Management Chapter 6

Venture Capital Firm

A group of companies or individuals that invests money in new or expanding businesses for ownership and potential profits.

Per the BLS

According to data from the Bureau of Labor Statistics, as reported by Fundera: ○ -Approximately 20% of small businesses fail within the first year ○ - By the end of the second year, 30% of businesses fail

Pivot

To change the strategic direction of a business.

equity financing

Funds that are invested in exchange for ownership in the company.

Angel Financing

Occurs when a wealthy individual who believes in the idea for a start-up provides personal funds and advice to help the business get started.

Launching a Start-Up:

Overview of process: ○ Start with an idea ○ Write a business plan ○ Choose a legal structure ○ Arrange financing

Idealist

Rewarded by chance to work on something new and creative Like the idea of working on something that is new, creative, or personally meaningful.

Business incubator

typically provides shared office space, management support services, and management and legal advice to entrepreneurs Helps start up companies by connecting them with a range of experts and mentors who nurture them, thus increasing their likelihood of success.

Franchising example

○ 38,000 restaurants located in more than 100 countries ○ 93% of them are franchise operations ○ Franchisee applicants must have a minimum of $500,000 available in liquid assets and pay a $45,000 franchise fee ○ The cost of purchasing an existing franchise can exceed $1 million and a new operation will cost between $1.3 and $2.4 Million ○ Many stores earning well over $2 million in sales annually ○ Franchisees pay about 82% of store revenue to Mcdonalds each year

Characteristics of a Business Plan:

○ Clear, compelling vision ○ Clear, realistic financial projections ○ Profile of potential customers and target market ○ Details about the industry and competitors ○ Evidence of an effective management team ○ Critical risks ○ Sources and uses of start-up funds and operating funds ○ Summary

Starting an Online or Mobile App Business:

1. Find a market niche 2. Create a professional website 3. Choose a domain name 4. Know when to pivot 5. Use social media

Writing a business plan

A business plan is a document specifying business details prepared by an entrepreneur prior to opening a new business Planning forces the entrepreneur to carefully think through the issues and problems associated with starting and developing the business

High Energy

A business start-up requires great effort. A survey of small-business owners by Staples found that 43 percent of them work more than a regular 40-hour week, 31 percent work during holidays, and 13 percent regularly work more than 80 hours a week.

Entrepreneur

A person who recognizes a viable idea for a business product or service and carries it out by finding and assembling the necessary resources.

Remember This

A social entrepreneur is an entrepreneurial leader who is committed to both good business and changing the world for the better. Social entrepreneurs are creating new business models that meet critical human needs and tackle important problems unsolved by current economic and social institutions. Social entrepreneurship combines the creativity, business smarts, passion, and work of the traditional entrepreneur with a social mission. An example of social entrepreneurship is MaineWorks, the temporary staffing agency that Margo Walsh started to give ex-inmates with drug and alcohol problems a job and a fresh start.

Crowdfunding

A way of raising capital that involves getting small amounts of money from a large number of investors, usually using social media or the Internet.

Immigrant-Owned Businesses

Among minority-owned businesses, companies founded by immigrant entrepreneurs have recently garnered renewed interest. The Kauffman Foundation found that immigrants were almost twice as likely as native-born Americans to start new businesses in the United States in recent years. In 2016, for example, almost 30 percent of new entrepreneurs were immigrants, Kauffman says.* Exhibit 6.3 shows how the percentage of immigrant entrepreneurs has grown. Many immigrants take an entrepreneurial path because they appreciate the economic stability and opportunity they didn't have in the places where they came from. "As long as you are prepared to work hard and take some risks, it is easy to succeed in this country," one immigrant to the United States said about his new home. In addition, immigrants bring a fresh perspective as they learn about their new home country and often find novel approaches to opportunities or problems that native-born entrepreneurs might miss.

