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Entrepreneurship and Small Business (MGT402) + Strategic Management (MGT 401)

Description

MGT402: Entrepreneurship and Small Business :

The Assignment must be submitted on Blackboard (WORD format only) via allocated

folder.

Assignments submitted through email will not be accepted.

Students are advised to make their work clear and well presented, marks may be reduced

for poor presentation. This includes filling your information on the cover page.

Students must mention question number clearly in their answer.

Late submission will NOT be accepted.

Avoid plagiarism, the work should be in your own words, copying from students or other

resources without proper referencing will result in ZERO marks. No exceptions.

All answered must be typed using Times New Roman (size 12, double-spaced) font. No

pictures containing text will be accepted and will be considered plagiarism).

Submissions without this cover page will NOT be accepted.

Scarborough, N.M. & Cornwall, J. (2015). Entrepreneurship and effective small business management (11th ed.). Upper Saddle River, NJ: Prentice Hall. ISBN: 9780133506327 (print); 9780133508239 (e-text).

write above 350 words for each question
And add above 5 refrences APA
Please make sure there is no similar with any one

Note: You can support your answer with the course book.

You can use secondary sources available on internet

Please make sure there is no similar with any one

MGT401: Strategic Management :

The Assignment must be submitted on Blackboard (WORD format only) via allocated

folder.

Assignments submitted through email will not be accepted.

Students are advised to make their work clear and well presented, marks may be reduced

for poor presentation. This includes filling your information on the cover page.

Students must mention question number clearly in their answer.

Late submission will NOT be accepted.

Avoid plagiarism, the work should be in your own words, copying from students or other

resources without proper referencing will result in ZERO marks. No exceptions.

All answered must be typed using Times New Roman (size 12, double-spaced) font. No

pictures containing text will be accepted and will be considered plagiarism).

Submissions without this cover page will NOT be accepted.

Wheelen, T. L., Hunger, D., Hoffman, A. N., & Bamford, C. E. (2014). Concepts in strategic management and business policy (14th ed.). Upper Saddle River, NJ: Prentice Hall. ISBN-13: 9780133126129 (print), 9780133126433 (e-text)
write above 350 words for each question
And add above 5 refrences APA
Please make sure there is no similar with any one

Case 1

Panda Sunglasses
How Should a Start-Up Business with
a Social Mission Market Its Sunglasses
with Bamboo Frames?

incent Ko showed his entrepreneurial potential in high
school in Rockville, Maryland, when, as a young hockey
player, he invented a drying rack for hockey pads that he sold
to his teammates, then on eBay, and finally on a Web site for
the company he created. A few years later, while attending
George Washington University in Washington, D.C., Ko and
two friends, Luke Lagera and Mike Mills, were inspired by
the growing social entrepreneurship movement and the success of companies such as TOMS shoes, a company founded
by Blake Mycoskie that donates a pair of shoes to someone in need for every pair it sells. One day while walking
through the Georgetown shopping district, the friends noticed a display of sunglasses and decided to create a business
that would market cool sunglasses and provide eye examinations to someone in need for every pair sold. In keeping with
the idea of a socially responsible company, Ko suggested
that they make their sunglasses frames from eco-friendly
bamboo, a lightweight, sturdy wood that grows extremely
fast. Having grown up in China, Ko was familiar with the
properties of the renewable wood and knew that it was the
perfect material from which to make sunglasses frames.
They created a company, Panda Sunglasses, and set out
to find companies that could make the product they envisioned. Ko knew bamboo was the most commonly used wood
in China, so the team began looking for a company in China
to manufacture the frames to their specifications. Not only
did they find a Chinese wood shop that would make their
sunglasses frames, but they also located a Chinese eye wear
manufacturer to produce the polarized lenses. Pairing the two
companies gave them their unique, stylish sunglasses, which
float. They created a Web site and began selling them at $120
a pair. Through a connection that Lagera had, the young
entrepreneurs found an ideal partner in the Tribal Outreach
Medical Association (TOMA), a nonprofit organization that
provides eye examinations and other health services for tribal
communities. They quickly reached a deal: For every pair of
Panda Sunglasses sold, the company would pay for one eye
exam through TOMA.
The entrepreneurs’ next challenge was to market their
unique sunglasses and their potential to help people in need.
They knew that without sales, their effort at “conscious capitalism” would be for naught. None of the three cofounders
had any experience in the retail industry, but they learned
quickly on the job. The young men had just graduated and
took “regular” jobs to pay their bills, but they remained
690

dedicated to making Panda Sunglasses a success. After testing sales of their sunglasses online, the trio began applying for
spots in various trade shows geared toward accessories. One
of the shows they applied to was the prestigious ENK International trade show, which attracts more than 250,000 buyers
and press members from across the globe. Companies that are
accepted to the juried show find sales leads that generate total
sales of more than $1 billion. Mills sent Ko an e-mail in which
he joked that they would be willing to set up in a broom closet
at ENK if their application were accepted. Ko forwarded that
e-mail to executives at ENK, who responded with, “We’ll find
you a booth instead.” At the ENK show, Ko says he and his
cofounders, fresh out of college, created a booth that featured
a giant bamboo backdrop that attracted a great deal of attention. At one point, they struck up a conversation with three
women, who they learned were buyers from the retail chain
Nordstrom. The trade show opened many doors for the young
company, and less than two years after starting, Panda Sunglasses was generating annual sales of $350,000.
Questions
1. How can social entrepreneurs such as the founders of
Panda Sunglasses use their companies’ social missions
to attract customers and promote their businesses?
2. How should the founders of Panda Sunglasses define
a unique selling proposition for their company that
resonates with customers?
3. Write a brief memo to the founders of Panda
Sunglasses outlining a bootstrap marketing plan
for the company.
4. Use the business model canvas to illustrate Panda Sunglasses’s business model. Can you identify other revenue
streams that could support the company? How can the
company strengthen its relationships with customers?
5. How should the founders of Panda Sunglasses use
social media to market their company and its products?
What can they do to increase the traffic to and generate
more sales from their company’s Web site?
Sources: Based on Nancy Dahlberg, “Start-up Spotlight: Panda,” Miami
Herald, June 29, 2014,
4207736/startup-spotlight-panda.html; Olga Khazan, “Panda Glasses
Are TOMS Shoes for Your Face,” Washington Post, May 24, 2012, http://
www.washingtonpost.com/blogs/on-small-business/post/panda-glassesare-toms-shoes-for-your-face/2012/05/23/gJQAsOPhlU_blog.html;
Alicia Ciccone, “Vincent Ko, Panda Sunglasses: Sustainable Bamboo
Eyewear That Gives Back,” Huffington Post, May 25, 2012,
.huffingtonpost.com/2012/05/25/vincent-ko-panda-sunglasses_n_1544043
.html; “Panda Sunglasses Are More Than Meets the Eye,” Asian Fortune,
April 25, 2014, .asianfortunenews.com/2014/04/pandasunglasses-are-more-than-meets-the-eye/; Zach Gordon, “Alums’
Business Aims to Help the Needy,” The Hoya, May 17, 2012,
.thehoya.com/alums-business-aims-to-help-the-needy/.

‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬

Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University

College of Administrative and Financial Sciences

Assignment 3
Entrepreneurship and small business (MGT 402)
Due Date: 30/11/2024 @ 23:59
Course Name: Entrepreneurship and small
business
Course Code: MGT402

Student’s Name:

Semester: First

CRN:

Student’s ID Number:

Academic Year:2024-25-1st

For Instructor’s Use only
Instructor’s Name:
Students’ Grade: X / 10

Level of Marks: High/Middle/Low

General Instructions – PLEASE READ THEM CAREFULLY
•
•
•
•
•
•
•
•

The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.

Learning Outcomes:
1. Describe the place of small business in history and explore the strengths and weaknesses
of small business.
2. Design a solid projected financial plan and conduct a breakeven analysis for a small
company.
3. Demonstrate the ability to deliver and communicate marketing massages in coherent and
professional manner.
4. Illustrate the ability to think independently and systematically on developing a viable
business model.

Assignment Workload:
This assignment is an individual assignment.

Critical Thinking
Students are supposed to read the attached Case -Panda Sunglasses. Based on your
understanding of the case and basic concepts of Entrepreneurship.
Answer the following question:
1. How can social entrepreneurs such as the founders of Panada Sunglasses use their
companies’ social missions to attract customers and promote their business? (2 marks)
2. How should the founders of Panada Sunglasses define a unique selling proposition for
their company that resonate with customers? (2 marks)
3. Write a brief memo to the founders of Panda Sunglasses outlining a bootstrap marketing
plan for the company? (2 marks)
4. Use the business model canvas to illustrate Panda Sunglasses business model. Can you
identify other revenue streams that could support the company? How can the company
strengthen its relationships with customers? (2marks)
5.How should the founders of Panda Sunglasses use social media to market their company
and its products? What can they do to increase the traffic to and generate more sales from
their company’s Web site? (2 marks)
The Answer must follow the outline points below:
• Each answer should be within the range of 300 to 350-word counts.
• Reference
Note: You can support your answer with the course book.
You can use secondary sources available on internet.

Answer:
1.
2.
3.
4.

