Entrepreneurship 5e

Entrepreneurship, 5^th Edition helps aspiring entrepreneurs understand the process of starting a new venture and appreciate the vital role of entrepreneurship in the economy. This accessible textbook explains the steps involved in starting a new company, and offers insights on engaging with startups as investors, bankers, accountants, lawyers, vendors, customers, and employees. Delving into the real-world trials and tribulations of entrepreneurship, the text covers every stage of the entrepreneurial process, from searching for an opportunity and molding it into an attractive product or service, to launching, growing, and eventually harvesting the new venture. 

The fully revised and updated fifth edition integrates core concepts of entrepreneurship and practical case studies—enabling students to develop an inclusive perspective on how businesses are born, grow, and succeed or fail. The authors explore the entrepreneurial competitiveness of nations throughout the world, describe the critical factors for starting a new enterprise and building it into a successful business, and demonstrate how to build a workable business model. Clear, straightforward chapters cover each essential area of entrepreneurship, including marketing, strategy, team building, financial projections, business planning, and more.

Preface vii

1 The Power of Entrepreneurship 1

Entrepreneurship and Small Business in the United States 3

Entrepreneurial Revolution 4

Web: Three Revolutions Converge 9

Entrepreneurship Revolution Strikes Gold 10

Creative Destruction 11

Causes of the Entrepreneurial Revolution 12

Changes in the Entrepreneurial Framework Conditions 14

Churning and Economic Growth 18

Global Entrepreneurship Monitor 19

Principal Findings from GEM 20

Activity 20

Necessity, Opportunity, and Gender 20

Age Distribution of Early-Stage Entrepreneurial Activity 22

Growth Expectations and Job Creation 25

Entrepreneurship Ecosystems and the Importance of Support 27

Conclusion 29

Your Opportunity Journal 29

Web Exercise 30

Notes 30

Case: MightyWell 33

2 The Entrepreneurial Process 41

Critical Factors for Starting a New Enterprise 42

Evaluating Opportunities for New Businesses 47

Determining Resource Needs and Acquiring Resources 52

Profit Potential 56

Ingredients for a Successful New Business 58

Conclusion 59

Your Opportunity Journal 59

Web Exercise 60

Notes 60

Case: Vedavoo 62

3 Opportunity Recognition, Shaping, and Reshaping 70

From Glimmer to Action: How Do I Come Up with a Good Idea? 71

Is Your Idea an Opportunity? 76

The Opportunity Checklist 91

‘‘I Don’t Have an Opportunity’’ 91

Conclusion 93

Your Opportunity Journal 93

Web Exercise 93

Notes 93

Case: ISlide, Inc. 95

4 Prototyping Your Ideas 102

What is Prototyping? 103

Types of Prototyping 106

Conclusion 114

Your Opportunity Journal 114

Web Exercise 114

Notes 114

Case: Balanced Snacking 115

5 The Importance of Business Models 120

Introduction 120

The Core (Steps 1, 2, and 3) 122

The Market (Steps 4, 5, 6, and 7) 125

Customer Segments (Step 4) 126

Marketing Channels (Step 5) 126

Distribution Channels (Step 6) 127

Revenue Streams (Step 7) 128

Product and Operations (Steps 8, 9, 10, and 11) 129

Resources (Step 8) 129

Partners (Step 9) 129

Key Metrics (Step 10) 130

Cost Drivers (Step 11) 130

The External Enviroment and Financial Strategy (Steps 12, 13, and 14) 132

Competitive Environment (Step 12) 132

Industry Attractiveness (Step 13) 132

Financial Strategy (Step 14) 132

Conclusion 133

Your Opportunity Journal 133

Web Exercise 133

Notes 133

Case: Zumba Fitness 134

6 Entrepreneurial Marketing 141

Why Marketing is Critical for Entrepreneurs 142

Entrepreneurs Face Unique Marketing Challenges 142

