Develop Understanding of Entrepreneurship

HOSSANA POLLY TECHINIC COLLEGE
STRUCTURAL
CONSTRUCTION WORKS
LEVEL I
Unit of Competence
:Develop Understanding of
Entrepreneurship
Title :Developing Understanding of
Entrepreneurship
LG Code : CON SCW1M19 L01-05
TTLM Code : CON SCW1 0612 v2
LO1 :Describe and explain principles, concept and scope of
entrepreneurship
LO2 :Discuss how to become entrepreneur
LO3 :Discuss how to organize an enterprise
LO4 :Discuss how to operate an enterprise
LO5 :Develop one’s own business
Instruction Sheet Learning Guide
This learning guide is developed to provide you the necessary information regarding the
following content coverage and topics –
Principles of Entrepreneur
How to become successful entrepreneur
Learning Activities
1. Read the information written in the “Information Sheets”.
2. If you earned a satisfactory evaluation proceed to next module. However, if your rating is
unsatisfactory, see your teacher for further instructions.
3. Read the “Operation Sheet” and try to understand the procedures discussed.
4. Practice the steps or procedures as illustrated in the operation sheet. Go to your teacher if
you need clarification or you want answers to your questions or you need assistance in
understanding a particular step or procedure.
Author : Hosanna construction department Version 1

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Hosanna Polytechnic College,SNNPRS June 2016
Information Sheet - 1 PRINCIPLES OF ENTREPRENEURHIP
1. WHAT IS ENTREPRENEURSHIP?
What is meant by entrepreneurship? The concept of entrepreneurship was frst

established in the 1700s, and the meaning has evolved ever since. Many simply
equate it with starting one’s own business. Most economists believe it is more than
that.
To some economists, the entrepreneur is one who is willing to bear the risk of a new
venture if there is a significant chance for profit. Others emphasize the
entrepreneur’s role as an innovator who markets his innovation. Still other
economists say that entrepreneurs develop new goods or processes that the market
demands and are not currently being supplied.
In the 20th century, economist Joseph Schumpeter (1883-1950) focused on how the
entrepreneur’s drive for innovation and improvement creates upheaval and change.
Schumpeter viewed entrepreneurship as a force of “creative destruction.” The
entrepreneur carries out “new combinations,” thereby helping render old industries
obsolete. Established ways of doing business are destroyed by the creation of new
and better ways to do them.
Business expert Peter Drucker (1909-2005) took this idea further, describing the
entrepreneur as someone who actually searches for change, responds to it, and
exploits change as an opportunity. A quick look at changes in communications—
from typewriters to personal computers to the Internet—illustrates these ideas.
Most economists today agree that entrepreneurship is a necessary ingredient for

stimulating economic growth and employment opportunities in all societies. In the
developing world, successful small businesses are the primary engines of job
creation, income growth, and poverty reduction. Therefore, government support for
entrepreneurship is a crucial strategy for economic development.
As the Business and Industry Advisory Committee to the Organization for Economic
Cooperation and Development (OECD) said in 2003, “Policies to foster
entrepreneurship are essential to job creation and economic growth.” Government
officials can provide incentives that encourage entrepreneurs to risk attempting new
ventures. Among these are laws to enforce property rights and to encourage a
competitive market system.
The culture of a community also may influence how much entrepreneurship there is
within it. Different levels of entrepreneurship may stem from cultural differences that
make entrepreneurship more or less rewarding personally. A community that
accords the highest status to those at the top of hierarchical organizations or those

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with professional expertise may discourage entrepreneurship. A culture or policy that

accords high status to the “self-made” individual is more likely to encourage
entrepreneurship.
This overview is the first in a series of one-page essays about the fundamental
elements of entrepreneurship. Each paper combines the thinking of mainstream
economic theorists with examples of practices that are common to entrepreneurship
in many countries. The series attempts to answer:
Why and how do people become entrepreneurs?

Why is entrepreneurship beneficial to an economy?
How can governments encourage entrepreneurship, and, with it, economic
growth?
2. WHAT MAKES SOMEONE AN ENTREPRENEUR?

Who can become an entrepreneur? There is no one definitive profile. Successful
entrepreneurs come in various ages, income levels, gender, and race. They differ in
education and experience. But research indicates that most successful
entrepreneurs share certain personal attributes, including: creativity, dedication,
determination, flexibility, leadership, passion, self-confidence, and “smarts.”
Creativity is the spark that drives the development of new products or services
or ways to do business. It is the push for innovation and improvement. It is
continuous learning, questioning, and thinking outside of prescribed formulas.
Dedication is what motivates the entrepreneur to work hard, 12 hours a day or

more, even seven days a week, especially in the beginning, to get the
endeavor off the ground. Planning and ideas must be joined by hard work to
succeed. Dedication makes it happen.
Determination is the extremely strong desire to achieve success. It includes

persistence and the ability to bounce back after rough times. It persuades the
entrepreneur to make the 10th phone call, after nine have yielded nothing. For
the true entrepreneur, money is not the motivation. Success is the motivator;
money is the reward.
Flexibility is the ability to move quickly in response to changing market needs.

It is being true to a dream while also being mindful of market realities. A story
is told about an entrepreneur who started a fancy shop selling only French
pastries. But customers wanted to buy muffins as well. Rather than risking the
loss of these customers, the entrepreneur modified her vision to
accommodate these needs.

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Leadership is the ability to create rules and to set goals. It is the capacity to
follow through to see that rules are followed and goals are accomplished.
Passion is what gets entrepreneurs started and keeps them there. It gives
entrepreneurs the ability to convince others to believe in their vision. It can’t
substitute for planning, but it will help them to stay focused and to get others
to look at their plans.
Self-confidence comes from thorough planning, which reduces uncertainty
and the level of risk. It also comes from expertise. Self-confidence gives the
entrepreneur the ability to listen without being easily swayed or intimidated.
“Smarts” consists of common sense joined with knowledge or experience in a
related business or endeavor. The former gives person good instincts, the
latter, expertise. Many people have smarts they don’t recognize. A person
who successfully keeps a household on a budget has organizational and
financial skills. Employment, education, and life experiences all contribute to
smarts.
Every entrepreneur has these qualities in different degrees. But what if a person
lacks one or more? Many skills can be learned. Or, someone can be hired who has
strengths that the entrepreneur lacks. The most important strategy is to be aware of
strengths and to build on them. .
3. WHY BECOME AN ENTREPRENEUR?

What leads a person to strike out on his own and start a business? Perhaps a
person has been laid off once or more. Sometimes a person is frustrated with his or
her current job and doesn’t see any better career prospects on the horizon.
Sometimes a person realizes that his or her job is in jeopardy. A firm may be
contemplating cutbacks that could end a job or limit career or salary prospects.
Perhaps a person already has been passed over for promotion. Perhaps a person
sees no opportunities in existing businesses for someone with his or her interests
and skills.
Some people are actually repulsed by the idea of working for someone else. They
object to a system where reward is often based on seniority rather than
accomplishment, or where they have to conform to a corporate culture.
Other people decide to become entrepreneurs be-cause they are disillusioned by the
bureaucracy or politics involved in getting ahead in an established business or
profession. Some are tired of trying to promote a product, service, or way of doing
business that is outside the mainstream operations of a large company.
In contrast, some people are attracted to entrepreneurship by the advantages of

starting a business. These include:
Entrepreneurs are their own bosses. They make the decisions. They choose
whom to do business with and what work they will do. They decide what hours
to work, as well as what to pay and whether to take vacations.
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Entrepreneurship offers a greater possibility of achieving significant financial

rewards than working for someone else.
It provides the ability to be involved in the total operation of the business, from
concept to design and creation, from sales to business operations and
customer response.
It offers the prestige of being the person in charge.
It gives an individual the opportunity to build equity, which can be kept, sold,
or passed on to the next generation.
Entrepreneurship creates an opportunity for a person to make a contribution.
Most new entrepreneurs help the local economy. A few—through their
innovations—contribute to society as a whole. One example is entrepreneur
Steve Jobs, who co-founded Apple in 1976, and the subsequent revolution in
desktop computers.
Some people evaluate the possibilities for jobs and careers where they live and
make a conscious decision to pursue entrepreneurship. No one reason is more valid
than another; none guarantee success. However, a strong desire to start a business,
combined with a good idea, careful planning, and hard work, can lead to a very
engaging and profitable endeavor.
4. DECISIONS AND DOWNFALLS

Entrepreneurship is an attractive career choice. But many decisions have to be
made before launching and managing a new business, no matter its size. Among the
questions that need to be answered are:
Does the individual truly want to be responsible for a business?

