Chapter 10: Entrepreneurial Ventures

About legal forms of organization:

- The first organizing decision that an entrepreneur must make is a critical one. It's the form of legal ownership for the venture. The two primary factors affecting this decision are taxes and legal liability. - The three basic ways to organize an entrepreneurial venture are sole proprietorship, partnership, and corporation. However, when you include the variations of these basic organizational alternatives, you end up with six possible choices, each with its own tax consequences, liability issues, and pros and cons.

Diversity in small businesses:

- The number of Hispanic-owned businesses almost tripled between 1997 (1.2 million) and 2012 (3.3 million). - The percentage of U.S. businesses with 1 to 50 employees owned by African Americans increased by 50% between 1996 and 2015. - Almost a million firms with employees are minority-owned: 53% are Asian American owned, 11% are African American owned, and almost a third are Hispanic owned. - 19% of all companies with employees are owned by women.

What are some potential questions when researching the venture's feasibility competitors?

- What types of products or services are competitors offering? - What are their products' strengths and weaknesses? - How do they handle marketing, pricing, and distribution? - How do they attempt to do differently from other competitors?

Examples of market considerations:

- Who are the potential customers for your idea? Who, where, and how many? - Have you considered pricing issues and whether the price you'll be able to charge will allow your venture to survive and prosper? - What similar or unique product features does your proposed idea has compared to what's currently on the market?

Steps in a business plan:

1. Executive summary 2. Analysis of opportunity 3. Analysis of the context 4. Description of the business 5. Financial data and projections 6. Supporting documentation

What are two social responsibility and ethics issues facing entrepreneurs?

1. In a study of small companies, 95% of respondents indicated that developing a positive reputation and relationship with the community where their business is located is important for achieving their business goals. 2. In a survey of employees from businesses of various sizes, 20% of employees at companies with 99 or fewer employees disagreed when asked if they thought their organization was highly ethical.

Planning for Growth:

Entrepreneurs need to address growth strategies as part of their business planning but shouldn't be overly rigid in that planning.

Harvesting:

Exiting a venture when an entrepreneur hopes to capitalize financially on the investment in the venture.

Recognizing Crisis Situations:

Some signals of potential performance decline include inadequate or negative cash flow, excess number of employees, unnecessary and cumbersome administrative procedures, fear of conflict and taking risks, tolerance of work incompetence, lack of a clear mission or goals, and ineffective or poor.

Economic impacts of small businesses:

- 80% (approximately 23.8 million) of the nearly 29.7 million businesses have no employees (businesses run by individuals or small groups of partners, such as married couples). - 89% (approximately 5.2 million) of the nearly 5.8 million businesses with employees have fewer than 20 employees. - 99.6% (approximately 5.7 million) of all businesses have 0-99 employees—98% have 0-20 workers. - Only about 19,000 businesses in the United States have more than 500 employees. - Companies with fewer than 50 employees pay more than 20% of America's payroll. - Companies with fewer than 500 employees pay more than 41% of America's payroll. - 32.5 million people (1 employee in 4) work for businesses with fewer than 50 employees. - These businesses also pay tens of millions of owners, not included in employment statistics.

Business valuation methods include:

- Asset valuations - Earnings valuations - Cash-flow valuations

Examples of personal considerations:

- Do you have the capabilities to do what you've selected? - Are you ready to be an entrepreneur? - Are you prepared emotionally to deal with the stresses and challenges of being an entrepreneur? - Are you prepared to deal with rejection and failure? - Do you have a realistic picture of the venture's potential? - Have you educated yourself about financing issues?