Franchising

An arrangement by which the owner of a product or service allows other to purchase the right to distribute a product or service with help from the owner. Franchising: The franchise owner sells right to offer products/services and their process under its brand name in exchange for selling fee and ongoing sales and fees ○ Disadvantages include a lack of control: ■ Franchisors dictates the prices ■ Must purchase equipment, bldg. And new product offerings ○ Advantages include: ■ Franchise owner provides mgmt. help and expertise ■ Known brand name ■ Reliable financial projections

Corporation

An artificial entity created by the state and existing apart from its owners ○ Separate legal entity liable for its actions ○ Limits owners' liability ○ Must pay taxes on its income ○ Provides continuity ○ More complex paperwork ○ Can raise funds through the sale of stock to investors

Partnership

An unincorporated business owned by two or more people ○ Easy to start ○ Use formal partnership agreement ■ Specifies how partners share responsibility and resources ■ Specifies how partners contribute expertise ○ Unlimited liability ○ Often dissolve within 5 years

sole propritorship

An unincorporated for-profit business owned by an individual Majority of businesses in the US ○ Few legal requirements ○ Proprietor has total ownership and control ○ Owner has unlimited liability

You want to see Lucia succeed, so you come up with a list of questions to ask her to determine whether she has "what it takes" to be an entrepreneur. Which of the following questions should Lucia answer "yes" to? Check all that apply. Instead of using your own money to start the business, would you be willing to sell your idea to someone else and work for them? Are you willing to give up spending time with friends and family to work on the business? Are you driven by a desire to accomplish goals? Do you think your success will be based on hard work rather than luck?

Are you willing to give up spending time with friends and family to work on the business? Are you driven by a desire to accomplish goals? Do you think your success will be based on hard work rather than luck?

Social Entrepreneurship example:

As the founder and Chief Shoe Giver of TOMS, Blake Mycoskie is proving that for-profit businesses can do good things in the world through social entrepreneurship. The TOMS One for One business model helps a person in need somewhere in the world every time a TOMS product is purchased. Since 2006, TOMS Shoes has provided more than 60 million pairs of shoes to children. Mycoskie is shown here at the launch of TOMS Eyewear. Since 2011, the One for One model has helped restore sight to more than 400,000 people.

Minority-Owned Businesses

As the minority population of the United States has grown, so has the number of minority-owned businesses. According to recent research, there are more than 11 million minority-owned businesses in the country, nearly twice as many as existed a decade ago. These minority-owned firms employ more than 6.3 million people and generate nearly $2 trillion in revenue annually.* Hispanic- or Latino-owned businesses have shown the greatest amount of growth over the past 10 years, increasing 34 percent during that time span, compared to 1 percent for all business owners.

Entrepreneurial Personality

Autonomy Entrepreneurial Sacrifice High Energy Need to Achieve Self-Confidence Locus of Control Awareness of passing time Tolerance for Ambiguity

you decide that the best way to get hats and mittens to children is to start a business that sells hats and mittens. For every hat or pair of mittens you sell, you will give away a hat or pair of mittens to an elementary school child. Why would you choose to set up this business as a benefit corporation? To grow the business more quickly To prevent lawsuits designed to return profits to shareholders To prevent a takeover by a for-profit business To minimize the paperwork associated with starting the business

Benefit corporations are designed to be immune to lawsuits from shareholders wanting a larger share of the profits of the business. Thus, you would assume a benefit structure to prevent these lawsuits.

Sustainer example

Compare the motivation of Susan Polis Schutz, the owner of Blue Mountain Arts, to that of Jeff Bezos, founder of Amazon.com. Schutz has always written poetry about love and nature. On a whim, her husband illustrated one of her poems and created 12 posters to sell at a local bookstore. The posters sold quickly, and the bookstore placed another order. That was the start of Blue Mountain Arts. With her husband working as illustrator and her mother working as sales manager, Schutz was content with a life that blended work and family. When the company exploded to more than 300 employees, this perfect balance was jeopardized. To give herself more family time, Schutz hired a business manager to take over daily operations. "I still love connecting to people's emotions on love, nature, friendship, and family in my work, but my favorite thing these days is doting on my [grandchildren]," said Schutz.