Entrepreneurship and Effective Small
Business Management, 11/E

Cases
Case #
1

Entrepreneur
& Company Name
Michael Volpatt, Kate
Larkin, and Crista Leudtke
Big Bottom Market

Peter Justen
MyBizHomepage

Chapter
Reference

Related Topics
Industry: Restaurant, specialty food, and wine
●

Bootstrap marketing and social media marketing

●

Managing cash flow

Industry: Web-based financial services for small business
owners
1

●

Entrepreneurship

●

Buying/Selling a business

●

E-commerce

●

Sources of financing

●

Human resources management: staffing

16 and 17
21

Jacqui Rosshandler

Industry: All-natural breath-freshener

Jacquii LLC

●

Managing cash flow

●

Sources of equity financing

●

Sources of debt financing

Lucy Cardenas and Bill Coker

Industry: Restaurant

Red Iguana

●

Buying/Selling a business

●

Sources of debt financing

●

Management succession

●

Choosing a location

Rachel Shein and Steve Pilarski

Industry: Wholesale bakery

Baked in the Sun

●

Angela Crawford and Martin
Rodriguez

Industry: Pharmacy
●

Healthcare insurance and the Affordable Care Act

Financial analysis

Bluffton Pharmacy
7

Angela Crawford and Martin
Rodriguez

Industry: Pharmacy
●

Managing cash flow

Bluffton Pharmacy – Part 2
8

Brian Linton

Industry: Apparel

United By Blue

●

Ethics and social responsibility

●

Strategic management

●

Pricing

Aseem Badshah and Kevin Yu

Industry: Social media services

Socedo

●

Entrepreneurship

●

Sources of equity financing

Kelly Lester

Industry: Lunchboxes

EasyLunchboxes

●

Bootstrap marketing and social media marketing

●

E-commerce

#149226 Cust: Pearson Au: Scarborough Pg. No. 2
Title: Entrepreneurship and Effective Small Business Management 11e

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Eleventh Edition

Entrepreneurship and Effective
Small Business Management

Norman M. Scarborough
Presbyterian College

Jeffrey R. Cornwall
Belmont University

Boston Columbus Indianapolis New York San Francisco Upper Saddle River
Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto
Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

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© Gina Sanders/Fotolia. Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the
appropriate page within text with the exception of the chapter opening photo which appears throughout the text and is credited to © Tyler Olson/Fotolia.
Microsoft® and Windows® are registered trademarks of the Microsoft Corporation in the U.S.A. and other countries. Screen shots and icons reprinted
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Copyright © 2015, 2012, 2009, 2006, 2003 by Pearson Education, Inc., One Lake Street, Upper Saddle River, New Jersey 07458. All rights reserved.
Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to
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Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks. Where those designations appear in this
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Library of Congress Cataloging-in-Publication Data
Scarborough, Norman M.
Entrepreneurship and effective small business management/Norman Scarborough, Jeff Cornwall.—Eleventh Edition.
pages cm
Includes bibliographical references and index.
ISBN-13: 978-0-13-350632-7
ISBN-10: 0-13-350632-0
1. Small business—Management. 2. New business enterprises—Management. 3. Small business—United States—Management. 4. New business
enterprises—United States—Management. I. Cornwall, Jeffrey. II. Title.
HD62.7.S27 2013
657’.9042—dc23

2013039406
10 9 8 7 6 5 4 3 2 1

ISBN-10:
0-13-350632-0
ISBN-13: 978-0-13-350632-7

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Brief Contents

SECTION I

The Rewards and Challenges
of Entrepreneurship 1

Chapter 1
Chapter 2
Chapter 3
Chapter 4

SECTION II

Entrepreneurs: The Driving Force Behind Small Business 1
Ethics and Social Responsibility: Doing the Right Thing 37
Creativity and Innovation: Keys to Entrepreneurial Success 71
Strategic Management and the Entrepreneur 105

Launching a Venture: Entry Strategies

Chapter 5
Chapter 6
Chapter 7
Chapter 8

SECTION III

Choosing a Form of Ownership 137
Franchising and the Entrepreneur 165
Buying an Existing Business 201
New Business Planning Process: Feasibility Analysis, Business
Modeling, and Crafting a Winning Business Plan 235

Building a Marketing Plan

Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13

SECTION IV

SECTION V

273

Building a Bootstrap Marketing Plan 273
Creative Use of Advertising and Promotion
Pricing and Credit Strategies 343
Global Marketing Strategies 375
E-Commerce and Entrepreneurship 413

Building a Financial Plan

Chapter 14
Chapter 15
Chapter 16
Chapter 17

305

453

Creating a Solid Financial Plan 453
Managing Cash Flow 489
Sources of Equity Financing 523
Sources of Debt Financing 551

Building an Operating Plan

Chapter 18
Chapter 19
Chapter 20
Chapter 21

137

581

Location, Layout, and Physical Facilities 581
Supply Chain Management 627
Managing Inventory 667
Staffing and Leading a Growing Company 703

SECTION VI

Legal Aspects of Small Business: Succession,
Ethics, and Government Regulation 741

Chapter 22

Management Succession and Risk Management Strategies
in the Family Business 741
The Legal Environment: Business Law and Government
Regulation 781

Chapter 23

Appendix
Cases

831

Endnotes
Index

The picturebooth co. 817
846

884
iii

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v
•

•

Contents

Preface

xxiii

Acknowledgments xxvi

SECTION I

The Rewards and Challenges
of Entrepreneurship 1

Chapter 1

Entrepreneurs: The Driving Force Behind Small
Business 1
The Role of the Entrepreneur 2
What Is an Entrepreneur? 5
◼ ENTREPRENEURSHIP IN ACTION
Frontier? 9

Space: The Next Entrepreneurial

How to Spot Entrepreneurial Opportunities
Monitor Trends and Exploit Them Early On

Travel—and Be Inspired 11
Take a Different Approach to an Existing Market
Put a New Twist on an Old Idea

Look for Creative Ways to Use Existing Resources

Realize That Others Have the Same Problem You Do 12
Take Time to Play

Notice What Is Missing

The Benefits of Owning a Small Business 13
Opportunity to Gain Control over Your Own Destiny
Opportunity to Make a Difference

Opportunity to Reach Your Full Potential

Opportunity to Reap Impressive Profits

Opportunity to Contribute to Society and Be Recognized for Your Efforts 14
Opportunity to Do What You Enjoy Doing

The Potential Drawbacks of Entrepreneurship
Uncertainty of Income

Risk of Losing Your Entire Invested Capital
Long Hours and Hard Work

Lower Quality of Life Until the Business Gets Established
High Levels of Stress

Complete Responsibility 17
Discouragement

Why the Boom: The Fuel Feeding the Entrepreneurial Fire 17
Entrepreneurs as Heroes

Entrepreneurial Education

Shift to a Service Economy

Technology Advancements

Outsourcing 18
Independent Lifestyle

E-Commerce, the Internet, and Mobile Computing
International Opportunities

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Collegiate Entrepreneurs

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vi Contents

The Cultural Diversity of Entrepreneurship

Young Entrepreneurs 20
Women Entrepreneurs
Minority Enterprises

21
22

Immigrant Entrepreneurs 23
Part-Time Entrepreneurs 24
Home-Based Business Owners
Family Business Owners
Copreneurs 26
Corporate Castoffs

Corporate “Dropouts” 27
Retired Baby Boomers

The Contributions of Small Businesses

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR
Start-Up 30

Bulletproofing Your

Putting Failure into Perspective 31
How to Avoid the Pitfalls 32
Know Your Business in Depth
Prepare a Business Plan

Manage Financial Resources

Understand Financial Statements
Learn to Manage People Effectively

33
34

Set Your Business Apart from the Competition 34
Maintain a Positive Attitude

Conclusion—and a Look Ahead 34
Chapter Review

Chapter 2

•

Discussion Questions

Ethics and Social Responsibility: Doing the Right
Thing 37
An Ethical Perspective 39
Three Levels of Ethical Standards

Immoral, Amoral, and Moral Management
The Benefits of Moral Management

Establishing an Ethical Framework

Why Ethical Lapses Occur 44
An Unethical Employee

An Unethical Organizational Culture 45
Moral Blindness

Competitive Pressures

Opportunity Pressures

Globalization of Business

Establishing and Maintaining Ethical Standards 46
Establishing Ethical Standards 46
Maintaining Ethical Standards 46

◼ ENTREPRENEURSHIP IN ACTION But Is It Safe?

Social Entrepreneurship

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Making a Profit and Making
a Difference 50

Social Responsibility 51
Business’s Responsibility to the Environment 52
Business’s Responsibility to Employees 53
Cultural Diversity in the Workplace 54
Drug Testing 57

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Contents vii

HIV/AIDS

Sexual Harassment

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Avoid Sexual
Harassment Charges 62
Privacy

◼ ENTREPRENEURSHIP IN ACTION
on Facebook 64

Think Before You Hit “Post”

Business’s Responsibility to Customers
Right to Safety

Right to Know

Right to Be Heard

Right to Education
Right to Choice

Business’s Responsibility to Investors 67
Business’s Responsibility to the Community 67
Conclusion 68
Chapter Review

Chapter 3

•

Discussion Questions

Creativity and Innovation: Keys to Entrepreneurial
Success 71
Creativity, Innovation, and Entrepreneurship
Creativity—Essential to Survival 76
Can Creativity Be Taught?

Creative Thinking

◼ IN THE ENTREPRENEURIAL SPOTLIGHT The Ingredients of Creativity

Barriers to Creativity

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR Questions to Spur
the Imagination 85

How to Enhance Creativity

Enhancing Organizational Creativity 86
Enhancing Individual Creativity 91

◼ IN THE ENTREPRENEURIAL SPOTLIGHT How to Create a Culture
of Creativity and Innovation 96

The Creative Process

Step 1. Preparation

Step 2. Investigation

Step 3. Transformation
Step 4. Incubation

Step 5. Illumination

101

Step 6. Verification

101

Step 7. Implementation

Conclusion

102

Chapter Review

Chapter 4

103 •

Discussion Questions

103

Strategic Management and the Entrepreneur 105
Building a Competitive Advantage 108
The Strategic Management Process 110
Step 1. Develop a Clear Vision and Translate It into a Meaningful Mission Statement

111

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR Thriving
on Change 113
Step 2. Assess the Company’s Strengths and Weaknesses 114
Step 3. Scan the Environment for Significant Opportunities and Threats Facing
the Business 115
Step 4. Identify the Key Factors for Success in the Business

116

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viii Contents
Step 5. Analyze the Competition 118
Step 6. Create Company Goals and Objectives

122

◼ ENTREPRENEURSHIP IN ACTION Vizio: Disrupting Another Market 124
Step 7. Formulate Strategic Options and Select the Appropriate Strategies 125

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Strategies for Success

130

Step 8. Translate Strategic Plans into Action Plans 131
Step 9. Establish Accurate Controls 132

Conclusion

134

Chapter Review

135

•

Discussion Questions

136

SECTION II Launching a Venture: Entry Strategies 137
Chapter 5

Choosing a Form of Ownership
The Sole Proprietorship

137

139

Advantages of a Sole Proprietorship 140

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR
Right! 141
Disadvantages of the Sole Proprietorship

142

◼ ENTREPRENEURSHIP IN ACTION What’s in a Name?

