Entrepreneurship I - Chapter 1

What Is Entrepreneurship?

In this presentation, you will learn:• How small businesses and

entrepreneurship contribute to the economy

• How the laws of supply and demand in the free enterprise system affect entrepreneurship

• The ways in which entrepreneurs contribute to our free enterprise system

What Is Entrepreneurship?

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• Entrepreneurship is the process of getting into and operating one’s own business.

• Entrepreneurial means of or having to do with an entrepreneur or entrepreneurs.

Entrepreneurship Today!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• About one in three households is involved with a new or small business.

• In fact, the number of home-based businesses has grown from 12 million in the early 1990s to 16 million in the mid-1990s.

• More than 90 percent of all businesses are small businesses with fewer than 100 employees.

• Owning and operating a business today is much different than it was ten years ago.

• The global marketplace has resulted in new resources, markets, and ideas.

• Information technology allows people to communicate instantly and keep records more efficiently.

• To really understand how entrepreneurs and customers interact in the economy, you will need to start with economics.

• Economics is the study of the decisions or choices that go into making, distributing, and consuming products.

The Free Enterprise System!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• Most demographic nations have a free enterprise system. • In a free enterprise system, the right to make economic

choices is most important:• People can choose what products to buy.• People can choose to own private property.• People can choose to start a business and compete with

other businesses.• The Free Enterprise System is also called Capitalism or a

Market Economy.• Making a profit is a primary incentive of a free enterprise.• It is one way of measuring success in a free enterprise system.• Profit is money that is left after all expenses of running a

business have been deducted from the income.

The Role Of Competition!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• Competition between similar businesses is a key element in a market economy.

• It forces companies to become more efficient.• It also keeps prices down and quality up.• Businesses compete on the basis of price and non-price

factors.

Economics: Making Choices!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• Economics is the study of the decisions (or choices) that go into making, distributing, and consuming products.

• Goods and services are the products that our economic system produces to satisfy our wants.

• Goods are tangible (or physical) products, such as toothpaste or a bicycle tire.

• Services are intangible (or conceptual) products. Barbers, plumbers, and Web designers run service businesses.

• The resources that businesses use to produce the goods and services that people want are the factors of production.

• When wants are greater than resources, you have scarcity. • Land, labor, and capital are scarce, so entrepreneurs must

sometimes give up one thing to get another. (Ex: The owner of a new restaurant may forego a costly décor to have more money to put into staff or kitchen equipment.

The Laws of Supply & Demand!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• In a free enterprise system, the price of a product is determined in the marketplace. • There, consumers and producers interact in response to the laws of supply and demand.• Demand is the amount of quantity of goods or services that consumers are willing and able to buy.• According to the law of demand, price is inversely related to demand. In other words, as price goes

up, the quantity demanded goes down.• Some products respond more readily to the law of demand than others. If a small change in price of

an item causes a significant change in the quantity demanded, the demand for the item is elastic.• If a change in the price has little or no effect on the quantity demanded, demand for the item is

inelastic.• Demand tends to be inelastic in these circumstances:

• No acceptable substitutes are available.• The price change is small relative to buyer income.• The product is a necessity.

• The demand for butter tends to be elastic because a lower-priced substitute, margarine, is available.• If a product’s price is low, that does not mean that people will keep buying it indefinitely. They will not,

for example, buy more than they can reasonably use. This effect is known as the principle of diminishing marginal utility.

• It establishes that price alone does not determine demand. Other factors (like income, taste, and the amount of product already owned) play a role as well.

• The amount of a good or service that producers are willing to provide is called supply.• Producers are more willing to supply products in greater amounts when prices are high. They are

less willing to do so when prices are low.• Supply and demand are dynamic in the marketplace-that is, they are continually shifting.• This creates surpluses, shortages, and equilibrium.• Equilibrium is the point at which consumers buy all of a product that is supplied, leaving neither a

surplus nor a shortage.

What Entrepreneurs Contribute?

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• Consider the contributions of entrepreneurs to the economy:• Entrepreneurs are the mechanism by which our economy turns demand into

supply. They recognize consumer wants and see the economic opportunities in satisfying them.

• Entrepreneurs are a principal source of venture capital. As part of the process of planning and setting up a new business, entrepreneurs gather resources. Money is one of the most important to these. Entrepreneurs usually start with their own funds and then seek out contributions from private investors.

• Entrepreneurs provide jobs. To produce goods and services, they spend capital on setting up a place of business and hiring workers. When they do this, they provide for their own financial security and for financial security of others.