What product or service should be the basis of the business?
What is the market, and where should it be located?
Is the potential of the business enough to provide a living wage for its
employees and the owner?
How can a person raise the capital to get started?
Should an individual work full or part time to start a new business? Should the
person start alone or with partners?
Answers to these questions are not empirically right or wrong. Rather, the answers
will be based on each entrepreneur’s judgment. An entrepreneur gathers as much
information and advice as possible before making these and other crucial decisions.
The entrepreneur’s challenge is to balance decisiveness with caution—to be a

person of action who does not procrastinate before seizing an opportunity—and at
the same time, to be ready for an opportunity by having done all the preparatory
work possible to reduce the risks of the new endeavor.
Preparatory work includes evaluating the market opportunity, developing the product
or service, preparing a good business plan, figuring out how much capital is needed,
and making arrangements to obtain that capital.

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Through careful analysis of entrepreneurs’ successes and failures, economists have

identified key factors for up-and-coming business owners to consider closely. Taking
them into account can reduce risk. In contrast, paying them no attention can
precipitate the downfall of a new enterprise.
Motivation:What is the incentive for starting a business? Is it money alone?

True, many entrepreneurs achieve great wealth. However, money is almost
always tight in the startup and early phases of a new business. Many
entrepreneurs do not even take a salary until they can do so and still leave the
firm with a positive cash flow.
Strategy:What is the strategy for distinguishing the product or service? Is the

plan to compete solely on the basis of selling price? Price is important, but
most economists agree that it is extremely risky to compete on price alone.
Large firms that produce huge quantities have the advantage in lowering
costs.
Realistic Vision:Is there a realistic vision of the enterprise’s potential?

Insufficient operating funds are the cause of many failed businesses.
Entrepreneurs often underestimate start-up costs and overestimate sales
revenues in their business plans. Some analysts advise adding 50 percent to
final cost estimates and reducing sales projections. Only then can the
entrepreneur examine cash flow projections and decide if he or she is ready
to launch a new business.
5. GOT IT ALONE OR TEAM UP?

One important choice that new entrepreneurs have to make is whether to start a
business alone or with other entrepreneurs. They need to consider many factors,
including each entrepreneur’s personal qualities and skills and the nature of the
planned business.
In the United States, for instance, studies show that almost half of all new
businesses are created by teams of two or more people. Often the people know
each other well; in fact, it is common for teams to be spouses.
There are many advantages to starting a firm with other entrepreneurs. Team
members share decision-making and management responsibilities. They can also
give each other emotional support, which can help reduce individual stress.
Companies formed by teams have somewhat lower risks. If one of the founders is
unavailable to handle his or her duties, another can step in. Team interactions often
generate creativity. Members of a team can bounce ideas off each other and
“brainstorm” solutions to problems. Studies show that investors and banks seem to
prefer financing new businesses started by more than one entrepreneur. This alone
may justify forming a team.

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Other important benefits of teaming come from combining monetary resources and
expertise. In the best situations, team members have complementary skills. One
may be experienced in engineering, for example, and the other may be an expert in
promotion.
In general, strong teams have a better chance at success. In Entrepreneurs in High

Technology, Professor Edward Roberts of the Massachusetts Institute of Technology
(MIT) reported that technology companies formed by entrepreneurial teams have a
lower rate of failure than those started by individuals. This is particularly true when
the team includes a marketing expert.
Entrepreneurs of different ages can create complementary teams also. Optimism

and a “can-do” spirit characterize youth, while age brings experience and realism. In
1994, for example, Marc Andreessen was a talented, young computer scientist with
an innovative
idea. James Clark, the founder and chairman of Silicon Graphics, saw his vision.
Together they created Netscape Navigator, the Internet-browsing computer software
that transformed personal computing.
But entrepreneurial teams have potential disadvantages as well. First, teams share
ownership. In general, entrepreneurs should not offer to share ownership unless the
potential partner can make a significant contribution to the venture.
Teams share control in making decisions. This may create a problem if a team
member has poor judgment or work habits.
Most teams eventually experience serious conflict. This may involve management
plans, operational procedures, or future goals. It may stem from an unequal
commitment of time or a personality clash. Sometimes such conflicts can be
resolved; in others, a conflict can even lead to selling the company or, worse, to its
failure.
It is important for a new entrepreneur to be aware of potential problems while

considering the advantages of working with other entrepreneurs. In general, the
benefits of teaming outweigh the risks.
6. CHOOSING A PRODUCT AND A MARKET

A prospective entrepreneur needs to come up with a good idea. This will serve as
the foundation of the new venture.
Sometimes an entrepreneur sees a market need and—Eureka!—has an idea for a

product or service to fill it. Other times an entrepreneur gets an idea for a product or
service and tries to find a market for it. A Scottish engineer working at General
Electric
created putty that bounces but had no use for it. In the hands of a creative
entrepreneur, it became a toy, “Silly Putty,” with an enthusiastic market: children.
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The idea doesn’t have to be revolutionary. Research, timing, and a little luck
transform commonplace ideas into successful businesses. In 1971, Chuck Burkett
launched a firm to make an ordinary product, novelty key chains. But when he got a
con-tract with a new venture in Florida—Disney World —he started making Mickey
Mouse key chains, and achieved tremendous success.
There are many ways to look for ideas. Read a lot, talk to people, and consider such
questions as: What limitations exist in current products and services? What would
you like that is not available? Are there other uses for new technology?
What are innovative ways to use or to provide existing products? In Australia in

1996, two entrepreneurs founded Aussie Pet Mobile Inc. to bring pet bathing and
grooming to busy people’s homes. It is now a top U.S. franchise business.
Is society changing? What groups have unfulfilled needs? What about people’s
perceptions? Growing demand for healthy snacks created many business
opportunities in the United States, for example.
Business ideas usually fit into one of four categories that were described by H. Igor
Ansoff in the Harvard Business Review in 1957:
An existing good or service for an existing market. This is a difficult approach

for a start-up operation. It means winning over consumers through
merchandising appeal, advertising, etc. Entry costs are high, and profit is
uncertain.
A new good or service for a new market. This is the riskiest strategy for a
new firm because both the product and the market are unknown. It requires
the most research and planning. If successful, however, it has the most
potential for new business and can be extremely profitable.
A new good or service for an existing market. (Often this is expanded to

include modified goods/services.) For example, entrepreneurial greeting-card
makers use edgy humor and types of messages not produced by Hallmark or
American Greetings—the major greeting-card makers—to compete in an
existing market.
An existing good or service for a new market. The new market could be a
different country, region, or market niche. Entrepreneurs who provide
goods/services at customers’ homes or offices, or who sell them on the
Internet, are also targeting a new market—people who don’t like shopping or
are too busy to do so.
The last two categories have moderate risk, but product and market research
can reduce it. They also offer opportunities for utilizing effective start-up
strategies—innovation, differentiation, and market specification.