The Partnership

Get That Name

143

144

The Uniform Partnership Act

146

Advantages of the Partnership 146

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR
a Business Divorce 148
Disadvantages of the Partnership

How to Avoid

149

Limited Partnerships 150
Limited Liability Partnerships 151

The Corporation

151

Requirements for Incorporation

151

Advantages of the Corporation

152

Disadvantages of the Corporation
Professional Corporations

The S Corporation

154

155

Advantages of an S Corporation

156

Disadvantages of an S Corporation

157

When Is an S Corporation a Wise Choice? 157

The Limited Liability Company
Social Enterprises 160

157

◼ IN THE ENTREPRENEURIAL SPOTLIGHT From the Life on the Street
to Running a Business 160

Chapter 6

Nonprofit Organizations

161

Chapter Review

•

163

Discussion Questions

164

Franchising and the Entrepreneur
What Is a Franchise? 167
Types of Franchising 168
The Benefits of Buying a Franchise
A Business System

165

168

169

Management Training and Support 170
Brand-Name Appeal 171
Standardized Quality of Goods and Services 171
National Advertising Programs
Financial Assistance

171

172

Proven Products and Business Formats

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Contents ix

Centralized Buying Power

173

Site Selection and Territorial Protection
Increased Chance for Success

173

174

Drawbacks of Buying a Franchise

175

Franchise Fees and Ongoing Royalties

175

Strict Adherence to Standardized Operations

176

Restrictions on Purchasing 176
Limited Product Line

177

Market Saturation

177

Limited Freedom 178
No Guarantee of Success

178

Franchising and the Law

178

◼ ENTREPRENEURSHIP IN ACTION

The Right Way to Buy a Franchise
Evaluate Yourself

After the Cheering Stops 181

182

183

Research the Market

183

Consider Your Franchise Options 184
Get a Copy of the FDD and Study It
Talk to Existing Franchisees

184

185

Ask the Franchisor Some Tough Questions
Make Your Choice

185

187

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR Make Sure You Select
the Right Franchise 187

Franchise Contracts
Termination
Renewal

188

190

Transfer and Buybacks

190

◼ IN THE ENTREPRENEURIAL SPOTLIGHT The Allure of Franchising

Trends in Franchising

190

191

Changing Face of Franchisees
Multiple-Unit Franchising

191

192

International Opportunities

192

◼ IN THE ENTREPRENEURIAL SPOTLIGHT The Middle East: A Hot Spot
for Franchising 193
Smaller, Nontraditional Locations
Conversion Franchising
Refranchising

195

Area Development and Master Franchising
Cobranding

195

196

Serving Dual-Career Couples and Aging Baby Boomers 197

Franchising as a Growth Strategy

197

Unique Concept 197
Replicable 197
Expansion Plan 198
Due Diligence

198

Legal Guidance

198

Support for Franchisees 198

Conclusion

198

Chapter Review

Chapter 7

198 •

Discussion Questions

Buying an Existing Business
Buying an Existing Business

199

201

203

Advantages of Buying an Existing Business

203

Disadvantages of Buying an Existing Business

205

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The Search Stage
Self-Inventory

208

Develop a List of Criteria
Potential Candidates
Investigation

209

210

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR
When You Buy a Business 212

The Deal Stage

Don’t Get Burned

212

Methods for Determining the Value of a Business

213

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Bond Coffee 222
Negotiating the Deal 223
Letter of Intent

226

The Due Diligence Process

227

◼ ENTREPRENEURSHIP IN ACTION What’s the Deal?

The Transition Stage
Chapter Review

Chapter 8

233

231

232
•

Discussion Questions

234

New Business Planning Process: Feasibility Analysis,
Business Modeling, and Crafting a Winning Business
Plan 235
Conducting a Feasibility Analysis 237
Industry and Market Feasibility Analysis

237

Product or Service Feasibility Analysis: Is There a Market?
Financial Feasibility Analysis: Is There Enough Margin?
Entrepreneur Feasibility: Is This Idea Right for Me?

Developing and Testing a Business Model
Value Proposition

245

247

Customer Segments

248

Customer Relationships
Channels

242

243

248

Key Activities

248

Key Resources

248

Key Partners 248
Revenue Streams

249

Cost Structure 249

◼ ENTREPRENEURSHIP IN ACTION The Evolution of CoolPeopleCare’s
Business Model 250

The Benefits of Creating a Business Plan 251
Three Tests That Every Business Plan Must Pass
Reality Test

Competitive Test
Value Test

252

252
252

252

◼ IN THE ENTREPRENEURIAL SPOTLIGHT The Battle of the Plans 253

The Elements of a Business Plan

254

Title Page and Table of Contents 255
The Executive Summary

255

Mission and Vision Statement
Company History

255

256

◼ IN THE ENTREPRENEURIAL SPOTLIGHT A Business Plan: Don’t Launch
Without It 256
Description of Firm’s Product or Service 257
Business and Industry Profile
Goals and Objectives
Business Strategy

258

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Competitor Analysis

259

Marketing Strategy

259

Visualizing a Venture’s Risks and Rewards

263

What Lenders and Investors Look for in a Business Plan
Capital

265

Capacity

265

Collateral

265

Character

265

Conditions 265

The Pitch: Making the Business Plan Presentation
Conclusion 268
Suggested Business Plan Elements 268
Chapter Review

271 •

Discussion Questions

SECTION III Building a Marketing Plan
Chapter 9

266

272

273

Building a Bootstrap Marketing Plan 273
Creating a Bootstrap Marketing Plan

274

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Bootstrap Marketing
in the New Music Industry 276

Market Diversity: Pinpointing the Target Market 277
Determining Customer Needs and Wants Through Market Research
How to Conduct Market Research 280

278

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Bootstrap Marketing Using
Databases 282

Plotting a Bootstrap Marketing Strategy: Building a Competitive Edge
Find a Niche and Fill It

283

284

Retain Existing Customers

285

Concentration on Innovation 285

The Marketing Mix
Product

288

Promotion

296

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR Marketing
to Millennials 298
Price

302

Place

303

Chapter Review

304 •

Discussion Questions

304

Chapter 10 Creative Use of Advertising and Promotion 305
Define Your Company’s Unique Selling Proposition
Creating a Promotional Strategy 307

306

Publicity 307
Personal Selling 309

◼ ENTREPRENEURSHIP IN ACTION Should an Ambulance Service Hire
Its First Sales Representative? 311
Advertising

312

Selecting Advertising Media
Media Options 316

314

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR E-Mail Ads That
Produce Results 322

How to Prepare an Advertising Budget 339
How to Advertise Big on a Small Budget 340
Cooperative Advertising 340
Shared Advertising

341

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Stealth Advertising 341
Other Ways to Save

Chapter Review

341

•

Discussion Questions

Chapter 11 Pricing and Credit Strategies

342

343

Pricing: A Creative Blend of Art and Science 344
Three Powerful Pricing Forces: Image, Competition, and Value

348

Price Conveys Image 348
Competition and Prices 349
Focus on Value

350

Pricing Strategies and Tactics

351

New Product Pricing: Penetration, Skimming, or Sliding 352
Pricing Techniques for Established Products and Services 354

◼ IN THE ENTREPRENEURIAL SPOTLIGHT How to Compete with Cheap
Knockoffs of Your Successful Product 355
◼ ENTREPRENEURSHIP IN ACTION Social Coupons: Beneficial—or Just Plain
Bad—for Business? 359
◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR Enhancing Your
Company’s Pricing Power 361

Pricing Techniques for Retailers 362
Markup

362

Pricing Techniques for Manufacturers

364

Direct Costing and Pricing 365
Computing a Break-Even Selling Price 365

Pricing Techniques for Service Businesses 367
The Impact of Credit on Pricing 369
◼ ENTREPRENEURSHIP IN ACTION To Accept Credit Cards or Not:
That Is the Question 369
Credit Cards

370

Chapter Review

372

•

Discussion Questions

Chapter 12 Global Marketing Strategies

373

375

Why Go Global? 378
Going Global: Strategies for Small Businesses 381
Creating a Presence on the Web 381

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Going Global One Step
at a Time 383
Relying on Trade Intermediaries 384
The Value of Using Trade Intermediaries
Joint Ventures

385

387

Foreign Licensing

388

International Franchising

388

◼ ENTREPRENEURSHIP IN ACTION Growing Beyond the Borders
Countertrading and Bartering
Exporting

391

392

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR
in the World 400
Establishing International Locations

Finding Your Place

402

Importing and Outsourcing 402

Barriers to International Trade
Domestic Barriers

404

International Barriers

405

Political Barriers 406

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Business Barriers

406

Cultural Barriers

407

International Trade Agreements
World Trade Organization

408

North American Free Trade Agreement

409

The Dominican Republic-Central America Free Trade Agreement 409

Conclusion

409

Chapter Review

411 •

Discussion Questions

411

Chapter 13 E-Commerce and Entrepreneurship 413
Factors to Consider Before Launching into E-Commerce 416
Ten Myths of E-Commerce 418
Myth 1. If I Launch a Site, Customers Will Flock to It
Myth 2. Online Customers Are Easy to Please

418

420

Myth 3. Making Money on the Web Is Easy 420
Myth 4. Privacy Is Not an Important Issue on the Web 420
Myth 5. “Strategy? I Don’t Need a Strategy to Sell on the Web! Just Give Me a Web Site,
and the Rest Will Take Care of Itself” 421
Myth 6. The Most Important Part of Any E-Commerce Effort Is Technology 422
Myth 7. On the Web, Customer Service Is Not as Important as It Is in a Traditional Retail
Store 422
Myth 8. Flashy Web Sites Are Better Than Simple Ones 423
Myth 9. It’s What’s Up Front That Counts