Entrepreneurial Sacrifice example

Consider the example of Jett McCandless, founder of CarrierDirect. McCandless was a partner in a fast-growing freight logistics operation, but when the partners had to sell the business for a fraction of its value and McCandless didn't agree to the terms of the sale, he was fired. He lost his house and car and had to move into his girlfriend's apartment. "It was a very tough time," McCandless says. "I came very close to going bankrupt." Some people might have given up on entrepreneurship, but not McCandless. He started a new company, CarrierDirect, a less-than-truckload (LTL) sales and consulting firm that grew to $35 million in revenue within two years. McCandless recently resigned as CEO of CarrierDirect to devote full-time to his new entrepreneurial venture, project44, a company that provides automated programming interface (API) software that connects shippers, LTL carriers, and third-party logistics providers.

Entrepreneurial Sacrifice

Entrepreneurs ability to preserve and stay positive after long periods of sacrifice or struggle. Willing to give up time and money

An essential quality for an entrepreneur is to

Entrepreneurs must have a passion for an idea. This is what gives them the energy and stamina to set up and run their business, and it often provides the stamina to keep running the business when things get tough.

Remember This

Entrepreneurs often have backgrounds, demographic characteristics, and personalities that distinguish them from successful managers in established organizations. Businesses started by minority and immigrant entrepreneurs have drawn new interest owing to their successes. Mexican American Orlando Osornio and his wife Denise started Tortas al 100 by using savings from their full-time jobs to buy food, four grills, a tent, and other supplies. Stuart Anderson studied 91 U.S. "unicorns"—start-ups that attained a market value of $1 billion or more—and discovered that more than half of them were founded by immigrant entrepreneurs. One survey suggests that the desire for autonomy is the primary motivator for people to pursue entrepreneurship. Characteristics common to entrepreneurs include the ability to persevere through sacrifice and struggle, a high energy level, self-confidence, a need to achieve, and a strong internal locus of control. The need to achieve means that entrepreneurs are motivated to excel and pick situations in which success is likely. Locus of control defines whether a person places the primary responsibility for what happens to him or her within the self (internal locus of control) or on outside forces (external locus of control).

Remember This

Entrepreneurship is the process of initiating a business, organizing the necessary resources, and assuming the associated risks and rewards. One of the fastest-growing segments of small business comprises one-owner operations, called sole proprietorships. An entrepreneur recognizes a viable idea for a new product or service and puts it into action by finding and assembling the necessary resources to start the business. Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, who founded Airbnb in 2008, are examples of entrepreneurs. Entrepreneurs may be classified as idealists, optimizers, sustainers, hard workers, or jugglers.

Internal Locus of Control

Few situations present more uncertainty than starting a new business. Entrepreneurs must be highly self-motivated and believe that they are "masters of their own fate." A person's locus of control defines whether he or she places the primary responsibility within the self or on outside forces.* Most successful entrepreneurs believe that their actions determine what happens to them, which means they have a high internal locus of control. In contrast, people who believe that outside forces determine what happens to them have a high external locus of control.

Sandy is considering beginning an online business. Her idea is to be an assistant for hire. Busy professionals can schedule her to run errands in two hour time slots. This is an example of: finding a market niche. creating a professional Web site. knowing when to pivot. using social media.

Finding a market niche involves finding an unresolved problem for people that isn't being served by other companies. Being an assistant for hire for busy professionals is serving an unmet need. This is not an example of using social media or creating a professional Web site. Knowing when to pivot means changing the strategic direction of the company.

Flickr began as an online role-playing game in which players would interact with other users and buy, sell, and build items. The most popular feature of the game was a photo-sharing tool. The company decided to use the popularity of the photo-sharing feature and is now one of the most popular photo- and video-sharing Web sites. This is an example of: finding a market niche creating a professional Web site using social media knowing when to pivot

Flickr changing its strategy as a company from an online game to an online photo-sharing Web site is an example of knowing when to pivot. Flickr utilized its photo-sharing popularity to switch its strategy as a company. This is not an example of using social media or creating a professional Web site. Finding a market niche involves finding an unresolved problem for people that isn't being served by other companies. Flickr is not the only photo-sharing Web site.