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7. ENTRY STRATEGIES FOR NEW VENTURES

It is easy to be captivated by the promise of entrepreneurship and the lure of
becoming one’s own boss. It can be difficult, however, for a prospective
entrepreneur to determine what product or service to provide. Many factors need to
be considered, including: an idea’s market potential, the competition, financial
resources, and one’s skills and interests. Then it is important to ask: Why would a
consumer choose to buy goods or services from this new firm?
One important factor is the uniqueness of the idea. By making a venture stand out
from its competitors, uniqueness can help facilitate the entry of a new product or
service into the market.
It is best to avoid an entry strategy based on low cost alone. New ventures tend to
be small. Large firms usually have the advantage of lowering costs by producing
large quantities.
Successful entrepreneurs often distinguish their ventures through differentiation,

niche specification, and innovation.
Differentiation is an attempt to separate the new company’s product or service

from that of its competitors. When differentiation is successful, the new
product or service is relatively less sensitive to price fluctuations because
customers value the quality that makes the product unique.
A product can be functionally similar to its competitors’ product but have

features that improve its operation, for example. It may be smaller, lighter,
easier to use or install, etc. In 1982, Compaq Computer began competing
with Apple and IBM. Its first product was a single-unit personal computer with
a handle. The concept of a portable computer was new and extremely
successful.
Niche specification is an attempt to provide a product or service that fulfills

the needs of a specific subset of consumers. By focusing on a fairly narrow
market sector, a new venture may satisfy customer needs better than larger
competitors can.
Changes in population characteristics may create opportunities to serve niche

markets. One growing market segment in developed countries comprises
people over 65 years old. Other niches include groups defined by interests or
lifestyle, such as fitness enthusiasts, adventure-travel buffs, and working
parents. In fact, some entrepreneurs specialize in making “homemade”
dinners for working parents to heat and serve.
Innovation is perhaps the defining characteristic of entrepreneurship.

Visionary business expert Peter F. Drucker explained innovation as “change
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that creates a new dimension of performance.” There are two main types of
product innovation. Pioneering or radical innovation embodies a technological
breakthrough or new-to-the-world product. Incremental innovations are
modifications of existing products.
But innovation occurs in all aspects of businesses, from manufacturing

processes to pricing policy. Tom Monaghan’s decision in the late 1960s to
create Domino’s Pizza based on home delivery and Jeff Bezos’ decision in
1995 to launch Amazon.com as a totally online bookstore are examples of
innovative distribution strategies that revolutionized the marketplace.
Entrepreneurs in less-developed countries often innovate by imitating and adapting

products created in developed countries. Drucker called this process “creative
imitation.” Creative imitation takes place whenever the imitators understand how an
innovation can be applied, used, or sold in their particular market better than the
original creators do.
Innovation, differentiation, and/or market specification are effective strategies to help

a new venture to attract customers and start making sales.
8. MARKETING IS SELLING
Marketing is often defined as all the activities involved in the transfer of goods from
the
producer to the consumer, including advertising, shipping, storing, and selling. For a
new business, however, marketing means selling. Without paying customers to buy
the goods or services, all the entrepreneur’s plans and strategies will undoubtedly
fail.
How does a new business get orders? Before launching the business, the
entrepreneur should research the target market and analyze competitive products.
“Most business sectors have specific marketing strategies that work best for them
and have already been put into practice,” entrepreneur Phil Holland said. In 1970,
Holland founded Yum Yum Donut Shops, Inc., which grew into the largest chain of
privately owned doughnut shops in the United States. He suggests analyzing
competitors’ successful selling methods, pricing, and advertising.
An entrepreneur can also develop a file of potential customers, for example, by

collecting names or mailing lists from local churches, schools, and community
groups or other organizations. This file can be used later for direct mailings—even
for invitations to the opening of the new business.
After the new firm is launched, its owners need to get information about their product
or service to as many potential customers as possible—efficiently, effectively, and
within the constraints of a budget.
The most effective salesperson in a new venture is often the head of the business.
People will almost always take a call from the “president” of a firm. This is the
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person with the vision, the one who knows the advantages of the new venture and
who can make quick decisions. Many famous entrepreneurs, such as Bill Gates at
Microsoft, have been gifted at selling their products.
Company-employed sales people can be effective for a new venture, particularly one
aimed at a fairly narrow market. Direct sales conducted by mail order or on the
Internet are less expensive options that can be equally successful.
External channels also can be used. Intermediaries, such as agents or distributors,

can be hired to market a product or service. Such individuals must be treated fairly
and paid promptly. Some analysts advise treating external representatives like
insiders and offering them generous bonuses so that the product or service stands
out among the many they represent.
Advertising and promotion are essential marketing tools. Newspaper, magazine,

television, and radio advertisements are effective for reaching large numbers of
consumers. A less expensive option is printing fliers, which can be mailed to
potential customers, handed out door to door, or displayed in businesses that permit
it. New companies can also compose new product releases, which trade magazines
usually publish without charge.
It is important to be listed in local telephone directories that group similar businesses

under a single heading, such as the Yellow Pages in the United States. It is also
useful to be listed on Internet search engines such as Google or Yahoo, which are
used by consumers for locating local businesses. These often link to a company’s
Web site, thereby communicating more information.
Publicity is also an extremely valuable way to promote a new product or service.

New firms should send press releases to media outlets. A local newspaper might
publish a feature about the startup. A TV or radio station might interview its owners.
This can be very effective in generating sales, and it’s free!
9. THE ENTREPRENEUR AND THE INTERNET

The Internet— a vast computer network linking smaller computer networks — has
revolutionized commerce by bringing together people from all over the globe. Many
of its features can be used to shape a new business.
Communications:An entrepreneur must communicate with many people—

suppliers, distributors, and customers, for example. A quick and relatively
inexpensive way to send letters, reports, photographs, etc. to other Internet users is
with electronic mail or “e-mail.” E-mail can be used even for marketing. Various
forms of computer software are available to protect documents from unauthorized
access or alteration so that they can be securely shared and easily authenticated.
Research:Starting a business takes lots of research. An entrepreneur can find

information on almost any subject very rapidly by using the Internet’s World Wide
Web.. (The Web is a collection of text and multimedia documents linked to create a
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huge electronic library.) Many government agencies, universities, organizations, and

businesses provide information on the Internet, usually at no cost.
The easiest way to find information on the Web is by using a search engine—a data
retrieval system. The user types key words for a subject on the computer, clicks the
enter button, and receives a list of materials–often within seconds. The items are
linked electronically to the actual documents so that Internet users can read them on
their computer screens. Among the most popular search engines are Yahoo!
(http://yahoo.com) and Google (http://google.com).
Promotion:Web sites, pages of print and visual information that are linked together
electronically, offer an opportunity for entrepreneurs to introduce a new business and
its products and/or services to a huge audience. In general, Web sites can be
created and updated more quickly and inexpensively than printed promotional
materials. More-over, they run continuously! To create a Web site for her business,
the entrepreneur can hire a firm to create one or purchase computer software to
create it on her own. Many universities offer courses that teach how to build a Web
site, also.
A Web site needs a name and an address. On the Internet, the two are usually the
same. Web site names and addresses must be registered. Http://rs.internic.net is a
Web site that lists registrars by country and language used. The address of the
online business is expressed as a Uniform Resource Locator (URL). It usually ends
in dot com (.com), which indicates a “commercial” site. Dot net (.net), an alternate
ending; is often used when a specific Web site name ending in .com has already
been registered. Good business Web site names are easy to remember and evoke
the firm and its products or services.
The entrepreneur also needs a piece of property in cyberspace, where her Web site
will reside. Many commercial “hosting services,” called Internet service providers
(ISPs), rent space on their large computers (called servers) for a small monthly or
annual fee.
Web site promotion is critical. A Web site address can be put on business cards,
stationery, brochures— anything having to do with the new firm. Or, an entrepreneur
can pay to place a colorful advertisement on non-competitive Web sites, such as
ones for complementary products. Advertising banners usually link back to the
advertised firm’s Web site.
Entrepreneurs also can provide information about their Web sites to well-known
Internet search engines. For a fee, most search engines will promote a Web site
when a selected set of search terms is used. Online shoppers, for instance, often
use search engines to find businesses that provide specific products and services.
Safe Use:Just as shopkeepers lock their storefronts, entrepreneurs who use the
Internet need to take steps to keep their computer systems safe from the potential
hazards of security breaches and viruses. One of the most effective steps is