Acquiring Market Information 143

Marketing Strategy for Entrepreneurs 145

Segmentation, Targeting, and Positioning 145

The Marketing Mix 146

Value Proposition: Articulating the Entrepreneurial Strategy 159

Social Media 162

Guerrilla Marketing 163

Marketing Skills for Managing Growth 165

Understanding and Listening to the Customer 165

Building the Brand 166

Conclusion 166

Your Opportunity Journal 166

Web Exercise 167

Appendix: Customer Interview 167

General Outline: It Needs to Be Tailored to Meet Your Research Needs 167

Notes 168

Case: Theo Chocolate 169

7 Building The Founding Team 184

Power of the Team 185

Where Do You Fit? 187

How to Build a Powerful Team 190

Bootstrapping: Building the Team Based on Stage-of-Venture Life 193

Compensation 194

Equity 194

Salary 198

Other Compensation Considerations 199

External Team Members 200

Outside Investors 200

Lawyers 200

Accountants 201

Board of Advisors 201

Board of Directors 202

Keeping the Team Together 203

Burnout 204

Family Pressure 205

Interpersonal Conflicts 205

Conclusion 205

Your Opportunity Journal 206

Web Exercise 206

Notes 206

Case: Box, Inc.: Preserving Startup Culture in a Rapidly Growing Company 208

8 The Business Planning Process 218

The Planning Process 220

The Story Model 221

The Business Plan 222

The Cover 222

Executive Summary 223

Table of Contents 224

Industry, Customer, and Competitor Analysis 224

Company and Product Description 228

Marketing Plan 229

Operations Plan 233

Development Plan 234

Team 235

Critical Risks 237

Offering 239

Financial Plan 239

Appendices 239

Types of Plans 239

Style Pointers for the Written Plan and Oral Presentation 240

Conclusion 241

Your Opportunity Journal 242

Web Exercise 242

Notes 242

Case: Gravyty: The Art + Science of Better Nonprofit Fundraising 243

9 Building Your Pro Forma 275

Financial Statements 276

Common Mistakes 276

Financial Statement Overview 277

Building Your Pro Forma Financial Statements 278

Build-Up Method 279

Revenue Projections 280

Cost of Goods Sold 281

Operating Expenses 282

Preliminary Income Statement 284

Comparable Method 284

Building Integrated Financial Statements 287

Income Statement 288

Balance Sheet 290

Cash-Flow Statement 291

Putting It All Together 292

Conclusion 292

Your Opportunity Journal 293

Web Exercise 293

Notes 293

Case: Gravyty: Understanding Your Market and Building Realistic Proformas 294

10 Raising Money for Starting and Growing a Business 302

Bootstrapping New Ventures 303

Informal Investors 304

Business Angels 306

Searching for Business Angels 306

Types of Business Angels 307

Putting Together a Round of Angel Investment 308

Amount of Capital Needed to Start a Business 309

Financial Returns on Informal Investment 309

Crowdfunding 310

Venture Capital 311

Classic Venture Capital 312

Mechanism of Venture Capital Investing 312

Financial Returns on Venture Capital 314

Dealing with Venture Capitalists 315

Negotiating the Deal 316

Valuation 317

Earnings Capitalization Valuation 318

Present Value of Future Cash Flows 318

Market‐Comparable Valuation (Multiple of Earnings) 318

Asset‐Based Valuation 319

Example of Market‐Comparable Valuation 319

Asset‐Based Valuation Example 321

Harvesting Investments 322

Initial Public Offering 323

Pros and Cons of an IPO 323

The Process of Going Public 324

BFWS Goes Public 326

Selling the Company 326

Why Be Acquired? 326

Conclusion 327

Your Opportunity Journal 328

Web Exercise 328

Notes 328

Case: MetaCarta: Growing a Company, Do We Take the VC Money? 331

11 Debt and Other Forms of Financing 338

Getting Access to Funds—Start with Internal Sources 339

Start with Credit Cards and Home Equity Lines 340

Cash Conversion Cycle 340

