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Chapter 1Entrepreneurs Recognize Opportunities

Entrepreneurship

Entrepreneurship, 2nd EditionMariotti and Glackin with NFTE

© 2010 Pearson Education, Upper Saddle River, NJ 07458.

All Rights Reserved.2

Business—buying and selling of products and services.

Product—exists in nature or is made by human beings and is tangible.

Service—work that provides time, skills, or expertise and is intangible.

What Is Business?




Employees—earn their living working for someone else’s business.

Entrepreneurs—earn their living starting, owning, and working for their own business.

What Is an Entrepreneur?




A scarce (limited) resource is something of value that can be used to make something else or fill a need.

Entrepreneurs add value to scarce resources by shifting them from areas of lower to higher productivity.

Entrepreneurs Add Value to Scarce Resources




What should be produced? When will it be produced? How will it be produced? Who will produce it? Who gets what is produced?

An economy is a country’s financial structure. It is the system that produces and distributes wealth.

The Economic Questions




What Is a Small Business? 0 to 500 full-time employees

Approximately 99.9% of the 26.8 million U.S. businesses are small.

Small businesses employ about 50% of the U.S. private workforce.

Annual sales < $5 million




entrepreneursControl over working conditions

Why Be an Entrepreneur?




Costs and Benefits of EntrepreneurshipCosts Business failure Obstacles Loneliness Financial

insecurity Long hours/hard

work

Benefits Independence Satisfaction Financial reward Self-esteem




Cost/Benefit Analysis—listing costs and benefits in order to make decisions that are not emotional

Costs—money and time invested

Benefits—money earned and knowledge and experience gained

Opportunity Cost—cost of the next-best investment

For cost/benefit analysis to be accurate, opportunity cost must be included.

Cost/Benefit Analysis




Entrepreneurship Options Traditional for-profit enterprise Social entrepreneurship including

venture philanthropy Green entrepreneurship




Shumpeter’s Sources of Opportunity

Use a new technology to produce a new product.

Use an existing technology to produce a new product.

Use an existing technology to produce an old product in a new way.

Find a new source of resources to produce more efficiently.

Develop a new market for an existing product.




Not All Ideas Are Opportunities

An opportunity is an idea that is based on what customers need or want and are willing to buy sufficiently often at a high enough price to sustain the business.




Timmon’s Business Opportunity=Idea + 4 Characteristics

1. Attractive to customers2. Will work in the business

environment3. Can be executed in an existing

window of opportunity4. Resources and skills to create the

business available to the entrepreneur




Use SWOT to Evaluate Business Ideas

Strengths

Weaknesses

Opportunities

Threats




Roots of Opportunity1. Problems2. Changes3. Inventions4. Competition5. Technological advancesWhere others see problems, entrepreneurs

recognize opportunities.




Pathways to Entrepreneurship

Start from the beginning Buy an existing business Secure franchise rights License technology (Do not steal someone else’s

creativity)




Profit—amount of money earned after costs are paid

Profit signals that an entrepreneur is adding value to scarce resources.

Entrepreneurs try to make choices (trade-offs) that will increase profit.

Profit Is the Signal




Rules for Building a Successful Business

1. Recognize an opportunity2. Evaluate it with critical thinking

(SWOT)3. Build a team4. Create a business plan5. Gather resources6. Establish ownership7. Create wealth

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