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installing security software. Another is setting up an Internet firewall to screen and

block undesired traffic between a computer network and the Internet. A technology
consultant on contract can install these and other computer defenses. There is a lot
of information about computer safety available, and often for free. For example, the
National Cyber Security Alliance (http://www.staysafeonline.info/), an organization
devoted to raising Internet security awareness, offers educational materials and
other resources.
As Julian E. Lange, associate professor of entrepreneurship at Babson College, has

said, “For creative entrepreneurs with limited resources, the Internet offers significant
opportunities to build new businesses and enhance existing enterprises.” New
businesses will develop solutions to enhance the Internet user’s experience.
Existing businesses will take advantage of myriad Internet applications — from
customer service to order processing to investor relations. Lange suggests that, for
many entrepreneurs, the challenges posed by the Internet are “opportunities to
delight customers and create exciting entrepreneurial ventures.”
10. SELLING ONLINE

Many entrepreneurs sell goods or services on the Internet. Why? The Internet
provides access to a large and growing market. Approximately 627 million people
were shopping online worldwide in 2005, according to ACNielsen, a global
information-marketing company.
By selling on the Internet, a neighborhood shop or home-based firm can reach a

national or even international group of potential customers. When entrepreneurs sell
online, they are on a more level playing field with larger competitors.
There are costs to Internet selling, certainly. But the price of creating and managing
a Web site has dropped, and the number of Web site design and management
companies has grown. In fact, some entrepreneurs find it less costly to run an
Internet store than to hire a large sales force and maintain one or more bricks and
mortar — or actual — stores.
Some businesses — books, airline travel, and the stock market, for example — have
been transformed by their success in online sales. Others, such as amusement
parks, bowling alleys, or utility companies, may not at first seem well suited to the
Internet. But a Web site also can be used for selling tickets, offering discounts, or
letting customers make payments over the Internet.
To start an online business, an entrepreneur must:
Register a domain name — an Internet name and address.
Purchase a server or contract with an Internet service provider to host the

Web site. Buy Internet software to create a Web site or hire an expert to do
so. Design an attractive and easy-to-navigate online store.

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Create an online catalog. Provide clearly written information, without technical

language or jargon. Use lots of photos to encourage potential customers to
buy. Include clear instructions to order by phone or online.
Establish a payment method. Some companies bill a customer before or after

shipping merchandise. This may cause payment delays, however. Another
option is to have customers use credit or debit cards online. A business can
get a bank-authorized transaction processing account (merchant account) for
handling the revenue (and fees) from credit card transactions from a bank or
other institution that processes credit cards online. Alternately, it is possible to
hire an on-line payment service, such as World Pay (www.worldpay.com), to
handle these transactions.
Make the Web site secure, especially to protect customers’ financial

information. Hiring a technology expert is time and money well spent as
compared to the potential risk of security violations.
Establish a policy for shipping. Options include letting the business absorb the
cost (no charge), including costs in the listed prices, or explicitly listing
shipping charges. Customers should never be surprised at the end of a
transaction with shipping costs. Customers may cancel the sale.
Offer customers an e-mail address or phone number for complaints,

suggestions, or compliments, and respond to them. Tis can boost customer
loyalty.
After creating an online store, there is still much to do. An entrepreneur needs to
attract potential customers. There are many ways to advertise a Web site. One is to
print a Web address on business receipts, letterhead, newsletters, and other
materials. Another is to contact search engines like Google and Yahoo, and to use
key subject words in the Web site design so that search-engine users are directed to
the entrepreneur’s Web site. For example, a restaurant specializing in food from
Afghanistan might include the key words and phrases “Afghan cuisine,” “traditional
recipes,” “contemporary cooking,” “bulani,” “hummus,” “korma,” “kabobs,” “kofta,”
“lamb, “ashwak,” “steamed dumplings,” and others like these.
Web site promotion is crucial. Getting noticed is the first step to making online sales.
11. CHOOSING A FORM OF A BUSINESS

In many countries, entrepreneurs must select a form of organization when they start
a small business. The basic forms of organization are sole proprietorships,
partnerships, and corporations. Each has advantages and disadvantages. Moreover,
the laws and regulations that apply to business owners vary from country to country
and by local jurisdiction. Entrepreneurs should consult an attorney or other expert to
make sure that they have all the necessary licenses and permits, and are aware of
all their legal obligations. In many countries, the local Chamber of Commerce or local
business council is also a good source of information.
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Sole Proprietorship:In a sole proprietorship, the individual entrepreneur owns the

business and is fully responsible for all its debts and legal liabilities. More than 75
percent of all U.S. businesses are sole proprietorships. Examples include writers and
consultants, local restaurants and shops, and home-based businesses.
This is the easiest and least expensive form of business to start. In general, an
entrepreneur files all required documents and opens a shop. The disadvantage is
that
there is unlimited personal liability — all personal and business assets owned by the
entrepreneur may be at risk if the business goes into debt.
Partnership:A partnership consists of two or more people who share the assets,
liabilities, and profits of a business. The greatest advantage comes from shared
responsibilities. Partnerships also benefit by having more investors and a greater
range of knowledge and skills.
There are two main kinds of partnerships, general partner-ships and limited
partnerships. In a general partnership, all partners are liable for the acts of all other
partners. All also have unlimited personal liability for business debts. In contrast, a
limited partnership has at least one general partner who is fully liable plus one or
more limited partners who are liable only for the amount of money they invest in the
partnership.
The largest disadvantage of any partnership is the potential for disagreements,

regardless of how well or how long the partners have known each other.
Experts agree that a partnership agreement drawn up by an experienced lawyer is

essential to a successful partnership. It is often used to:
create a mechanism for resolving disagreements;
specify each partner’s contribution to the partnership;
divide up management responsibilities; and specify what happens if a partner

leaves or dies.
Corporations:Corporations are recommended for entrepreneurs who plan to

conduct a large-scale enterprise. As a legal entity that has a life separate from its
owners, a corporation can sue or be sued, acquire and sell property, and lend
money.
Corporations are divided into shares or stocks, which are owned by one, a few, or
many people. Ownership is based on the percentage of stock owned. Shareholders
are not responsible for the debts of the corporation, unless they have personally
guaranteed them. A shareholder’s investment is the limit of her liability. Corporations
can more easily obtain investment, raise capital by selling stock, and survive a

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change of ownership. They provide more protection from liability than other forms of
business. Their potential for growth is unlimited.
However, corporations are more complex and expensive to set up than other forms
of business and are usually subject to a higher level of government regulation.
12. CREATING A BUSINESS PLAN