424

Myth 10. My Business Doesn’t Need a Web Site 424

Strategies for E-Success

425

Focus on a Niche in the Market 426
Develop a Community

426

Attract Visitors by Giving Away “Freebies” 427
Make Creative Use of E-Mail, but Avoid Becoming a “Spammer” 427
Sell the “Experience” 428
Make Sure Your Web Site Says “Credibility” 429
Make the Most of the Internet’s Global Reach

429

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Make Your
Business Ready for Global E-Commerce 431
Go Mobile

432

Promote Your Web Site Online and Offline

433

Use Social Media Tools to Attract and Retain Customers

◼ ENTREPRENEURSHIP IN ACTION
Media 434
Capture Local Traffic

433

Enhancing E-Commerce with Social

435

Develop an Effective Search Engine Optimization Strategy 435

Designing a Killer Web Site

438

Decide How to Bring Your Site to Life 439
Start with Your Target Customer

439

Give Customers What They Want

439

Select an Intuitive Domain Name

439

Make Your Web Site Easy to Navigate 441
Provide Customer Ratings and Reviews

442

Offer Suggestions for Related Products 442
Add Wish List Capability

442

Create a Gift Idea Center

442

Establish the Appropriate Call to Action on Each Page

442

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Build Loyalty by Giving Online Customers a Reason to Return to Your Web Site 442
Establish Hyperlinks with Other Businesses, Preferably Those Selling Products or
Services That Complement Yours 442
Include an E-Mail Option, an Address, and a Telephone Number on Your Site
Give Shoppers the Ability to Track Their Orders Online
Offer Web-Only Specials

443

Use the Power of Social Media
Use Customer Testimonials
Follow a Simple Design

443

Assure Customers That Online Transactions Are Secure
Post Shipping and Handling Charges Up Front

445

Create a Fast, Simple Checkout Process 445
Provide Customers Multiple Payment Options
Confirm Transactions

445

Keep Your Site Fresh 445
Rely on Analytics to Improve Your Site

445

Test Your Site Often 445
Consider Hiring a Professional Designer

446

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Web Site Makeovers

Tracking Web Results
Software Solutions

446

447

Ensuring Web Privacy and Security 448
Privacy

448

Security 448

Chapter Review

451

•

Discussion Questions

452

SECTION IV Building a Financial Plan 453
Chapter 14 Creating a Solid Financial Plan
Basic Financial Reports
The Balance Sheet

453

454

455

The Income Statement

456

The Statement of Cash Flows

458

Creating Projected Financial Statements 459
Projected Statements for the Small Business 459

Ratio Analysis

465

12 Key Ratios

466

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Pitcher Strikes Out While
Trying to Hit a Home Run 475

Interpreting Business Ratios

476

What Do All These Numbers Mean? 479

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR
a Competitive Edge 481

Break-Even Analysis

Gaining

482

Calculating the Break-Even Point 483
Adding a Profit

484

Break-Even Point in Units

484

Constructing a Break-Even Chart
Using Break-Even Analysis

485

486

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Open Book
Management 487
Chapter Review 488 • Discussion Questions 488

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Chapter 15 Managing Cash Flow

489

Cash Management 490
Cash and Profits Are Not the Same

493

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Cash Flow and Pass-Through
Entities 494

Preparing a Cash Budget

495

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR A Short Season 496
Step 1: Determining an Adequate Minimum Cash Balance
Step 2: Forecasting Sales

498

Step 3: Forecasting Cash Receipts 502
Step 4: Forecasting Cash Disbursements 502
Step 5: Estimating the End-of-Month Cash Balance

◼ ENTREPRENEURSHIP IN ACTION

504

Rowena’s Cash Budget 505

The “Big Three” of Cash Management

506

Accounts Receivable 506
Accounts Payable
Inventory

510

512

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Be Ready for Inflation!

Bootstrapping to Avoid the Cash Crunch
Bootstrapping Overhead

516

Bootstrapping Employee Costs

518

Bootstrapping Operating Costs

518

Other Tools for Bootstrapping and Preserving Cash

Conclusion

514

515

518

521

Chapter Review

521 •

Discussion Questions

Chapter 16 Sources of Equity Financing
Planning for Capital Needs
Fixed Capital

522

523

526

Working Capital

527

Sources of Equity Financing

527

Funding from Founders 528

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Bootstrapping a Technology
Start-Up 530
Friends and Family Members
Crowdfunding
Accelerators

531

532
534

◼ ENTREPRENEURSHIP IN ACTION
Accelerator 535
Angels

Launching a Business in a University

536

Strategic Investments Through Corporate Venture Capital 539

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Funding Does Not Ensure
Success 540
Venture Capital Companies 541
Policies and Investment Strategies

542

Public Stock Sale (“Going Public”)

547

Chapter Review

549 •

Discussion Questions

Chapter 17 Sources of Debt Financing

550

551

◼ IN THE ENTREPRENEURIAL SPOTLIGHT A Tale of Two Borrowers 554

Sources of Debt Capital
Commercial Banks

555

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Short-Term Loans

556

Intermediate- and Long-Term Loans

558

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR
a Positive Relationship with Your Banker 558

Nonbank Sources of Debt Capital
Asset-Based Lenders

How to Maintain

559

Trade Credit 561
Equipment Suppliers

562

Commercial Finance Companies
Stock Brokerage Houses
Insurance Companies
Credit Unions
Bonds

562

563
563

563

564

Private Placements

564

Small Business Investment Companies

Federally Sponsored Programs

565

566

Economic Development Administration

566

Department of Housing and Urban Development 566
U.S. Department of Agriculture’s Rural Business and Cooperative Program
and Business Program 567
Small Business Innovation Research Program

567

◼ ENTREPRENEURSHIP IN ACTION Where Do We Turn Now?
The Small Business Technology Transfer Program

Small Business Administration
SBA Express Loan Programs

568

569

SBA Loan Programs 569

State and Local Loan Development Programs

575

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Alternative Sources
of Financing 575

Other Methods of Financing

576

Factoring Accounts Receivable

576

Leasing

577

Cash Advances

577

Peer-to-Peer Loans
Credit Cards

578

Where Not to Seek Funds
Chapter Review

579

•

578

Discussion Questions

580

SECTION V Building an Operating Plan 581
Chapter 18 Location, Layout, and Physical Facilities

581

Stages in the Location Decision 582
Selecting the Region 583
Selecting the State

586

Selecting the City 589
The Final Site Selection

596

◼ ENTREPRENEURSHIP IN ACTION The Ideal Spot

596

Location Criteria for Retail and Service Businesses 598
Trade Area Size 598
Customer Traffic 599
Adequate Parking
Reputation
Visibility

599

600
600

The Index of Retail Saturation

600

Reilly’s Law of Retail Gravitation

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◼ IN THE ENTREPRENEURIAL SPOTLIGHT Transformed Locations 601

Location Options for Retail and Service Businesses
Central Business District

602

603

Neighborhood Locations 603
Shopping Centers and Malls
Near Competitors
Shared Spaces

603

606

607

Inside Large Retail Stores

607

Nontraditional Locations

607

Home-Based Businesses 607
On the Road

608

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Launch
a Successful Pop-Up Shop 608

The Location Decision for Manufacturers
Foreign Trade Zones

610

Business Incubators

611

Layout and Design Considerations
Size and Adaptability

613

External Appearance

613

Entrances

612

614

The Americans with Disabilities Act
Signs

610

614

615

Interiors

615

Drive-Through Windows

616

Sight, Sound, Scent, and Lighting

617

Sustainability and Environmentally Friendly Design

619

Layout: Maximizing Revenues, Increasing Efficiency, and Reducing Costs
Layout for Retailers

619

◼ IN THE ENTREPRENEURIAL SPOTLIGHT The Secrets of Successful Retail
Layouts 621
Layout for Manufacturers

Chapter Review

625

•

622

Discussion Questions

626

Chapter 19 Supply Chain Management 627
◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Manage
Supply Chain Risk 631

Creating a Purchasing Plan 632
Quality 634
Quantity: The Economic Order Quantity
Cost of Units

639

641

Holding (Carrying) Costs

641

Setup (Ordering) Costs

642

Solving for EOQ 642
EOQ with Usage

Price

645

646

Trade Discounts

646

Quantity Discounts
Cash Discounts

646

647

Timing—When to Order 649
Managing the Supply Chain: Vendor Analysis and Selection 654
◼ IN THE ENTREPRENEURIAL SPOTLIGHT Integrating Local Suppliers into
a Complex Supply Chain 655
Vendor Certification

657

The Final Decision 659

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◼ IN THE ENTREPRENEURIAL SPOTLIGHT Back in the USA

Legal Issues Affecting Purchasing
Title

660

662

Risk of Loss

662

Insurable Interest 663

◼ ENTREPRENEURSHIP IN ACTION Who Bears the Loss for a Shipment
of Missing Watches? 663
Receiving Merchandise

664

Selling on Consignment

Chapter Review

665

664

•

Discussion Questions

Chapter 20 Managing Inventory

665

667

Inventory Control Systems

672

Perpetual Inventory Systems

672

◼ IN THE ENTREPRENEURIAL SPOTLIGHT An Ideal Inventory
Solution 674
Partial Inventory Control Systems
Physical Inventory Count

674

678

Radio Frequency Identification Tags 678

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR
in Inventory Management 680

Best Practices

Just-in-Time Inventory Control Techniques 681
Just-in-Time Techniques

681

Turning Slow-Moving Inventory into Cash
Protecting Inventory from Theft 685
Employee Theft

683

685

◼ ENTREPRENEURSHIP IN ACTION Misplaced Trust
Shoplifting

691

692

◼ ENTREPRENEURSHIP IN ACTION A Tale of Two Shoplifters

Conclusion

696

700

Chapter Review

700

•

Discussion Questions

701

Chapter 21 Staffing and Leading a Growing Company

703

The Entrepreneur’s Role as Leader 704
Hiring the Right Employees: The Company’s Future Depends on It 707
How to Hire Winners 708

