: Based on data from Forrester Research, 2016.
The Cultural Diversity of Entrepreneurship
• Young entrepreneurs
• Women entrepreneurs
• Minority-owned enterprises
• Immigrant entrepreneurs
• Part-time entrepreneurs
Growth of New Entrepreneurs by Minority Group
Figure 1.7
Percentage
of New
Entrepreneur
s in the U.S.
by Minority
Group, 1996
and 2016
The Cultural Diversity of Entrepreneurship
• Home-based businesses
• Family businesses
– Family-owned business
• Copreneurs (entrepreneurial couples)
• Corporate castoffs (layoffs)
• Retiring baby boomers
The Power of Small Businesses (1 of 2)
• Small businesses:
– Make up 99.7% of the 28.8 million businesses in the
United States
– Employ 48% of the nation’s private sector workforce
– Create more jobs than big businesses
 Created 63% of net new jobs over the last decade
 5% of small companies create 67% of net new jobs
in the economy
– Gazelles are small companies that are growing at 20%
or more per year with at least $100,000 in annual
sales; they create 70% of net new jobs in the economy.
Figure 1.9 Small Businesses by Industry
Source: Based on data from “Statistics of U.S. Businesses, U.S. and States, NAICS Sectors, Small Employment Sizes,”
United States Census Bureau, 2013, www.census.gov/econ/susb/.
The Power of Small Businesses (2 of 2)
• Small businesses:
– Produce 48.5% of the nation’s private GDP.
– Account for 47% of business sales.
– Create 16 times more patents per employees than
large companies.
 Zipper, FM radio, the laser, air conditioning, the
escalator, the lightbulb, the personal computer,
automatic transmission, and many more!
Putting Failure into Perspective
• Entrepreneurs are not paralyzed by the prospect of failure.
• Failure: a natural part of the creative process.
• Successful entrepreneurs learn to fail intelligently.
Figure 1.10 Small Business Failure Rate
Avoiding the Pitfalls of Small Business
Failure (1 of 2)
• Know your business in-depth

• Build a viable business model – and test it
• Use lean start-up principles
• Know when to pivot
• Develop a solid business plan
Avoiding the Pitfalls of Small Business
Failure (2 of 2)
• Manage financial resources

• Understand financial statements
• Build the right team
• Learn to manage people effectively
• Set your business apart from the competition
• Maintain a positive attitude
Developing Career Skills
• Critical thinking and problem solving
• Written and oral communication
• Teamwork and collaboration
• Leadership
• Creativity
• Ethics and social responsibility
Conclusion
• Entrepreneurs:
– Are an important part of the free enterprise system
– Are a diverse and talented group of people
– Represent a cross-section of society as a whole
– Are able to enhance the profitability of their businesses
through acquiring additional knowledge and experience
What is Ahead?
Chapter 2 Ethics and Social Responsibility
Section 2 The Entrepreneurial Journey Begins
Section 3 Launching the Business
Section 4 Putting the Business Plan to Work
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Section 1:

The Challenge of Entrepreneurship

• The opportunity to:

Source: Based on data from Forrester Research, 2016.

• Know your business in-depth

• Manage financial resources

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