A comprehensive business plan is crucial for a startup business. It defines the
entrepreneur’s vision and serves as the firm’s resume.
There are many reasons for writing a business plan:
To convince oneself that the new venture is worthwhile before making a

significant financial and personal commitment.
To assist management in goal-setting and long-range planning.
To attract investors and get financing.
To explain the business to other companies with which it would be useful to

create an alliance or contract.
To attract employees.
A business plan can help an entrepreneur to allocate resources appropriately,

handle unexpected problems, and make good business decisions.
A well-organized plan is an essential part of any loan application. It should specify

how the business would repay any borrowed money. The entrepreneur also should
take into account all startup expenses and potential risks so as not to appear naive.
However, according to Andrew Zacharakis, a common misperception is that a

business plan is primarily used for raising capital. Zacharakis, a professor of
entrepreneurship at Babson College, suggests that the primary purpose of a
business plan is to help entrepreneurs gain a deeper understanding of the
opportunity they envision. He explains: “Te business plan process helps the
entrepreneur shape her original vision into a better opportunity by raising critical
questions, researching answers for those questions, and then answering them.”
Some entrepreneurs create two plans: a planning document for internal use and a
marketing document for attracting outside investment. In this situation, the
information in each plan is essentially the same, but the emphasis is somewhat
different. For example,
an internal document intended to guide the business does not need detailed
biographies of the management. However, in a plan intended for marketing, the
background and experience of management may be
the most important feature.
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A standard business plan is usually about 40 pages in length. It should use good
visual formatting, such as bulleted lists and short paragraphs. Te language should be
free of jargon and easy to understand.
The tone should be business-like and enthusiastic. It should be strong on facts in

order to convince people to invest money or time in the new venture.
The basic elements of a standard business plan include:
Title Page
Table of Contents
Executive Summary
Company Description
Product/Service
Market and Competition
Marketing and Selling Strategy
Operating Plan
Management/Organization
Financing
Supporting Documents
The executive summary is the cornerstone of a good plan. This is the section that
people read in order to decide whether to read the rest. It should concisely
summarize the technical, marketing, financial, and managerial details. More
importantly, it needs to convince the reader that the new venture is a worthy
investment. The company description highlights the entrepreneur’s dream, strategy,
and goals. The product/service section should stress the characteristics and benefits
of the new venture. What differentiates it from its competition? Is it innovative?
The financial components of a new venture’s business plan typically include three
projections: a balance sheet, an income statement, and a cash-flow analysis. These
require detailed estimates of expenses and sales. Expenses are relatively easy to
estimate. Sales projections are usually based on market research, and often utilize
sales data for similar products and services produced by competitors.
Writing a business plan may seem overwhelming. However, there are ways to make
the process more manageable. First, there are many computer software packages
for producing a standard business plan. Numerous books on entrepreneurship have
detailed instructions, and many universities sponsor programs for new businesses.
13. The Entrepreneur’s Need for Capital

New businesses rarely show a profit in the early months of operation. Generating
sales takes time, and receipts are not usually sufficient to offset start-up costs and
monthly expenses. Therefore, entrepreneurs need to estimate how much money
they need and then raise that amount to transform their dream into a reality.
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It doesn’t necessarily take a lot of cash to create a successful business. In the mid-
1970s, Steve Jobs and Steve Wozniak started Apple Computer by selling a
Volkswagen microbus and a Hewlett-Packard scientific calculator to raise $1,300 —
enough for a makeshift production line. In 1997, Bill Martin and Greg Wright used the
free Internet connections in their college dorm rooms and $175: $75 for a New
Jersey partnership fee, $70 to register their Web domain name, and $30 for a
month’s hosting fee — to start www.ragingbull.com, which is now a successful
financial Web site.
Many entrepreneurs start businesses with $5,000 or less, just enough to establish
the business, invest in some inventory, and create some advertising materials. There
are many ways to reduce expenses: for instance, by initially working out of one’s
home rather than leasing an office or leasing office equipment rather than buying it.
However, all entrepreneurs need to estimate how much cash they need to cover
expenses until the business begins to make a profit. For this task, the best financial
tools are the income statement and cash flow statement. Cash flow refers to the
amount of money actually available to make purchases and pay current bills and
obligations. It is the difference between cash receipts (money taken in) and cash
disbursements (money spent) over a specific time period.
It is important to attach notes to these forecasts to explain any unusual expenses or

assumptions used in the calculations.
An income statement sets out all of the entrepreneur’s projected revenues

and expenses (including depreciation and mortgages) to determine a
venture’s profits per month and year. Depreciation is a method to account for
assets whose value is considered to decrease over time.
A cash flow statement estimates anticipated cash sales as well as anticipated

cash payments of bills. This estimate can be done on a weekly, monthly, or
quarterly basis, but experts recommend that it be done at least once every
month for the first year or two of a new business. This forecast is used to
project the money required to finance the operation annually. By calculating
this forecast on a cumulative basis, the entrepreneur can forecast his
company’s overall capital needs at start up.
The monthly net cash flow shows how much an entrepreneur’s cash receipts exceed
or fall short of monthly cash expenditures. For most of the first year, the monthly
expenditures are likely to exceed the receipts. In many cases, goods are shipped out
before payment is received. Meanwhile, the entrepreneur still has to pay his bills.
Therefore, the cumulative cash flow, which adds each month’s total to that of
previous months, will result in a growing negative amount.
A critical point for a new business occurs when monthly sales receipts are enough to
cover monthly expenses. At this point, the negative cumulative cash flow will begin to

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decrease and move toward a positive one. The cumulative cash flow amount
reached just before it reverses direction indicates approximately how much capital
the new business will need.
Financial projections are inevitably somewhat inaccurate simply because every

contingency cannot be predicted. For this reason, experts recommend that
entrepreneurs add at least 20 percent to the financial needs calculated in the cash
flow statement to create a safety net for unforeseen events. With these estimates,
the entrepreneur can seek funding and concentrate more clearly on launching the
new business.
14. Source of financing

Many entrepreneurs struggle to find the capital to start a new business. There are
many sources to consider, so it is important for an entrepreneur to fully explore all
financing options. He also should apply for funds from a wide variety of sources.
Personal savings:Experts agree that the best source of capital for any new
business is the entrepreneur’s own money. It is easy to use, quick to access, has no
payback terms, and requires no transfer of equity (ownership). Also, it demonstrates
to potential investors that the entrepreneur is willing to risk his own funds and will
persevere during hard times.
Friends and family:These people believe in the entrepreneur, and they are the
second easiest source of funds to access. They do not usually require the paperwork
that other lenders require. However, these funds should be documented and treated
like loans. Neither part ownership nor a decision-making position should be given to
these lenders, unless they have expertise to provide. The main disadvantage of
these funds is that, if
the business fails and money goes lost, a valuable relationship may be jeopardized.
Credit cards:The entrepreneur’s personal credit cards are an easy source of funds
to access, especially for acquiring business equipment such as photocopiers,
personal computers, and printers. These items can usually be obtained with little or
no money paid up front and with small monthly payments. The main disadvantage is
the high rate of interest charged on credit card balances that are not paid off in full
each month.
Banks:Banks are very conservative lenders. As successful entrepreneur Phil

Holland explains, “Many prospective business owners are disappointed to learn that
banks do not make loans to start-up businesses unless there are outside assets to
pledge against borrowing.” Many entrepreneurs simply do not have enough assets to
get a secured loan from a lending institution.
However, if an entrepreneur has money in a bank savings account, she can usually
borrow against that money. If an entrepreneur has good credit, it is also relatively

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easy to get a personal loan from a bank. These loans tend to be short-term and not
as large
as business loans.
Venture investors:This is a major source of funding for start-ups that have a strong
potential for growth. However, venture investors insist on retaining part ownership in
new businesses that they fund.
Formal institutional venture funds are usually limited partnerships in which

passive limited partners, such as retirement funds, supply most of the money.
These funds have large amounts of money to invest. However, the process of
obtaining venture capital is very slow. Several books, such as Galante’s
Venture Capital & Private Equity Directory, give detailed information on these
funds.
Corporate venture funds are large corporations with funds for investing in new
ventures. These often provide technical and management expertise in
addition to large monetary investments. However, these funds are slow to
access compared to other sources of funds. Also, they often seek to gain
control of new businesses.
Angel investors tend to be successful entrepreneurs who have capital that

they are willing to risk. They often insist on being active advisers to
businesses they support. Angel funds are quicker to access than corporate
venture funds, and they are more likely to be invested in a start-up operation.
But they may make smaller individual investments and have fewer contacts in
the banking community.
Government programs:Many national and regional governments offer programs to

encourage small-medium-sized businesses. In the United States, the Small Business
Administration (SBA) assists small firms by acting as a guarantor of loans made by
private institutions for borrowers who may not otherwise qualify for a commercial
loan.
15. Intellectual Property: A Valuable Business Asset

Intellectual property is a valuable asset for an entrepreneur. It consists of certain
intellectual creations by entrepreneurs or their staffs that have commercial value and
are given legal property rights. Examples of such creations are a new product and its
name, a new method, a new process, a new promotional scheme, and a new design.
A fence or a lock cannot protect these intangible assets. Instead, patents, copyrights,
and trademarks are used to prevent competitors from benefiting from an individual’s
or firm’s ideas.