◼ ENTREPRENEURSHIP IN ACTION Facebook Interview
Process 714
Conducting the Interview

715

◼ ENTREPRENEURSHIP IN ACTION Building an Intentional Culture
at Zappos 719

Building the Right Culture and Organizational Structure 720
Managing Growth and a Changing Culture

722

◼ IN THE ENTREPRENEURIAL SPOTLIGHT What a Great Place
to Work! 723
Team-Based Management

724

Communicating Effectively
Improving Communication
Listening

725

726

727

The Informal Communication Network: The “Grapevine” 728

The Challenge of Motivating Workers
Empowerment
Job Design

728

730

Rewards and Compensation

732

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◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR Sabbaticals 735
Performance Feedback

736

Performance Appraisal

737

Chapter Review

739 •

Discussion Questions

740

SECTION VI Legal Aspects of Small Business: Succession,
Ethics, and Government Regulation 741
Chapter 22 Management Succession and Risk Management
Strategies in the Family Business 741
Family Businesses

742

Benefits of Family Businesses

742

The Dark Side of Family Businesses

743

Characteristics of Successful Family Businesses

Exit Strategies

745

748

Selling to Outsiders 749
Selling to Insiders 749

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Set Up
an ESOP 751

Management Succession

752

◼ IN THE ENTREPRENEURIAL SPOTLIGHT Can Your Family Business Survive
for Centuries? 755

Developing a Management Succession Plan

756

Buy-Sell Agreement 760
Lifetime Gifting 761
Setting Up a Trust 761

Risk Management Strategies 763
The Basics of Insurance 765
Types of Insurance

766

◼ IN THE ENTREPRENEURIAL SPOTLIGHT The Aftermath of a Storm 770

Controlling Insurance Costs
Chapter Review

779 •

777

Discussion Questions

780

Chapter 23 The Legal Environment: Business Law
and Government Regulation 781
The Law of Contracts
Agreement

Contractual Capacity
Legality

783

783
786

787

Breach of Contract

788

The Uniform Commercial Code
Sales and Sales Contracts

789

Breach of Sales Contracts

791

788

Sales Warranties and Product Liability

791

Protection of Intellectual Property Rights
Patents

794

795

Trademarks

798

◼ ENTREPRENEURSHIP IN ACTION

Protecting Your Brand 799

Copyrights 800
Protecting Intellectual Property 800

The Law of Agency
Bankruptcy 802

801

Forms of Bankruptcy 803

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◼ IN THE ENTREPRENEURIAL SPOTLIGHT A Second Chance at Success

Government Regulation

805

806

Trade Practices 807
Consumer Protection

809

◼ LESSONS FROM THE STREET-SMART ENTREPRENEUR
You Up for Trouble? 810
Consumer Credit

Are Your Ads Setting

811

Environmental Law

812

◼ ENTREPRENEURSHIP IN ACTION Small Businesses and Eminent
Domain 813
The Affordable Care Act

Chapter Review

Appendix
Cases

814

•

The picturebooth co.

Discussion Questions

816

817

831

Endnotes
Index

815

846

884

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In memory of Lannie H. Thornley and Mildred T. Myers
To Louise Scarborough and John Scarborough. Your love, support,
and encouragement have made all the difference.
—NMS

To my grandchildren Lucy Kuyper, Ellie Cornwall, and Isaac Cornwall.
—JRC

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Preface

The field of entrepreneurship is experiencing incredible rates of growth, not only in the United
States but around the world as well. People of all ages, backgrounds, and nationalities are launching
businesses of their own and, in the process, are reshaping the global economy. Entrepreneurs are
discovering the natural advantages that result from their companies’ size—speed, agility, flexibility, sensitivity to customers’ needs, creativity, a spirit of innovation, and many others—give them
the ability to compete successfully with companies many times their size and that have budgets to
match. As large companies struggle to survive wrenching changes in competitive forces by downsizing, merging, and restructuring, the unseen army of small businesses continues to flourish and
to carry the nation’s economy on its back. Entrepreneurs who are willing to assume the risks of
the market to gain its rewards are the heart of capitalism. These men and women, with their bold
entrepreneurial spirits, have led our nation into prosperity throughout its history. Entrepreneurship
also plays a significant role in countries throughout the world. Across the globe, entrepreneurs are
creating small companies that lead nations to higher standards of living and hope for the future.
In the United States, we can be thankful for a strong small business sector. Small companies deliver the goods and services we use every day, provide jobs and training for millions of
workers, and lead the way in creating the products and services that make our lives easier and
more enjoyable. Small businesses were responsible for introducing to the world the elevator, the
airplane, FM radio, the zipper, the personal computer, and a host of other marvelous inventions.
The imaginations of the next generation of entrepreneurs of which you may be a part will determine other fantastic products and services that lie in our future! Whatever those ideas may be, we
can be sure of one thing: Entrepreneurs will be there to make them happen.
The purpose of this book is to open your mind to the possibilities, the challenges, and the
rewards of owning your own business and to provide the tools you will need to be successful if
you choose the path of the entrepreneur. It is not an easy road to follow, but the rewards—both
tangible and intangible—are well worth the risks. Not only may you be rewarded financially for
your business ideas, but also, like entrepreneurs the world over, you will be able to work at
something you love! If you do not pursue a career as an entrepreneur, you still need to understand
entrepreneurship because you most likely will be working in, doing business with, or competing
against small businesses throughout your career.
Now in its eleventh edition, Entrepreneurship and Effective Small Business Management has
stood the test of time by bringing to generations of students the material they need to launch and
manage a small business successfully in a hotly competitive environment. In writing this edition,
we have worked hard to provide you with plenty of practical, “hands-on” tools and techniques
to make your business ventures successful. Many people launch businesses every year, but only
some of them succeed. This book provides the tools to help you learn the right way to launch and
manage a small business with the staying power to succeed and grow.

What’s New to This Edition?
The first change you will notice is in the title of the book. We believe that the new title,
Entrepreneurship and Effective Small Business Management, reflects this edition’s emphasis on
the entrepreneurial process. When we started writing this book nearly 35 years ago, small business
management was the topic of choice on college campuses; today, the emphasis of college courses
is on entrepreneurship. This edition reflects that change by including enhanced coverage of the
entrepreneurial process, including the creative process and developing a business model, while
retaining thorough coverage of traditional topics that are required for entrepreneurial success,
such as e-commerce, managing cash flow, selecting the right location and designing the proper
layout, and supply chain management.
Another important change is the addition of Jeff Cornwall as coauthor. Jeff, who holds the
Jack C. Massey Chair of Entrepreneurship at Belmont University, is an experienced and successful
xxiii

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entrepreneur, a dedicated teacher, a respected author, and an acknowledged expert in the field of
entrepreneurship. The United States Association for Small Business and Entrepreneurship has
honored Jeff on numerous occasions for his contributions to the field of entrepreneurship, n aming
him a Longnecker/USASBE Fellow in 2006 and awarding the Center for E
ntrepreneurship that he
headed at Belmont University the USASBE National Model Undergraduate Program of the Year
Award in 2008. USASBE also recognized Jeff in 2013 with the prestigious Outstanding Educator
of the Year award. He served as USASBE’s president in 2010. Jeff’s blog, The Entrepreneurial
Mind, is one of the most popular small business blogs on the Internet, named by Forbes as a “Best
of the Web” selection.
This edition of Entrepreneurship and Effective Small Business Management also includes
many new pedagogical features that reflect the dynamic and exciting field of entrepreneurship.
●

●

The addition of a chapter on the creative process that explores how the entrepreneurial
mind works. This innovative chapter also explains how entrepreneurs can stimulate their
own creativity and the creativity of the people in their organizations.
Because your generation is keenly interested in ethics and social responsibility, we placed
the updated chapter on ethics and social responsibility right up front (Chapter 2). This
thought-provoking chapter gives you the opportunity to wrestle with some of the ethical
dilemmas that entrepreneurs face every day in business. Encouraging you to think about
and discuss these issues now prepares you for making the right business decisions later.
We also have included more extensive coverage of social entrepreneurship in this edition,
including new forms of ownership designed specifically for social entrepreneurs.
This edition includes enhanced coverage of social media, such as Facebook, Twitter,
Pinterest, YouTube, and others, throughout the entire book, including ways to use
social media as a powerful bootstrap marketing technique; a fund-raising tool; a quick,
inexpensive way to test business models; and many others.
We have included more material on bootstrapping throughout the book because today’s
young entrepreneurs must be prepared to launch their ventures with limited resources and
little access to outside funding.
We have updated the chapters on financing small businesses to reflect the current state of
financial markets. Included in these updates is discussion of the newest form of financing
known as crowdfunding.
We have revised the chapter on creating a business plan to reflect the modern view of the
business planning process. In addition to retaining extensive coverage of how to write a
business plan, we have expanded the section on conducting a feasibility analysis and added
a section on using the business model canvas to develop a viable business model. This
chapter also shows how to take the ideas that pass the feasibility analysis, build a business
model around them, and create a business plan that serves as a guide to a successful launch.
Almost all of the real-world examples in this edition are new and are easy to spot
because they are highlighted by in-margin markers. These examples allow you to see
how entrepreneurs are putting into practice the concepts that you are learning in the book
and in class. The examples are designed to help you to remember the key concepts in
the course. The business founders in these examples also reflect the diversity that makes
entrepreneurship a vital part of the global economy.
To emphasize the practical nature of this book, every chapter includes a new or updated
“Lessons from the Street-Smart Entrepreneur” feature that focuses on a key concept and
offers practical advice about how you can put it to practice in your own business. These
features include topics such as “Questions to Spur the Imagination,” “Thriving on Change,”
“How to Make Your Business Ready for Global E-Commerce,” “E-Mail Ads That Produce
Results,” “How to Set Up an ESOP,” and many others.
We have updated all of the “Entrepreneurship in Action” features that have proved to
be so popular with both students and professors. Every chapter contains at least one of
these short cases that describes a decision that an entrepreneur faces and asks you to assume the role of consultant and advise the entrepreneur on the best course of action.