Social Entrepreneurship:

Focuses primarily on creating social value by providing solutions to social problems, with a secondary purpose of generating profit and returns ○ Combines the creativity, business smarts, passion, and work of the traditional entrepreneur with a mission to change the world for the better ● Benefit corporation - "B" corporation - allowed in many states. ○ Apply to a nonprofit business, called B Lab, for the right to use that phrase in marketing materials. To obtain certification, the business must pass an impact assessment, which scores the organization on environmental sustainability, community impact, and transparency

Immigrant-Owned Businesses example

For example, Laura Gomez, who was born in Mexico, started Atipica Inc. to create software that combines artificial and human intelligence to help companies find and recruit more diverse workforces and ensure a bias-free selection process.* Stuart Anderson, executive director of the National Foundation for American Policy, studied 91 U.S. "unicorns"—that is, start-ups with a market value of $1 billion or more—and found that more than half of them were founded by immigrants. These immigrant entrepreneurs came from numerous countries, including Canada, Israel, China, and India. Anderson believes that the "ability of immigrants to come to this country with little more than dreams and succeed" is a positive sign for the country's business and social environment. The immigrant-founded companies he studied employ, on average, approximately 1,200 people each and represent a collective value of nearly $250 billion.

Minority-Owned Businesses example

For example, after working for years in banking, 30-year-old Mexican American Orlando Osornio and his wife Denise began selling mile-high tortas loaded with bacon, chicken, ham, avocado, mango-habanero-pineapple sauce, jalapeños, chipotle mayonnaise, or other ingredients at farmer's markets and special events around Salinas, California. Using savings from their full-time jobs to buy food, four grills, a tent, and other supplies, the couple launched Tortas al 100 a couple of years ago and will soon expand with a food truck.*

Entrepreneurship example

For example, when Brian Chesky and Joe Gebbia couldn't afford the rent on their San Francisco apartment, they decided to turn their loft into short-term rental space for a local design conference. According to Gebbia, the pair felt that posting on Craigslist was too impersonal, so "our entrepreneur instinct said, 'build your own site.' " That decision was eventually transformed into Airbnb (originally AirBedandBreakfast.com), which was founded by Chesky, Gebbia, and a former roommate, Nathan Blecharczyk, in 2008. Airbnb has become a household name, has surpassed a million listings worldwide, and has generated billions in revenue.

Business Plan example

For example, when two women friends, both immigrants to the United States, decided to act on their dream of opening a coffee shop, they gathered detailed information as part of their business plan. Renting a storefront in their preferred location in New York City would cost $6,000 to $9,500 per month, which was a lot of money. A neon sign was too expensive, so the friends decided to use a sandwich board on the sidewalk. They broke down the cost and profit for a $6 iced oat milk matcha latte as follows: 1 teaspoon of ceremonial matcha, $1.50; labor for barista to make the latte at $16/hour, $0.80; one-half cup of oat milk, $0.56; plastic cup, $0.07; lid, $0.03; straw, $0.01; ice, $0.01. Total cost, $2.98. Profit, $3.02. They calculated that selling 200 drinks a day would enable them to make enough profit to survive. A well-crafted business plan summarizes the road map for success. As the business begins to grow, however, the entrepreneur should be prepared to handle common pitfalls, as described in this chapter's "Manager's Shoptalk."

optimizers

Get personal satisfaction from being business owners Are rewarded by the personal satisfaction of being business owners.

Jugglers

High-energy people who enjoy handling every detail of their own business

Debt financing

Involves borrowing money, such as from friends, family, or a bank, that has to be repaid at a later date in order to start a business.

Handworker example

It doesn't take a college degree, or even a lot of money, to start your own business. Just ask entrepreneur Moziah Bridges, founder and CEO of Mo's Bows. Bridges noticed a lack of stylish bowties in the marketplace and had the idea for the company when he was just 9 years old. He asked his grandmother to teach him to sew so he could create and sell his own neckwear. Bridges appeared on "Shark Tank" in 2014 and his company soon sold more than $200,000 of handmade bow ties and other fashion accessories. The 17-year-old hard worker said he wants to have his own clothing line by the time he's 20.