Entrepreneurial challenges include:

- Employee recruitment - Employee retention - Initiating change - Founders syndrome - Continuing to innovate

Researching the venture's feasibility financing:

- Entrepreneur's personal resources (personal savings, home equity, personal loans, credit cards, etc.) - Financial institutions (banks, savings and loan institutions, government-guaranteed loans, credit unions, etc.) - Venture capitalist: External equity financing provided by professionally managed pools of investor money. - Angel Investors: A private investor (or group of private investors) who offers financial backing to an entrepreneurial venture in return for equity in the venture. - Initial Public Offering (IPO): The first public registration and sale of a company's stock. - National, State, and local governmental business development programs. - Unusual Sources (TV shows, judged competitions, crowdfunding, etc.)

Why is entrepreneurship important?

- Innovation - Number of new start-ups - Job creation - Global entrepreneurship

When dealing with downturns, declines, and crises:

- It's important to have an up-to-date plan for covering crises. - This plan should focus on providing specific details for controlling the most fundamental and critical aspects of running the venture—cash flow, accounts receivable, costs, and debt.

When exploring idea sources entrepreneurs should look for:

- Limitations of what is currently available. - New and different approaches. - Advances and breakthroughs - Unfilled niches - Trends and changes

Legal forms of business ownership include:

- Sole proprietorship - General partnership - Limited liability partnership (LLP) - C corporation - S corporation - Limited liability company (LLC)

What is the significance of the SBA Assistance for Women and Minorities?

- The SBA offers a minority small-business program, microloans, and the publication of Spanish language informational materials. - The SBA offers special programs and support services for socially and economically disadvantaged persons through its Minority Business Development Agency. - It also makes a special effort to help veterans go into business for themselves.

What is the significance of the Small Businesses Administration (SBA)?

- The SBA offers financial assistance to qualified small businesses that cannot obtain financing on reasonable terms through normal lending channels. - This assistance takes the form of guarantees on loans made by private lenders. (The SBA no longer provides direct loans.) - These loans can be used for most business purposes, including purchasing real estate, equipment, and materials. - COVID-19 Assistance Administration

What are seven sources of opportunity when identifying environmental opportunities and competitive advantage?

1. The unexpected 2. The incongruous 3. The process need 4. Industry and market structures. 5. Demographics 6. Changes in perception 7. New knowledge

What six key elements does organizational design decisions in entrepreneurial decisions revolve around?

1. Work specialization 2. Departmentalization 3. Chain of command 4. Span of control 5. Amount of centralization/decentralization. 6. Amount of formalization

Proactive Personality:

A personality trait that describes individuals who are more prone to take actions to influence their environments.

Boiled Frog Phenomenon:

A perspective on recognizing performance declines that suggest watching out for subtly declining situations.

Business Plan:

A written document that summarizes a business opportunity and defines and articulates how the identified opportunity is to be seized and exploited.

Feasibility Study:

An analysis of the various aspects of a proposed entrepreneurial venture is designed to determine its feasibility. (Technical, legal, operational, schedule, financial, and managerial.)

Small Business:

An organization that is independently owned, operated, and financed; has fewer than 100 employees; doesn't necessarily engage in any new or innovative practices; and has relatively little impact on its industry.

Sharing Economy:

Business arrangements that are based on people sharing something they own or providing a service for a fee. Ex. Uber, Zipcar, and vrbo.

Self-employment:

Individuals who work for profit or fees in their own business, profession, trade, or farm.

Controlling for Growth:

Maintaining good financial records and financial controls over cash flow, inventory, customer.

Empowerment:

Motivating employees through empowerment—giving employees the power to make decisions and take actions on their own to solve problems. - Yielding control - Participative decision making - Leadership in unpredictable circumstances.

What do entrepreneurs do?

No two entrepreneurs are exactly the same. Generally, they: - Create something new and different. - Search for, respond to, and exploit change. - Research feasibility - Launch and manage new ventures.

Entrepreneurial Ventures:

Organizations that pursue opportunities, are characterized by innovative practices, and have growth and profitability as their main goals.

Organizing the Growth:

The key challenges for an entrepreneur in organizing for growth include finding capital, finding people, and strengthening the organizational culture.

Entrepreneurship:

The process of starting new businesses, generally in response to opportunities.