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This feature includes the fascinating stories of entrepreneurs who see space as the next
entrepreneurial frontier (including Elon Musk’s SpaceX and Richard Branson’s Virgin
Galactic), professional athletes who have become successful franchisees (including Jamal
Mashburn, Drew Brees, and Angelo Crowell), and using bootstrap marketing techniques to
build a name in the music industry (Erin Anderson, founder of Olivia Management). Each
one poses a problem or an opportunity, includes questions that focus your attention on key
issues, and helps you hone your analytical and critical thinking skills.
●

●

This edition includes 10 new brief cases that cover a variety of topics (see the Case Matrix
that appears on the inside cover). All of the cases are about small companies, and most are
real companies that you can research online. These cases challenge you to think critically
about a variety of topics that are covered in the book—from managing cash flow in a
seasonal business and choosing a location for a restaurant’s second branch to deciding
how to deal with the Affordable Care Act and setting prices for a social entrepreneur’s
eco-friendly apparel.
Almost all of the “In the Entrepreneurial Spotlight” features are new to this edition as well.
These inspirational true stories invite you to explore the inner workings of entrepreneurship
by advising entrepreneurs who face a variety of real-world business issues. Topics
addressed in these “Spotlights” include college students applying the entrepreneurial
skills they are learning in their classes by starting businesses while they are still in school,
entrepreneurs who discover that for them franchising is the ideal path to entrepreneurship,
a television makeup artist who launched her own line of makeup and faces decisions about
promoting it, entrepreneurs who are enhancing their companies’ e-commerce efforts with
social media, and many others.
The content of every chapter reflects the most recent statistics, studies, surveys, and
research about entrepreneurship and small business management. Theory, of course,
is important, but this book explains how entrepreneurs are applying the theory of
entrepreneurship every day. You will learn how to launch and manage a business the
right way by studying the most current concepts in entrepreneurship and small business
management.
A sample business plan for The Picturebooth Company serves as a model for you as you
create plans for your own business ideas. Ross Hill wrote this plan for a business that sells
and rents portable photo booths while he was a student and used it to launch his business.
Not only has Ross used this plan to guide his successful company, but he also has used it
to raise more than $70,000 in start-up capital. Hill’s plan won three business plan competitions, including the national competition sponsored by Collegiate DECA.
This edition features an updated, attractive, full-color design and layout that is designed to
be user-friendly. Each chapter begins with learning objectives, which are repeated as inmargin markers within the chapter to guide you as you study.

Policymakers across the world are discovering that economic growth and prosperity lie
in the hands of entrepreneurs—those dynamic, driven men and women who are committed to
achieving success by creating and marketing innovative, customer-focused new products and
services. Not only are these entrepreneurs creating economic prosperity, but many of them are
also striving to make the world a better place in which to live by using their businesses to solve
social problems. Those who possess this spirit of entrepreneurial leadership continue to lead
the economic revolution that has proved repeatedly its ability to raise the standard of living for
people everywhere. We hope that by using this book in your small business management or entrepreneurship class, you will join this economic revolution to bring about lasting, positive changes
in your community and around the world. If your goal is to launch a successful business of your
own, Entrepreneurship and Effective Small Business Management is the ideal book for you!
This eleventh edition of Entrepreneurship and Effective Small Business Management provides you with the knowledge you need to launch a business that has the greatest chance for
success. One of the hallmarks of every edition of this book has been a very practical, “hands-on”
approach to entrepreneurship. Our goal is to equip you with the tools you need for entrepreneurial success. By combining this textbook with your professor’s expertise and enthusiasm, we
believe that you will be equipped to follow your dreams of becoming a successful entrepreneur.

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xxvi Preface

CourseSmart eTextbook
CourseSmart eTextbooks were developed for students looking to save on required or recommended textbooks. Students simply select their eText by title or author and purchase immediate access to the content for the duration of the course using any major credit card. With a
CourseSmart eText, students can search for specific keywords or page numbers, take notes
online, print out reading assignments that incorporate lecture notes, and bookmark important
passages for later review. For more information or to purchase a CourseSmart eTextbook, visit
www.coursesmart.com.

Acknowledgments
Supporting every author is a staff of professionals who work extremely hard to bring a book to
life. They handle the thousands of details involved in transforming a rough manuscript into the
finished product you see before you. Their contributions are immeasurable, and I a ppreciate
all they do to make this book successful. We have been blessed to work with the following
outstanding publishing professionals:
●

●

Claudia Fernandes, our exceptionally capable program manager, who was always just an
e-mail away when we needed her help with a seemingly endless number of details. She
always does a masterful job of coordinating the many aspects of this project. Her ability to
juggle the demands of multiple projects at once is amazing!
Ann Pulido, project manager who skillfully guided the book through the long and
sometimes difficult production process with wonderful “can-do” attitude. Ann is capable,
experienced, and reliable, and we appreciate her hard work.
Cordes Hoffman, photo researcher, who took our ideas for photos and transformed them
into the meaningful images you see on these pages. Her job demands many hours of research and hard work.
Erin Gardner, marketing manager, whose input helped focus this edition on an evolving market.

We also extend a big “Thank You” to the corps of Pearson Education sales representatives,
who work so hard to get our books into customers’ hands and who represent the front line in our
effort to serve our customers’ needs. They are the unsung heroes of the publishing industry.
Special thanks go to the following academic reviewers, whose ideas, suggestions, and thoughtprovoking input have helped to shape this edition and previous editions of Entrepreneurship and
Effective Small Business Management. We always welcome feedback from our customers!
Joseph Adamo, Cazenovia College
H. Lon Addams, Weber State University
Mainuddin Afza, Bloomsburg University of
Pennsylvania
Corinne Asher, Henry Ford Community College
Calvin Bacon, University of South Alabama
Judy Beebe, Western Oregon University
Tony Bledsoe, Meredith College
Jim Bloodgood, Kansas State University
Steven Bradley, Austin Community College
Kimberly Brown-King, Southeast Arkansas
College
James H. Browne, University of Southern
Colorado
Judy Dietert, Southwest Texas State University
Brian Dyk, Heritage College
Todd Finkle, University of Akron
Olene Fuller, San Jacinto College North
Pat Galitz, Southeast Community
College–Lincoln

Joyce Gallagher, Maysville Community and
Technical College
Bill Godair, Landmark College
Mark Hagenbuch, University of North
Carolina–Greensboro
Ronald Hagler, California Lutheran University
Jeff Hornsby, Ball State University
Chris Howell, New Mexico Junior College
Eddie Hufft, Alcorn State University
Ralph Jagodka, Mt. San Antonio College
Richard Judd, University of Illinois at
Springfield
Kyoung-Nan Kwon, Michigan State
University
Stephen Lovejoy, University of Maine at
Augusta
John F. McMahon, Mississippi County
Community College
John Moonen, Daytona Beach Community
College

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Preface xxvii

Joseph Neptune, St. Leo University
Linda M. Newell, Saddleback College
Randy Nichols, Sullivan University
Marcella Norwood, University of Houston
David Orozco, Michigan Technological
University
Ben Powell, University of Alabama
Khaled Sartawi, Fort Valley State University
Jack Sheeks, Broward Community College
Herbert Sherman, Southampton College–LIU
Lindsay Sholdar, Art Institute of California,
San Diego

Howard Stroud, LeTourneau University
Ram Subramanian, Montclair State
University
Charles N. Toftoy, George Washington
University
Steve Varga-Sinka, Saint Leo University
Tony Warren, Pennsylvania State University
Tanisha Washington, Wade College
Willie Williams, Tidewater Community
College
Bill Wise, Metropolitan State College
of Denver

We also are grateful to our colleagues who support us in the often grueling process of writing
a book: Foard Tarbert, Sam Howell, Jerry Slice, Suzanne Smith, Jody Lipford, Tobin Turner,
Cindy Lucking, and Talisa Koon of Presbyterian College and Mark Schenkel, Mark Phillips, and
Jose Gonzalez of Belmont University.
Finally, we thank Cindy Scarborough and Ann Cornwall for their love, support, and understanding while we worked many long hours to complete this book. For them, this project represents a labor of love.
Norman M. Scarborough
William H. Scott III Associate Professor of Entreprenuership
Presbyterian College
Clinton, South Carolina
[email protected]
Jeffrey R. Cornwall
Jack C. Massey Chair in Entrepreneurship
Belmont University
Nashville, Tennessee
[email protected]

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SECTION I The Rewards and Challenges of Entrepreneurship

CHAPTER 1

Entrepreneurs: The Driving
Force Behind Small Business
Learning
Objectives
Upon completion of this chapter,
you will be able to:
1. Define the role of the entrepreneur
in the U.S. economy.
2. Describe the entrepreneurial
profile.
3. Explain how entrepreneurs spot
business opportunities.
4. Describe the benefits of owning a
small business.
5. Describe the potential drawbacks
of owning a small business.
6. Explain the forces that are driving
the growth of entrepreneurship.
7. Discuss the role of diversity
in small business and
entrepreneurship.
8. Describe the contributions small
businesses make to the U.S.
economy.
9. Put business failure into the
proper perspective.
10. Explain how small business
owners can avoid the major
pitfalls of running a business.

All our dreams can come true, if we have
the courage to pursue them.
—Walt Disney
Success is the prize given to those who try
and fail willingly.
—Jeffrey Bryant

1
1

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2 Section I • The Rewards and Challenges of Entrepreneurship

The Role of the Entrepreneur
1.
Define the role of the
entrepreneur in the U.S.
economy.