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Protecting intellectual property is a practical business decision. The time and money
invested in perfecting an idea might be wasted if others could copy it. Competitors
could charge a lower price because they did not incur the startup costs. The purpose
of intellectual property law is to encourage innovation by giving creators time to profit
from their new ideas and to recover development costs.
Intellectual property rights can be bought, sold, licensed, or given away freely. Some
businesses have made millions of dollars by licensing or selling their patents or
trademarks.
Every entrepreneur should be aware of intellectual property rights in order to protect

these assets in a world of global markets. An intellectual property lawyer can provide
information and advice.
The main forms of intellectual property rights are:
Patents:A patent grants an inventor the right to exclude others from making,
using, offering for sale, or selling an invention for a fixed period of time - in
most countries, for up to 20 years. When the time period ends, the patent
goes into the public domain and anyone may use it.
Copyright:Copyrights protect original creative works of authors, composers,

and others. In general, a copyright does not protect the idea itself, but only the
form in which it appears - from sound recordings to books, computer
programs, or architecture. The owner of copy-righted material has the
exclusive right to reproduce the work, prepare derivative works, distribute
copies of the work, or perform or display the work publicly.
Trade Secrets:Trade secrets consist of knowledge that is kept secret in order

to gain an advantage in business. “Customer lists, sources of supply of scarce
materials, or sources of supply with faster delivery or lower prices may be
trade secrets,” explains Joseph S. Iandiorio, the founding partner of Iandiorio
and Teska, an intellectual property law firm. “Certainly, secret processes,
formulas, techniques, manufacturing know-how, advertising schemes,
marketing programs, and business plans are all protectable.”
Trade secrets are usually protected by contracts and nondisclosure agreements. No

other legal form of protection exists. The most famous trade secret is the formula for
Coca-Cola, which is more than 100 years old.
Trade secrets are valid only if the information has not been revealed. There is no
protection against discovery by fair means such as accidental disclosure, reverse
engineering, or independent invention.
Trademarks:A trademark protects a symbol, word, or design, used individually or in

combination, to indicate the source of goods and to distinguish them from goods
produced by others. For example, Apple Computer uses a picture of an apple with a

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bite out of it and the symbol (®) which means registered trademark. A service mark
similarly identifies the source of a service. Trademarks and service marks give a
business the right to prevent others from using a confusingly similar mark.
In most countries, trademarks must be registered to be enforceable and renewed to

remain in force. However, they can be renewed endlessly. Consumers use marks to
find a specificfirm’s goods that they see as particularly desirable — for example,
Barbie dolls or Toyota automobiles. Unlike copy-rights or patents, which expire,
many business’s trademarks become more valuable over time.
16. The Strengths of Small Business

Any entrepreneur who is contemplating a new venture should examine the strengths
of small businesses as compared to large ones and make the most of those
competitive advantages. With careful planning, an entrepreneur can lessen the
advantages of the large business vis-à-vis his operation and thereby increase his
chances for success.
The strengths of large businesses are well documented. They have greater financial
resources than small firms and therefore can offer a full product line and invest in
product development and marketing. They benefit from economies of scale because
they manufacture large quantities of products, resulting in lower costs and potentially
lower prices. Many large firms have the credibility that a well-known name provides
and the support of a large organization.
How can a small firm possibly compete?

In general, small start-up firms have greater flexibility than larger firms and the
capacity to respond promptly to industry or community developments. They are able
to innovate and create new products and services more rapidly and creatively than
larger companies that are mired in bureaucracy. Whether reacting to changes in
fashion, demographics, or a competitor’s advertising, a small firm usually can make
decisions in days - not months or years.
A small firm has the ability to modify its products or services in response to unique
customer needs. The average entrepreneur or manager of a small business knows
his customer base far better than one in a large company. If a modification in the
products or services offered — or even the business’s hours of operation — would
better serve the customers, it is possible for a small firm to make changes.
Customers can even have a role in product development.
Strength comes from the involvement of highly skilled personnel in all aspects of a
start-up business. In particular, start-ups benefit from having senior partners or
managers working on tasks below their highest skill level. For example, when
entrepreneur William J. Stolze helped start RF Communications in 1961 in
Rochester, New York, three of the founders came from the huge corporation General
Dynamics, where they held senior marketing and engineering positions. In the new
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venture, the marketing expert had the title “president” but actually worked to get
orders. The senior engineers were no longer supervisors; instead, they were
designing products. As Stolzesaid in his book Start Up, “In most start-ups that I know
of, the key managers have stepped back from much more responsible positions in
larger companies, and this gives the new company an immense competitive
advantage.”
Another strength of a start-up is that the people — the entrepreneur, any partners,
advisers, employees, or even family members — have a passionate, almost
compulsive, desire to succeed. This makes them work harder and better.
Finally, many small businesses and start-up ventures have an intangible quality that
comes from people who are fully engaged and doing what they want to do. Tis is “the
entrepreneurial spirit,” the atmosphere of fun and excitement that is generated when
people work together to create an opportunity for greater success than is otherwise
available. Tis can attract workers and inspire them to do their best.
17. Entrepreneurship Aids the Economy

Most economists agree that entrepreneurship is essential to the vitality of any
economy, developed or developing.
Entrepreneurs create new businesses, generating jobs for themselves and those
they employ. In many cases, entrepreneurial activity increases competition and, with
technological or operational changes, it can increase productivity as well.
In the United States, for example, small businesses provide approximately 75

percent of the net new jobs added to the American economy each year and
represent over 99 percent of all U.S. employers. The small businesses in the United
States are often ones created by self-employed entrepreneurs.
“Entrepreneurs give security to other people; they are the generators of social
welfare,” Carl J. Schramm, president and chief executive officer of Ewing Marion
Kauffman Foundation, said in February 2007. The foundation is dedicated to
fostering entrepreneurship, and Schramm is one of the world’s leading experts in this
field.
Others agree that the benefits of small businesses go beyond income. Hector V.
Baretto, administrator of the U.S. Small Business Administration (SBA), explains,
“Small businesses broaden the base of participation in society, create jobs,
decentralize economic power, and give people a stake in the future.”
Entrepreneurs innovate and innovation is a central ingredient in economic growth.

As Peter Drucker said, “The entrepreneur always searches for change, responds to
it, and exploits it as an opportunity.” Entrepreneurs are responsible for the
commercial introduction of many new products and services, and for opening new
markets. A look at recent history shows that entrepreneurs were essential to many
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of the most significant innovations, ones that revolutionized how people live and
work. From the automobile to the airplane to personal computers – individuals with
dreams and determination developed these commercial advances.
Small firms also are more likely than large companies to produce specialty goods
and services and custom-demand items. As Schramm has suggested, entrepreneurs
provide consumers with goods and services for needs they didn’t even know they
had.
Innovations improve the quality of life by multiplying consumers’ choices. They

enrich people’s lives in numerous ways – making life easier, improving
communications, providing new forms of entertainment, and improving health care,
to name a few.
Small firms in the United States, for instance, innovate far more than large ones do.
According to the Small Business Administration, small technology companies
produce nearly 13 times more patents per employee than large firms. They represent
one-third of all companies in possession of 15 or more patents.
According to the 2006 Summary Results of the Global Entrepreneurship Monitor

(GEM) project, “Regardless of the level of development and firm size,
entrepreneurial behavior remains a crucial engine of innovation and growth for the
economy and for individual companies since, by definition, it implies attention and
willingness to take advantage of unexploited opportunities.” The GEM project is a
multi-country study of entrepreneurship and economic growth. Founded and
sponsored by Babson College (USA) and the London Business School in 1999, the
study included 42 countries by 2006.
International and regional institutions, such as the United Nations and the
Organization for Economic Cooperation and Development, agree that entrepreneurs
can play a crucial role in mobilizing resources and promoting economic growth and
socio-economic development. This is particularly true in the developing world, where
successful small businesses are primary engines of job creation and poverty
reduction. For all of these reasons, governments may wish to pursue policies that
encourage entrepreneurship.
18. The Importance of Government Policies

Entrepreneurial activity leads to economic growth and helps to reduce poverty,
create a middle class, and foster stability. It is in the interest of all governments to
implement policies to foster entrepreneurship and reap the benefits of its activity.