You are thinking about opening an insurance company in Norway that sells insurance to Norwegians who have moved to different countries. Your job will be easier than it would have been in the past because of

It is much easier to start a global business today than it was in the past because of advances in technology. The Internet makes it easy to find new customers in distant lands, and to communicate with those customers effectively.

Need to achieve

Most entrepreneurs have a strong need to achieve, which means that people are motivated to excel and pick situations in which success is likely.* People who have high achievement needs like to set their own goals, which are moderately difficult. Easy goals present no challenge; unrealistically difficult goals cannot be achieved. Intermediate goals are challenging and provide great satisfaction when achieved. High achievers also like to pursue goals for which they can obtain feedback about their success. "I was very low and I had to achieve something," recalls Harry Potter creator and billionaire author J. K. Rowling, describing how and why she kept trying after repeated rejections

Using your knowledge of minority and women-owned businesses, which of the following suggestions would be effective in helping your intended audience? Check all that apply. Offer $15,000 grants to women who have innovative product ideas. Host networking events with small business owners and larger, more established firms looking to do business with minority- and women-owned businesses. Partner with local technology firms that can offer advice and mentor program participants. Ask local banks to present information on small business loans to program participants.

Offer $15,000 grants to women who have innovative product ideas. Host networking events with small business owners and larger, more established firms looking to do business with minority- and women-owned businesses. Partner with local technology firms that can offer advice and mentor program participants.

Internal Locus of Control example

One entrepreneur who reflects a strong internal locus of control is Chris Hughes, a cofounder of Facebook and creator of the MyBarackObama social network. Based on his background, Hughes wasn't likely to attend an Ivy League school, but while he was still in high school he set out to do just that. Without telling his parents, he began researching and applying to various boarding schools. Eventually he was offered a generous financial aid package from Phillips Academy in Andover, Massachusetts. A few years later, he left there with a scholarship to Harvard.

Which of the following is a benefit to buying a franchise over starting your own business? Management help is provided by the owner Prices for products are already determined Franchisees must purchase equipment to support new product offerings Local demand for product

One reason why entrepreneurs may purchase a franchise is because management help is provided by the owner. Starting your own business is a risky endeavor, but purchasing a franchise can reduce some of that risk because management may provide employee training and marketing support. In addition, franchisees benefit from national advertising. Purchasing equipment to support new product offerings can be expensive and are a downside to being a franchise owner. In addition, having prices set by the franchisor is a disadvantage because the franchisee lacks control in adjusting prices for the local market. Finally, local demand for the product is not a guarantee.

Self-Confidence

People who start and run a business must act decisively. They need confidence about their ability to master the day-to-day tasks of the business. They must feel sure about their ability to win customers, handle the technical details, and keep the business moving. Entrepreneurs also have a general feeling of confidence that they can deal with anything in the future; complex, unanticipated problems can be handled as they arise

Lori Greiner, from tv's Shark Tank, says she thinks it is important for entrepreneurs to learn every facet of the business by running as much of the company as possible. Lori would fit into the ______ category of entrepreneurs. Hard worker Juggler Optimizer Sustainer

Running as much of the company as possible describes the juggler. These are entrepreneurs who thrive on handling everything in the small business themselves. Hard workers are willing to put in long hours, but not necessarily run every aspect of the business. Optimizers are rewarded by the personal satisfaction of being business owners, while sustainers want to enjoy a work-life balance and keep their business from growing too large.

Use your knowledge of social entrepreneurship to answer the following questions. Which of the following characteristics and traits would you like to see in a co-founder? Check all that apply. Hard working Economically motivated Persistent Creative

Successful entrepreneurs are creative, persistent, and hardworking. Creativity is a skill that is needed in entrepreneurship in order to come up with novel solutions under constrained conditions. Further, entrepreneurs often face setbacks and must persist and not give up. It goes without saying that entrepreneurs must be hard working. It takes many long hours to see their ideas come to fruition. While some entrepreneurs are economically motivated, social entrepreneurs are not. A social entrepreneur's primary objective is to provide social benefit, rather than maximizing financial returns. Therefore, having an economically motivated co-founder could create conflict in reaching your goals.