Welcome to the world of the entrepreneur! Every year, entrepreneurs in the United States alone
launch more than 6.5 million businesses.1 These people, who come from diverse backgrounds,
are striving to realize that Great American Dream of owning and operating their own businesses.
Some of them have chosen to leave the security of the corporate hierarchy in search of
independence, others have been forced out of large corporations as a result of downsizing, and still
others have from the start chosen the autonomy that owning a business offers. The impact of these
entrepreneurs on the nation’s economy goes far beyond their numbers, however. The r esurgence
of the entrepreneurial spirit they are spearheading is the most significant economic development
in recent business history. These heroes of the business world are introducing i nnovative products
and services, pushing back technological frontiers, creating new jobs, o pening foreign markets,
and, in the process, sparking the U.S. economy.
Entrepreneurs, once shunned as people who could not handle a “real” job in the corporate
world, now are the celebrities of the global economy. They create companies, jobs, wealth, and
innovative solutions to some of the world’s most vexing problems, from relief for sore feet to
renewable energy sources. “The story of entrepreneurship entails a never ending search for new
and imaginative ways to combine the factors of production into new methods, processes, technologies, products, or services,” says one government economist who has conducted extensive
research on entrepreneurship’s impact.2 In short, small business is “cool,” and entrepreneurs are
the rock stars of the business world.
The last several decades have seen record numbers of entrepreneurs launching businesses.
One important indicator of the popularity of entrepreneurship is the keen interest expressed by
students in creating their own businesses. According to a recent Gallup survey, 77 percent of
students in grades 5 through 12 say that they “want to be their own bosses.”3 Growing numbers
of young people are choosing entrepreneurship as a career (some of them while they are still in
school) rather than joining the ranks of the pin-striped masses in major corporations. A recent
poll by the Young Entrepreneur Council reports that 21 percent of recent college graduates started
businesses out of necessity because they could not find jobs elsewhere.4 Many others choose to
start their own companies because they prefer the autonomy of entrepreneurship to the hierarchy
of corporate America. In fact, when many young people hear the phrase “corporate America,”
they do not think of career opportunities; instead, images of the film Office Space come to mind.
In short, the probability that you will become an entrepreneur at some point in your life has never
been higher!
Research suggests that entrepreneurial activity remains vibrant not only in the United States
but around the world as well. According to the Global Entrepreneurship Monitor, a study of
entrepreneurial activity across the globe, 13 percent of the U.S. population aged 18 to 64, more
than one in eight adults, is engaged in entrepreneurial activity. The level of entrepreneurial a ctivity
in the United States is the same as the global average of 13.0 percent and above the average
(7.1 percent) for innovation-driven economies (see Figure 1.1).5
Entrepreneurship has been part of the fabric of the United States since its earliest days. Many of
the nation’s founding fathers were entrepreneurs. Thomas Jefferson started a nailery (a business that
transformed iron into nails) in 1794 and purchased high-tech (at the time) nail-making m
achinery
in 1796 to increase his company’s production. Benjamin Franklin was an inventor and in 1729
at the age of 21, convinced several friends to finance his purchase of a newspaper that he renamed
The Pennsylvania Gazette, a business that made him quite wealthy.6 That same entrepreneurial
spirit remains strong today as it does in other countries. Entrepreneurs in every corner of the world
are launching businesses thanks to technology that provides easy access to both local and global
markets at start-up. Even countries that traditionally are not known as hotbeds of e ntrepreneurial
activity are home to promising start-up companies. Despite decades of economic problems,
Zimbabwe’s economy is growing once again, and small businesses are driving much of its growth.
Entrepreneurial Profile: Divine Ndhlukula: Securio One of Zimbabwe’s most
successful entrepreneurs is Divine Ndhlukula, who in 1998 started a small security company,
Securico, in her home with a modest investment and just four employees. Ndhlukula says that she
dreamed of an entrepreneurial career while she was a student studying accounting. After brief stints
in farming, broadcasting, and insurance, she saw an opportunity in the security services business and

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CHAPTER 1 • Entrepreneurs: The Driving Force Behind Small Business 3
Persons per 100 adults, 18–64 years old engaged in entrepreneurial activity

45
TEA index

Total entrepreneurial activity (TEA) index

Global TEA
average

35
30
Global average = 13.0

25
20
15
10
5

Algeria
Angola
Botswana
Egypt
Ethiopia
Ghana
Iran
Malawi
Nigeria
Pakistan
Palistine
Uganda
Zambia
Argentina
Barbados
Bosnia/Herzegovina
Brazil
Chile
China
Colombia
Costa Rica
Croatia
Ecuador
El Salvador
Estonia
Hungary
Latvia
Lithuania
Macedonia
Malaysia
Mexico
Namibia
Panama
Peru
Poland
Romania
Russia
South Africa
Thailand
Trinidad/Tobago
Tunisia
Turkey
Uruguay
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Israel
Italy
Japan
Rep of Korea
Netherlands
Norway
Portugal
Singapore
Slovakia
Slovenia
Spain
Sweden
Switzerland
Taiwan
United Kingdom
United States

Factor-driven economies

Efficiency-driven economies

Innovation-driven economies

Country

FIGURE 1.1
Entrepreneurial Activity Across the Globe
Source: Based on Siri Roland Xavier, Donna Kelley, Jacqui Kew, Mike Herrington, and Arne Vorderwülbecke, Global
Entrepreneurship Monitor 2012 Global Report, Babson College, Universidad del Desarrollo, Universiti Tun Abdul
Razak, and Global Entrepreneurship Research Consortium, 2012, pp. 58–59.

started Securico, which targets multinational companies operating in Zimbabwe. “People who aspire
to be in business think that you have to have lots of money to start,” Ndhlukula says. “It’s not that.
It’s really the passion.” Today Securico, which now provides a full range of security services, employs
more than 3,500 people, generates sales of more than $16 million, and was recently was recognized
by Africa Awards for Entrepreneurship.7

In recent years, large companies in the United States and around the world have engaged in
massive downsizing campaigns, dramatically cutting the number of managers and workers on their
payrolls. This flurry of “pink slips” has spawned a new population of entrepreneurs—“castoffs”
from large corporations (many of whom thought they would be lifetime ladder climbers in their
companies) with solid management experience and many productive years left before retirement.
One casualty of this downsizing has been the long-standing notion of job security in large
corporations, which all but destroyed the notion of loyalty and has made workers much more
mobile. In the 1960s, the typical employee had worked for an average of four employers by
the time he or she reached age 65; today, the average employee has had eight employers by
the time he or she is 30.8 Members of Generation X (those born between 1965 and 1980) and
Generation Y (those born between 1981 and 1995), in particular, no longer see launching a business as being a risky career path. Having witnessed large companies lay off their parents after
many years of service, these young people see entrepreneurship as the ideal way to create their
own job security and career success! They are eager to control their own destinies.
This downsizing trend among large companies also has created a more significant philosophical change. It has ushered in an age in which “small is beautiful.” Thirty years ago, competitive

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4 Section I • The Rewards and Challenges of Entrepreneurship

conditions favored large companies with their hierarchies and layers of management; today, with
the pace of change constantly accelerating, fleet-footed, agile, small companies have the competitive advantage. These nimble competitors dart into and out of niche markets as they emerge
and recede, they move faster to exploit opportunities the market presents, and they use modern
technology to create within a matter of weeks or months products and services that once took
years and all of the resources a giant corporation could muster. The balance has tipped in favor
of small entrepreneurial companies.
Entrepreneurship also has become mainstream. Although launching a business is never easy,
the resources available today make the job much simpler today than ever before. Thousands of
colleges and universities offer courses in entrepreneurship, the Internet hosts a sea of information on launching a business, sources of capital that did not exist just a few years ago are now
available, and business incubators hatch companies at impressive rates. Once looked down on
as a choice for people unable to hold a corporate job, entrepreneurship is now an accepted and
respected part of our culture.
Another significant shift in the bedrock of our nation’s economic structure is influencing
this swing in favor of small companies. The nation is rapidly moving away from an industrial
economy to a knowledge-based one. What matters now is not so much the traditional factors of
production but knowledge and information. The final impact of this shift will be as dramatic as
the move from an agricultural economy to an industrial one that occurred more than 200 years
ago in the United States. A knowledge-based economy favors small businesses because the cost
of managing and transmitting knowledge and information is very low, and computer and information technologies are driving these costs lower still.
No matter why they start their businesses, entrepreneurs continue to embark on one of the
most exhilarating—and one of the most frightening—adventures ever known: launching a business. It’s never easy, but it can be incredibly rewarding, both financially and emotionally. One
successful business owner claims that an entrepreneur is “anyone who wants to experience the
deep, dark canyons of uncertainty and ambiguity and wants to walk the breathtaking highlands
of success. But I caution: Do not plan to walk the latter until you have experienced the former.”9
True entrepreneurs see owning a business as the real measure of success. Indeed, entrepreneurship often provides the only avenue for success to those who otherwise might have been denied
the opportunity.
Who are these entrepreneurs, and what drives them to work so hard with no guarantee of
success? What forces lead them to risk so much and to make so many sacrifices in an attempt
to achieve an ideal? Why are they willing to give up the security of a steady paycheck working
for someone else to become the last person to be paid in their own companies? This chapter will
examine the entrepreneur, the driving force behind the American economy.

Source: CartoonStock.