Working Capital: Getting Cash from Receivables and Inventories 342

Using Accounts Receivable as Working Capital 342

The Sales Pattern 343

Cash versus Credit Sales 343

Credit Policies 344

Setting Credit Terms 344

Collection Policies 345

Setting Credit Limits for Individual Accounts 346

Inventory 347

Sources of Short‐Term Cash: More Payables, Less Receivables 348

Cash from Short‐Term Bank Loans 349

Cash from Trade Credit 349

Cash Obtained by Negotiating with Suppliers 349

Cash Available Because of Seasonal Business Credit Terms 350

Advantages of Trade Credit 350

Cash Obtained by Tightening Up Accounts Receivable Collections 350

Obtaining Bank Loans Through Accounts Receivable Financing 351

Pledging 351

Pledging with Notification 351

Factoring 352

Recourse 352

Obtaining Loans against Inventory 352

Obtaining “Financing” from Customer Prepayments 353

Choosing the Right Mix of Short‐Term Financing 353

Traditional Bank Lending: Short‐Term Bank Loans 353

Maturity of Loans 354

Interest Rates 354

Collateral 355

Applying for a Bank Loan 356

Restrictive Covenants 356

General Provisions 357

Routine Provisions 357

Specific Provisions 358

Equipment Financing 358

Obtaining Early Financing from External Sources 359

SBA‐Guaranteed Loans 359

Applying for an SBA Loan 359

Conclusion 360

Your Opportunity Journal 361

Web Exercise 361

Notes 361

Case: FEED Resource Recovery 362

12 Legal and Tax Issues, Including Intellectual Property 373

Why, When, and How to Choose an Attorney 374

Leaving Your Present Position 374

Corporate Opportunity 374

Recruitment of Fellow Employees 375

Noncompetition 375

Intellectual Property 376

The Basics: What is Protectable and How Should It Be Protected? 377

Patents 377

Trade Secrets 383

Trademarks 385

Copyright 387

International Protection for Intellectual Property 388

Choice of Legal Form 390

Control 390

Personal Liability 391

Taxation 392

Initial Investment of the Founders 394

Administrative Obligations 394

Choosing a Name 395

Stockholders’ and Operating Agreements 395

Negotiating Employment Terms 395

Disposition of Equity Interests 396

Legal and Tax Issues in Hiring Employees 398

Employees as Agents of the Company 398

Employment Discrimination 399

Employment Agreements 400

Raising Money 400

Conclusion 401

Your Opportunity Journal 401

Web Exercise 402

Notes 402

Case: Wefunder: Leading the Growth of a New Industry 403

13 Entrepreneurial Growth 411

Making the Transition from Start‐up to Growth 412

Looking Forward: The Choice to Grow, or Not,… or Sell 412

A Model of Driving Forces of Growth 414

The Growth Process 415

Execution 416

Instituting Controls 417

Tracking Performance 418

Managing the Cash Cycle 420

Leveraging the Value Chain 422

Maintaining the Entrepreneurial Organization 423

Opportunity Domain 423

Organizational Resources and Capabilities 426

Obtaining Financial Resources for the Growing Company 427

Intangible Resources and Capabilities 428

Leadership 429

Starting the Delegation Process 430

First‐Level Management 431

From Delegation to Decentralization 431

Professional Management and Boards 432

Coordinating the Driving Forces 432

Leading People; Developing Entrepreneurs 433

Conclusion 433

Your Opportunity Journal 434

Web Exercise 434

Notes 434

Case: Esporte Interativo 436

14 Social Entrepreneurship 442

Introduction 443

The Rise in Social Entrepreneurship 443

Social Entrepreneurship Defined 445

A Social Entrepreneurship Typology 445

Hybrid Ventures 449

Choosing Your Venture Type 451

Measuring Impact 453

Conclusion 455

Your Opportunity Journal 455

Web Exercise 456

Notes 456

Case: InnerCity Weightlifting 457

Glossary G-1

Index I-1

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