High Energy example

The ex-wife of Elon Musk, one of the world's most successful entrepreneurs, says the main ingredient for such extreme success is "Be obsessed. Be obsessed. Be obsessed." Highly successful entrepreneurs such as Musk, founder of SpaceX and cofounder of Tesla Motors and PayPal, "combine brilliance and talent with an insane work ethic," she says, "so if the work itself doesn't drive you, you will burn out or fall by the wayside

According to the 2018-2019 GEM report, in Thailand this demographic segment showed an increasing number of ___________ becoming entrepreneurs.

The rate of female entrepreneurship is catching up with that of men in some areas of the world. In Thailand, Angola, Bulgaria, Madagascar, Spain, Panama, Qatar, and Israel women showed increasing rates of entrepreneurship. The GEM report does not show information on bilingual citizens, disabled people, or tech-savvy Millennials.

Remember This

The steps in starting an online business include finding a market niche, creating a professional Web site, choosing a domain name, knowing when to pivot, and using social media. Michael Dubin started Dollar Shave Club after he got laid off from his digital marketing job and had his application for business school turned down by Columbia, New York University, UCLA, and several other schools. To pivot means to change the strategic direction of the business, which is particularly important in fast-moving industries. Social media platforms such as Facebook, Instagram, Twitter, and Snapchat were start-ups themselves not so long ago. Jen Hansard and Jadah Sellner say Instagram gave them a community and the confidence to start their business, Simple Green Smoothies

Women-Owned Businesses example

When the market for mobile applications skyrocketed, for example, Reg Stettinius decided to invest $100,000 of her own money and develop a new app to solve a recurring problem. Stettinius was frustrated that she couldn't quickly find a restaurant in Washington, D.C., at which to entertain out-of-town guests. So she set out to build Venga, an app created for restaurants and bars to alert customers to happy-hour specials, live music, and featured entrees. Venga has since expanded to offer a range of customer analytics and predictive marketing services for restaurants. Venga was acquired by Booking Holdings in 2019 and is managed by restaurant management and marketing firm Open Table.

Women-Owned Businesses

Women started an average of 1,821 new businesses a day in the United States between 2017 and 2018, according to the 2018 State of Women-Owned Businesses Report, a study commissioned by American Express. This report indicates that more than 12 million firms were majority women-owned in 2018, with the number of such firms growing 58 percent from 2007.* Exhibit 6.4 displays the gender composition of business owners in the United States as reported in the most recent census data Some have suggested that women tend to be more cautious than men about borrowing money, which limits business development and growth opportunities for women, particularly in high-tech fields.* However, Sarah Thébaud, an assistant professor of sociology at the University of California, Santa Barbara, argues that women have less access to capital because they "have to work harder to convince others that they have what it takes to be successful."* As the cost of launching technology-related businesses declines, more women are taking a gamble in this competitive market.

Debt Financing:

borrowing money that must be repaid at a later date to start a business (think when Brian wants my money, he will need to pay me interest) ○ Family and friends ○ Personal credit cards ○ Bank loans ○ Finance companies ○ Small Business Administration (SBA)

Sustainers

enjoy chance to balance work and personal life

Hard workers

enjoy putting in the long hours and dedication to build a larger, more profitable business

Equity Financing

funds that are invested in exchange for ownership in the company ○ Angel Financing: wealthy individual who believes in a start-up provides personal funds and advice to help the business get started ○ Venture capital firms: group that invests money in new or expanding businesses for ownership and potential profits. ○ Crowdfunding: raising capital from small amounts from many investors, usually through social media and the internet

What is Is Entrepreneurship

is the process of initiating a business venture, organizing the necessary resources, assuming the associated risks, and eterm-1njoying the rewards.

Autonomy

meaning the freedom to work the way they want to work, under the conditions they choose for themselves

Co-working facility:

open office environment shared by multiple freelance entrepreneurs as well as corporate telecommuting employees or others who don't have a regular office

Franchises are useful because

they do not require that developers develop a new product, create a new company, or test the market. All of these things have already been done by the franchisor.