• The most successful entrepreneurs change society. In 1976, Steven Jobs and Steven Wozniak set out to create Apple, the first personal computer. In less than five years, they had created a whole industry comprising hundreds of related businesses and thousands of new jobs. Today it is hard to imagine a workplace without at least one personal computer.

• Entrepreneurs start by responding to society’s wants and end up changing that society and creating even more wants.

Small Businesses Versus Entrepreneurial Ventures!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• While it is true that most businesses start small, not all businesses stay small.

• There are many reasons for this, but the principal reason is the intentions, motives, and goals of the founders of the business.

• Small business owners who start what are sometimes referred to as “mom and pop” businesses generally start them to create jobs for themselves and lifestyles that are satisfying. (Examples of other small businesses include: repair shops, accountant and law offices.

• Founders of entrepreneurial ventures have different motives for starting a business.

• Their principal goals are to innovate, grow the venture, and create value that can be harvested when they leave the business. (Examples of entrepreneurial ventures include: The Gap Clothing Store, Domino’s Pizza, Netscape, and Blockbuster Entertainment).

The Entrepreneurial Start-up Process!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

The entrepreneurial start-up process includes five key components:• The entrepreneur• The environment• The opportunity• Start-up resources• The new venture organization

The Entrepreneur!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• The entrepreneur is the driving force that recognizes opportunity, pulls together the resources to exploit that opportunity, and creates a company to execute that opportunity in the marketplace.

• The entrepreneur brings to the process all the behaviors and experience from his or her life to the point.

The Environment!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• A new business environment includes all those variables that affect it that are not controlled by the entrepreneur.

• In general, four categories of environment variables affect a new venture’s ability to start and grow:

1. The nature of the environment, whether it’s uncertain, fast-changing, stable, highly competitive, and so forth

2. The availability of resources such as skilled labor, start-up capital, and sources of assistance

3. Ways to realize value such as favorable taxes, good markets and supportive governmental policies

4. Incentives to create new businesses such as enterprise zones, which are specially designated areas of a community that provide tax benefits to new businesses locating there and grants for new product development

The Opportunity!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• An opportunity is an idea that has commercial value.• An idea or a new product only has value if there are customers ready

and willing to buy it.• An idea plus a market equals an opportunity.• New businesses are founded on recognized opportunities in the

environment.

Start-up Resources!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• To execute a concept for a new business, an entrepreneur must use his or her creative talent to pull together the necessary people and capital.

• The start-up resources an entrepreneur needs to start a business include capital, skilled labor, management expertise, legal and financial advise, a facility, equipment, and most important, customers.

The New Venture Organization!!!

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• All the components of the new venture process come together in the organization of a company to execute the new business.

• The new venture organization is the shell that surrounds all the products, processes, and services that are part of the new business.

• Through the new venture organization or company, the entrepreneur is able to create value for him or herself, for the employees, the customers, and the economy at large.

How Businesses Succeed?

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• There is a common myth that most new businesses fail.• This is simply not true.• In fact, the reporting firm of Dun & Bradstreet studied thousands of

companies and determined that many more businesses succeed than fail.

• Of all businesses that were started in the mid-1980s, D&B found that 69.7 percent were still in business ten years later.

• D&B also discovered that the problem with most reports on business failure is that they don’t define failure properly.

What Is Business Failure?

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• A business that files Chapter 7 bankruptcy and loses money for creditors, the people who lent them money, and their investors is considered a business failure.

• The business no longer appears on the tax rolls or other lists where operating businesses are found.

• Such businesses are rightfully counted as failures.• Businesses that disappear from public lists are not always failures. • Some are discontinuances.• A discontinuance might be a business that is operating under a new

name or a business that has been purposely discontinued to start a new one.

How Can Entrepreneurs Succeed?

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

• The bottom line is that the chances of a new business succeeding are good with effective planning.

• Some businesses will fail, but the number-one cause of business failure is poor management.

• Those people starting and running the business aren’t doing what it takes to be successful.

• Entrepreneurs who prepare themselves by learning how to build successful new businesses and assemble a team that has the expertise they need will improve their chances of success.

References

Entrepreneurship I - Chapter 1 (Entrepreneurship & Small Business Management)

Allen, K. & Meyer, E. (2000). Entrepreneurship and Small Business Management. Retrieved August 25, 2012, from Glenco McGraw-Hill.

Entrepreneurship

& Small Business

Management

References