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Thomas A. Garrett, a senior economist with the Federal Reserve Bank of St. Louis,
says that government policies can be categorized as “active” or “passive” depending
on whether they involve the government in determining which types of businesses
are promoted. Active policies, such as targeted tax breaks, help specific forms of
businesses, while passive policies help create an environment that is friendly to
entrepreneurs without regard to specific firms.
Both active and passive policies are effective in promoting small business, Garrett
says, but passive policies promote entrepreneurship most broadly. “It is this
entrepreneurial-friendly environment that will allow any individual or business—
regardless of size, location or mission—to expand and to thrive,” he says.
Among the most successful strategies for encouraging entrepreneurship and small
business are changes in tax policy, regulatory policy, access to capital, and the legal
protection of property rights.
Tax Policy:Governments use taxes to raise money. But taxes increase the cost of
the activity taxed, discouraging it somewhat. Therefore, policymakers need to
balance the goals of raising revenue and promoting entrepreneurship. Corporate tax
rate reductions, tax credits for investment or education, and tax deductions for
businesses are all proven methods for encouraging business growth.
Regulatory Policy: “The simpler and more expedited the regulatory process, the
greater the likelihood of small business expansion,” says Steve Strauss, a lawyer
and author, who specializes in entrepreneur-ship. Reducing the cost of compliance
with government regulations is also helpful. Governments can, for example, provide
one-stop service centers where entrepreneurs can find assistance and allow
electronic filing and storage of forms.
Access to Capital:Starting a business takes money. There are required procedures

and fees as well as the initial costs of the new enterprise itself. Therefore, the most
important activity a government can undertake is to assist potential entrepreneurs
with finding money for start-ups.
In the United States, the Small Business Administration (SBA) helps entrepreneurs
get funds. The SBA is a federal agency whose main function is guaranteeing loans.
Banks and other lenders that participate in SBA programs often relax strict loan
requirements because the government has promised repayment if the borrower
defaults. This policy makes many loans available for risky new businesses.
Legal Protection of Property Rights:Small business can thrive where there is

respect for individual property rights and a legal system to protect those rights.
Without property rights, there is little incentive to create or invest.
For entrepreneurship to flourish, the law needs to protect intellectual property. If

innovations are not legally protected through patents, copyrights, and trademarks,
entrepreneurs are unlikely to engage in the risks necessary to invent new products

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or new methods. According to the World Bank report, “Doing Business 2007: How to
Reform,” new technologies are adopted more quickly when courts are efficient. “The
reason is that most innovations take place in new businesses—which unlike large
firms do not have the clout to resolve disputes outside the courts.”
Creating a Business Culture:Governments can also show that they value private
enterprise by making it easier for individuals to learn business skills and by honoring
entrepreneurs and small business owners. Policy makers can:
Offer financial incentives for the creation of business incubators. These

usually provide new businesses with an inexpensive space in which to get
started and services – such as a copier and a fax machine – which most new
businesses couldn’t otherwise afford. Often business incubators are
associated with colleges, and professors offer their expertise.
Make information available. In the United States, for example, the SBA has
many offices, making publications widely accessible. Its “Small Business
Answer Desk” (telephone: 800-827-5722) and its Web site (www.sba.gov)
answer general business questions. Its online business tutorials are available
to anyone with Internet access (http://sba.gov/training/coursestake.html).
Enhance the status of entrepreneurs and businessmen in the society.

Governments might create local or national award programs that honor
entrepreneurs and call on business leaders to serve on relevant commissions
or panels.
19. Entrepreneurship: Glossary of Terms
Angel investors:Individuals who have capital that they are willing to risk. Angels are
often successful entrepreneurs who invest in emerging entrepreneurial ventures,
often as a bridge from the self-funded stage to the point in which a business can
attract venture capital.
Assets:Items of value owned by a company and shown on the balance sheet,

including cash, equipment, inventory, etc. Balance sheet: Summary statement of a
company’s financial position at a given point in time, listing assets as well as
liabilities.
Breakeven point: Dollar value of sales that will cover, but not exceed, all of the
company’s costs, both fixed and variable.
Bridge finance:Short-term finance that is expected to be repaid quickly.
Browser:A computer program that enables users to access and navigate the World
Wide Web.

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Business incubator:This is a form of mentoring in which workspace, coaching, and

support services are provided to entrepreneurs and early-stage businesses at a free
or reduced cost.
Business plan:A written document detailing a proposed venture, covering current

status, expected needs, and projected results for the enterprise. It contains a
thorough analysis of the product or service being offered, the market and
competition, the marketing strategy, the operating plan, and the management as well
as profit, balance sheet, and cash flow projections.
Capital:Cash or goods used to generate income. For entrepreneurs, capital often

refers to the funds and other assets invested in the business venture.
Cash flow:The difference between the company’s cash receipts and its cash
payments in a given period. It refers to the amount of money actually available to
make purchases and pay current bills and obligations.
Cash flow statement:A summary of a company’s cash flow over a period of time.
Collateral:An asset pledged as security for a loan.
Copyright:Copyright is a form of legal protection for published and unpublished

literary, scientific, and artistic works that have been fixed in a tangible or material
form. It grants exclusive rights to the work’s creator for a specified period of time.
Corporation:A business form that is an entity legally separate from its owners. Its
important features include limited liability, easy transfer of ownership, and unlimited
life.
Depreciation:The decrease in the value of assets over their expected life by an

accepted accounting method, such as allocating the cost of an asset over the years
in which it is used.
E-commerce:The sale of products and services over the Inter-net.
Entrepreneur:A person who organizes, operates, and assumes the risk for a
business venture.
Equity:An ownership interest in a business.
Home-based business:A business, of any size or type, whose primary office is in

the owner’s home.
Income statement:Also known as a “profit and loss statement,” it shows a firm’s

income and expenses, and the resulting profit or loss over a specified period of time.

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Intangible assets:Items of value that have no tangible physical properties, such as

ideas.
Internet:The vast network of networks connecting millions of individual and

networked computers worldwide.
Inventory:Finished goods, work in process of manufacture, and raw materials

owned by a company.
Joint venture:A legal entity created by two or more businesses joining together to
conduct a specific business enterprise with both parties sharing profits and losses.
Liabilities: Debts a business owes, including accounts payable, taxes, bank loans,
and other obligations. Short-term liabilities are due within a year, while long-term
liabilities are due in a period of time greater than a year.
Limited partnership:A business arrangement in which the day-to-day operations

are controlled by one or more general partners and funded by limited or silent
partners who are legally responsible for losses based on the amount of their
investment.
Line of credit:(1) An arrangement between a bank and a customer specifying the

maximum amount of unsecured debt the customer can owe the bank at a given point
in time. (2) A limit set by a seller on the amount that a purchaser can buy on credit.
Liquidity:The ability of an asset to be converted to cash as quickly as possible and

without any price discount.
Marketing:The process of researching, promoting, selling, and distributing a product

or service. Marketing covers a broad range of practices, including advertising,
publicity, promotion, pricing, and packaging.
Marketing plan:A document describing a firm’s potential customers and a

comprehensive strategy to sell them goods and services.
Networking:(1) Developing business contacts to form business relationships,

increase knowledge, expand a business, or serve the community. (2) Linking
computers systems together.
Niche marketing:Identifying and targeting markets not adequately served by

competitors.
Outsourcing:The practice of using subcontractors or other businesses, rather than

paid employees, for standard services such as accounting, payroll, information
technology, advertising, etc.