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CHAPTER 1 • Entrepreneurs: The Driving Force Behind Small Business 5

What Is an Entrepreneur?
Adapted from the French verb entreprendre, which means “to undertake” or “to attempt,” the
word “entrepreneur” was introduced in 1755 in economist Richard Cantillon’s book Essay on
the Nature of Trade in General. Cantillon defined an entrepreneur as a producer with nonfixed
income and uncertain returns.10 At any given time, an estimated 9 million adults in the United
States are engaged in launching a business, traveling down the path of entrepreneurship that
Cantillon first wrote about more than 250 years ago.11 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 opportunities and assembling the necessary resources to capitalize on those opportunities.
Entrepreneurs usually start with nothing more than an idea—often a simple one—and then find
and organize the resources necessary to transform that idea into a sustainable business. H
arvard
Business School professor Howard Stevenson says that entrepreneurs “see an opportunity and
don’t feel constrained from pursuing it because they lack resources. They’re used to making do
without resources.”12 In essence, entrepreneurs are disrupters, upsetting the traditional way of
doing things by creating new ways to do them.
What entrepreneurs have in common is the ability to spot opportunities and the willingness
to capitalize on them.
Entrepreneurial Profile: Ted Southern and Nikolay Moiseev: Final Frontier
Design Ted Southern, an artist and designer, and Nikolay Moiseev, a mechanical engineer,
launched Final Frontier Design, when they saw the opportunity to create functional, affordable space
suits for the burgeoning commercial space flight industry (see the accompanying “Entrepreneurship
in Action” feature on page 9). “We recognized a new market in the suborbital space flight industry,”
says Southern. Their Brooklyn, New York–based start-up makes space suits that are more flexible than
the traditional space suits designed by NASA and include ergonomic designs, clever reinforcements,
and innovative joints that allow space travelers (the suits are designed for use inside spacecraft, not
for space walks) to move more easily and fluidly. Existing space suits are “expensive, heavy, and not
very functional,” says Southern. “We think we can offer real improvements in both performance and
cost.” Moiseev designed space suits for the Russian Space Agency for nearly 20 years before moving
to the United States, where he and Southern, who was best known for designing wings for the models in Victoria’s Secret runway shows, teamed up to design gloves for astronauts in a competition
sponsored by NASA. (They won a $100,000 prize that they used to launch Final Frontier Design.) After
raising more than $27,000 on crowdfunding site Kickstarter, the entrepreneurs have enough capital
to create a prototype of their “3G” spacesuit that they say will sell for as little as $50,000, far below
the $12 million cost for a traditional space suit.13

Although many people dream of owning a business, most of them never actually launch a
company. Those who do take the entrepreneurial plunge, however, will experience the thrill of
creating something grand from nothing; they will also discover the challenges and the difficulties of building a business “from scratch.” Whatever their reasons for choosing entrepreneurship,
many recognize that true satisfaction comes only from running their own businesses the way they
choose.
Researchers have invested a great deal of time and effort over the last decade studying these
entrepreneurs and trying to paint a clear picture of the entrepreneurial personality. Not surprisingly, the desire for autonomy is the single most important factor motivating entrepreneurs to
start businesses (see Table 1.1). Although these studies have produced several characteristics that
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.14

2.
Describe the e ntrepreneurial
profile.

Nikolay Moiseev (left) and Ted
Southern (right), cofounders of
Final Frontier Design.
Source: Final Frontier Design, LLC.

1. Desire and willingness to take initiative. Entrepreneurs feel a personal responsibility for the
outcome of ventures they start. They prefer to be in control of their resources and to use those
resources to achieve self-determined goals. They are willing to step forward and build businesses
based on their creative ideas.
2. Preference for moderate risk. Entrepreneurs are not wild risk takers but are instead calculating risk takers. Unlike “high-rolling, riverboat gamblers,” they rarely gamble. Entrepreneurs
often have a different perception of the risk involve in a business situation. The goal may appear
to be high—even impossible—from others’ perspective, but entrepreneurs typically have thought
through the situation and believe that their goals are reasonable and attainable. Entrepreneurs

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6 Section I • The Rewards and Challenges of Entrepreneurship

TABLE 1.1 Why Entrepreneurs Start Businesses
Noam Wasserman and Timothy Butler of the Harvard Business School surveyed nearly 2,000 entrepreneurs
about their motivations for starting their businesses, analyzed the results by gender and age, and compared
them to thousands of nonentrepreneurs. The primary motivator for entrepreneurs is autonomy, but security
and a congenial work environment top the list for nonentrepreneurs. Entrepreneurs’ source of motivation
shifts slightly as they age, more so for women than for men. The following tables summarize the researchers’
findings:
Men by Age
20s

30s

40s

Autonomy
Power and Influence
Managing People
Financial Gain

Autonomy
Power and Influence
Altruism
Variety

Women by Age
20s

30s

40s

Autonomy
Power and Influence
Managing People
Altruism

Autonomy
Power and Influence
Variety
Altruism

Autonomy
Intellectual Challenge
Variety
Altruism

Source: Adapted from Leigh Buchanan, “The Motivation Matrix,” Inc., March 2012, pp. 60–62.

launched many now famous businesses, including Burger King, Microsoft, FedEx, Disney, CNN,
MTV, Hewlett Packard, and others, during economic recessions when many people believed their
ideas and their timing to be foolhardy.
Entrepreneurial Profile: Nicholas Pelis: Denizen Rum While working for SKYY
Vodka, Nicholas Pelis spotted an opportunity to create a new blend of rum, a product that had
been “sanitized” by the mass-production mind-set of large modern distilleries. Pelis and his wife sold
their house in San Francisco to return to his native New York and used the proceeds of the sale and
$300,000 raised from family and friends to launch Denizen Rum, a company whose distilled spirits
blend the mixability of white rum with the bold, smooth flavors of traditional dark rum from Amsterdam, where rum blending has been a tradition since the 1700s. Introduced in 2011, Denizen Rum
quickly won critical acclaim, which allowed the Pelis’s young company to sign a national distribution
contract with one of the largest wine and spirits distributors in the United States. Although some
people criticized Pelis for the risk that he took, his industry experience and market research convinced him that his idea was sound and that his company would be successful.15

This attitude explains why so many successful entrepreneurs failed many times before finally
achieving their dreams. For instance, Milton Hershey, founder of one of the world’s largest and
most successful chocolate makers, started four candy businesses, all of which failed, before he
launched the chocolate business that would make him famous. The director of an entrepreneurship
center says that entrepreneurs “are not crazy, wild-eyed risk takers. Successful entrepreneurs understand the risks [of starting a business] and figure out how to manage them.”16 Good entrepreneurs
become risk reducers, and one of the best ways to minimize the risk in any entrepreneurial venture
is to conduct a feasibility study and create a sound business plan, which is the topic of Chapter 8.
3. Confidence in their ability to succeed. Entrepreneurs typically have an abundance of confidence in their ability to succeed, and they tend to be optimistic about their chances for business
success. Entrepreneurs face many barriers when starting and running their companies, and a
healthy dose of optimism can be an important component in their ultimate success. “Entrepreneurs believe they can do anything,” says one researcher.17
4. Self-reliance. Entrepreneurs do not shy away from the responsibility for making their businesses succeed. Perhaps that is why many entrepreneurs persist in building businesses even
when others ridicule their ideas as follies. Against the advice of his father, a fifth-generation
brewmaster, entrepreneur Jim Koch left his high-paying job as a management consultant to start

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CHAPTER 1 • Entrepreneurs: The Driving Force Behind Small Business 7

Boston Beer Company from his kitchen using his family’s beer recipe. Koch recalls thinking,
“I’m on this path, and it doesn’t lead anywhere I want to go.” He made the decision to launch
his business to “own my life and make decisions that are not the result of other people’s plans
or expectations.” Today, Boston Beer Company sells 32 types of beer, has 800 employees, and
generates sales of $371 million.18
5. Perseverance. Even when things don’t work out as they planned, entrepreneurs don’t give up.
They simply keep trying. Real entrepreneurs follow the advice contained in the Japanese proverb,
“Fall seven times; stand up eight.”
Entrepreneurial Profile: Gail Borden: Borden Inc. Entrepreneur Gail Borden
(1801–1874) was a prolific inventor, but most of his inventions, including the terraqueous
wagon (a type of prairie schooner that could travel on land or water) and a meat biscuit (a mixture
of dehydrated meat and flour that would last for months), never achieved commercial success. After
witnessing a small child die from contaminated milk, Borden set out to devise a method for condensing milk to make it safer for human consumption in the days before refrigeration. For two years he
tried a variety of methods, but every one of them failed. Finally, Borden developed a successful
vacuum condensation process, won a patent for it, and built a company around the product. It failed,
but Borden persevered. He launched another condensed milk business, this time with a stronger capital base, and it succeeded, eventually becoming Borden Inc., a multi-billion-dollar conglomerate that
still makes condensed milk using the process Borden developed 150 years ago. When he died, Borden
was buried beneath a tombstone that reads, “I tried and failed. I tried again and succeeded.”19

6. Desire for immediate feedback. Entrepreneurs like to know how they are doing and are constantly looking for reinforcement. Tricia Fox, founder of Fox Day Schools, Inc., claims, “I like
being independent and successful. Nothing gives you feedback like your own business.”20
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. Long
hours—often 60 to 80 hours a week—and hard work are the rule rather than the exception. Building
a successful business requires a great deal of stamina and dedication. “Entrepreneurs have zero sense
of balance,” says serial entrepreneur Jeff Stibel, CEO of Dun & Bradstreet Credibility Corporation.
“We’re all in all the time. It doesn’t matter if it’s day or night, weekday or weekend. Each of us focuses on our vision with a single-minded passion. We’d probably work in our sleep if we could.”21
8. Competitiveness. Entrepreneurs tend to exhibit competitive behavior, often early in life. They
enjoy competitive games and sports and always want to keep score.
9. Future orientation. Entrepreneurs tend to dream big and then formulate plans to transform
those dreams into reality. They have a well-defined sense of searching for opportunities. They
look ahead and are less concerned with what they accomplished yesterday than what they can do
tomorrow. Ever vigilant for new business opportunities, entrepreneurs observe the same events
other people do, but they see something different. “Entrepreneurial brains are full-time pattern
recognizers,” says Steve Blank, professor of entrepreneurship at Stanford University.22
Taking this trait to the extreme are serial entrepreneurs, those who create multiple
companies, often running more than one business simultaneously. These entrepreneurs take
multitasking to the extreme. Serial entrepreneurs get a charge from taking an idea, transforming
it into a business, and repeating the process.
Entrepreneurial Profile: Paul Hurley: ideeli At age 12, Paul Hurley purchased the
equipment to start a lawn care business with the profits he earned investing in small oil company stocks. (He came up with the investment strategy after reading his father’s copies of Forbes.)
Hurley’s first hire was a kid who had a driver’s license because he was too young to drive the company
truck. While attending Yale University, Hurley started a series of companies, learning the fundamentals
of developing a workable business model, importing, mastering direct mail, and other business skills.
After college, he and his brother started Aveo, a communications software company that attracted
investments from venture capital firms before folding. “I was completely wiped out,” he recalls. From
2001 to 2006, the serial entrepreneur launched seven businesses in quick succession befor…
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