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Partnership:Legal form of business in which two or more persons are co-owners,

sharing profits and losses.
Patent:A property right granted to an inventor to exclude others from making, using,
offering for sale, or selling an invention for a limited time in exchange for public
disclosure of the invention when the patent is granted.
Small Business Administration (SBA): Created in 1953, it is an independent

agency of the U.S. federal government that aids, counsels, assists, and protects the
interests of small business.
Small Business Development Centers (SBDC):SBA program using university

faculty and others to provide management assistance to current and prospective
small business owners.
Service Core of Retired Executives (SCORE):A non-profit organization dedicated

to entrepreneurs’ education and the success of small business. It is sponsored by
the SBA to provide consulting to small businesses.
Search engine:A computer program that facilitates the location and the retrieval of
information over the Internet.
Seed financing:A relatively small amount of money provided to prove a concept; it

may involve product development and market research.
Server:A computer system to provide access to information or Web sites.
Social entrepreneur:Someone who recognizes a social problem and uses

entrepreneurial principles to organize, create, and manage a venture to make social
change. Social entrepreneurs often work through non-profit organization and citizen
groups, but they may also work in the private or governmental sector. Many
successful entrepreneurs, such as Bill Gates of Microsoft, have become social
entrepreneurs.
Sole proprietorship:A business form with one owner who is responsible for all of
the firm’s liabilities.
Start-up financing:Funding provided to companies for use in product development

and initial marketing. It is usually funding for firms that have not yet sold their
product commercially.
Trademark:A form of legal protection given to a business or individual for words,

names, symbols, sounds, or colors that distinguish goods and services. Trademarks,
unlike patents, can be renewed forever as long as they are being used in business.
Unsecured loan:Short-term source of borrowed capital for which the borrower does
not pledge any assets as collateral.

Page 29 of 31
Variable costs: Costs that vary as the amount produced or sold varies.
Venture investors:An institution specializing in the provision of large amounts of

long-term capital to enterprises with a limited track record but with the expectation of
substantial growth. The venture capitalist also may provide varying degrees of
managerial and technical expertise.
World Wide Web:The part of the Internet that enables the use of multimedia text,
graphics, audio, and video.

Page 30 of 31
HOW TO BECOME SUCCESSFUL

Information Sheet - 2
ENTREPRENEUR
“There is no Magic Pill for becoming a Successful Entrepreneur”
What is success?
When is an entrepreneur successful?
What skills does the entrepreneur need?
Entrepreneurship built on…

Vision Innovation
Strategy
Finance
Leadership
Characteristics of the entrepreneur

Huge drive
Willing to take risks
Able to develop new ideas
Able to get on with people
Strong leader (driven followers)
Dominant person
Has problems with a manager above
Psychological aspects
The entrepreneur…
…wants to prove himself/herself more than others
…has the pressure to reach something
…wants to be in control
…is convinced he/she can do it better
…is not afraid of taking risks
Sociological view
Entrepreneurship can’t exist without the entrepreneurs network and the
social skills of the entrepreneur
The entrepreneur has to have the creativity to find combination in the weak
ties in his network
Motivation for venture creation

Make a daily living
Achieve social and economic security
Work for oneself, not for others
Commercialize a particular idea, technology or skill
Focus on the business
Page 31 of 31
Becoming market leader
Another recognition
High motivation for success
Innovate ideas and concepts
Collective sharing of results
Commercialization of highly sophisticated technology
Try to control the market rather than the company
Growth by acquiring; global alliances
How to succeed?
Spin offs have the biggest change for success
It is not the new technology that concurs the market, but
– the combination of technologies
– the modified product that suits in the market
– the ability to get it in the market
It not the inventor but refiner of the technology who knows how to penetrate
the market, who succeeds
The entrepreneur has…

…to have a vision about:
– the market
– the needs in the market
– products or combinations that fill those needs
– how to penetrate the market
…to be creative
…to be independent
…to translate his vision in words for
– investors
– buyers
– partners

Page 32 of 31

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HOSSANA POLLY TECHINIC COLLEGE

Instruction Sheet Learning Guide

How to become successful entrepreneur

1. Read the information written in the “Information Sheets”.

unsatisfactory, see your teacher for further instructions.

understanding a particular step or procedure.

Author : Hosanna construction department Version 1

Information Sheet - 1 PRINCIPLES OF ENTREPRENEURHIP

What is meant by entrepreneurship? The concept of entrepreneurship was frst

Most economists today agree that entrepreneurship is a necessary ingredient for

Author : Hosanna construction department Version 1

with professional expertise may discourage entrepreneurship. A culture or policy that

Why and how do people become entrepreneurs?

2. WHAT MAKES SOMEONE AN ENTREPRENEUR?

Dedication is what motivates the entrepreneur to work hard, 12 hours a day or

Determination is the extremely strong desire to achieve success. It includes

Flexibility is the ability to move quickly in response to changing market needs.

Author : Hosanna construction department Version 1

3. WHY BECOME AN ENTREPRENEUR?

In contrast, some people are attracted to entrepreneurship by the advantages of

Entrepreneurship offers a greater possibility of achieving significant financial

4. DECISIONS AND DOWNFALLS

Does the individual truly want to be responsible for a business?

The entrepreneur’s challenge is to balance decisiveness with caution—to be a

Author : Hosanna construction department Version 1

Through careful analysis of entrepreneurs’ successes and failures, economists have

Motivation:What is the incentive for starting a business? Is it money alone?

Strategy:What is the strategy for distinguishing the product or service? Is the

Realistic Vision:Is there a realistic vision of the enterprise’s potential?

5. GOT IT ALONE OR TEAM UP?

Author : Hosanna construction department Version 1

In general, strong teams have a better chance at success. In Entrepreneurs in High

Entrepreneurs of different ages can create complementary teams also. Optimism

It is important for a new entrepreneur to be aware of potential problems while

6. CHOOSING A PRODUCT AND A MARKET

Sometimes an entrepreneur sees a market need and—Eureka!—has an idea for a

What are innovative ways to use or to provide existing products? In Australia in

An existing good or service for an existing market. This is a difficult approach

A new good or service for an existing market. (Often this is expanded to

Author : Hosanna construction department Version 1

7. ENTRY STRATEGIES FOR NEW VENTURES

Successful entrepreneurs often distinguish their ventures through differentiation,

Differentiation is an attempt to separate the new company’s product or service

A product can be functionally similar to its competitors’ product but have

Niche specification is an attempt to provide a product or service that fulfills

Changes in population characteristics may create opportunities to serve niche

Innovation is perhaps the defining characteristic of entrepreneurship.

But innovation occurs in all aspects of businesses, from manufacturing

Entrepreneurs in less-developed countries often innovate by imitating and adapting

Innovation, differentiation, and/or market specification are effective strategies to help

An entrepreneur can also develop a file of potential customers, for example, by

External channels also can be used. Intermediaries, such as agents or distributors,

Advertising and promotion are essential marketing tools. Newspaper, magazine,

It is important to be listed in local telephone directories that group similar businesses

Publicity is also an extremely valuable way to promote a new product or service.

9. THE ENTREPRENEUR AND THE INTERNET

Communications:An entrepreneur must communicate with many people—

Research:Starting a business takes lots of research. An entrepreneur can find

huge electronic library.) Many government agencies, universities, organizations, and

Author : Hosanna construction department Version 1