Lesson 17

Running a Startup

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Overview

In This Lesson:
First, you will refresh your understanding of
how to obtain financing to start a business.
Next, you will learn the basics about operating
a business.
 Goal: Analyze what is required to run
a business.
 Guiding Question: How do I set up my
business so that it operates effectively?

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NFTE Entrepreneurial Mindset

To be an effective communicator and collaborator

 Share your ideas

 Express yourself clearly and persuasively
 Work well with others
 Engage in productive debate and discourse
 Provide and respond effectively to constructive
criticism

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Entrepreneurial Mindset Warm-Up

Think and respond to this question

Imagine if you and your neighbors had to design

and build a new kind of car. How important would
communication and collaboration be?

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Essential Vocabulary
 Liability: Any outstanding bill or loan that must be repaid.
 Operations: Everyday activities that keep a business running.
 Human Resources: People that help make the business run; can include people hired
for a specific skill that not many others have.
 Compensation: Money and benefits that an employee receives in exchange for working.
 Key Resources: Physical, intellectual, human, or financial resources that allow an
entrepreneur to create and offer a value proposition, reach markets, maintain relationships
with customer segments, and earn revenue.
 Intellectual Property: Unique inventions, designs, and processes that
a business creates that other businesses do not have access to.

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The Business Life Cycle

Pivot or
Existence Survival Success Takeoff Maturity Exit
Persist

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Choosing a Legal Structure
 The legal structure for your business affects how you, the business owner,
must pay your business's taxes and debts. This is called liability.
 Unlimited liability legal structures: owner(s) can be legally forced to use
personal money and possessions to pay business debts. These legal
structures are sole proprietorships and partnerships.
 Limited liability legal structures: owners cannot be legally forced to pay
business debts with personal money and possessions. These legal
structures are corporations and limited liability companies.

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Choosing the Best Legal Structure
 Focus on the key differences between the options:
• Do I want to be the only owner, or would I rather share ownership?
• Is it important for me to make all the big business decisions?
• Will this business be too risky for me to start alone?
• Do I have any personal assets that I want to make sure are protected
if my business is not successful?

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Sole Proprietorship
 A sole proprietorship is a legally defined type of business
ownership in which a single individual owns the business,
collects the profit from the business, and has unlimited
liability for business debt.
• Simplest and least expensive option
• Only one individual is responsible
for the business
• Difficult to borrow money

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Partnerships

A partnership is a legally defined business organization in which at least two

individuals share the management, profit, and liability of a business.

A general partnership is one in which all partners have unlimited liability.

A limited partnership is one in which at least one partner has limited

liability for the debts of the business and has no say in the management of
the business.

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Corporations and Other Business Structures
• A corporation is a legally defined type of business ownership
in which the business is considered a “person” under the law,
and limited liability is granted to the business owner(s).
• The owners of a corporation are called its shareholders
or stockholders.
• A share of stock is a unit of ownership in a corporation.
• Each share can earn its owner a dividend, which is a portion
of a corporation’s profit.

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Corporations
• Most corporations are C corporations, which are taxed.
• Corporation owners have limited liability for business debt.
• The primary disadvantage of corporations is that they are more
difficult and expensive to set up and maintain than simpler
business structures.
• A subchapter S corporation
differs from a regular corporation
only in how its income and loss are
taxed by the government.

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Other Corporation Types

A limited liability company is similar to a corporation but with simpler

operating requirements and tax procedures and greater liability protection for
the business owners.

A nonprofit corporation is a corporation that operates to serve the good of

society and uses any profit it earns to further that mission.

A cooperative is a business owned, controlled, and operated for the mutual

benefit of its members.

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Choosing Between Types of Business Ownership

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Roles and Responsibilities within a Business
 As an entrepreneur starting a business, you are its founder and most likely its owner.
If you have a partnership, you and your partner(s) are co-founders and co-owners.
 Chief Executive Officer: Person in charge of the overall management of the business.
An owner can be the CEO.
 Chief Financial Officer: Person who manages a company's finances.
 Chief Operations Officer: Person who manages a company's operations.
 Chief Information Officer: Person who develops the policies and structures that protect
the company's data.
 Manager: Person who has authority over employees and gig workers and is responsible
for their work.
 Employee: Person who reports to a manager. Employees can be full-time or part-time.
 Gig Worker: Person hired for a short period of time to fill a need or perform a task that is not
needed on a day-to-day basis.

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Compensation Structures
 Businesses pay the people who work to support them in various ways.
These are called compensation structures.
 In whatever way you pay the people who support your business, make it a
practice to be ethical and compensate them for what their work is worth.
Consider whether what you are paying them provides them with a living wage.
 Types of compensation:
• Salary
• Commission
• Hourly Pay
• Contract Work
• Piece Work
• Equity

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Producing Products and Services
Products: Something that becomes a customer's Services: Work done for a fee such as tutoring, pet
property after a sale such as clothing, an app, grooming, accounting, plumbing, and web design.
and food.

Physical Products: Products that can be touched, Physical Services: Work done by people such such
seen, or smelled such as clothing, furniture, as workout trainers, dog walkers, and landscapers.
and food.

Digital Products: Software products such as apps, Digital Services: Online resources such
games, and software. as community portals and search engines
like Google.

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Key Resources

A physical A financial
resource is any resource is the
tangible asset money that the
that the business
owns.
business uses in
daily operations.
Resources can be internal
(owned by the business)
or external
Intellectual
Human resources resources are (outside of the business)
are the people unique inventions
that help make or processes
the business run. created by the
business.

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Production Options for Products and Services
 Think about which key internal resources you should provide and which
would be best to obtain from an external source such as a manufacturing
company or a software developer.
 When deciding whether to create a relationship with an external source, keep
in mind that you have to give up something to get something.
• Speed, quality, and volume of production are three common reasons to
choose an external source like a manufacturer.
• You may also lack knowledge or a skill like computer programming. This
is another common reason to choose an external source.

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The Benefits of Intellectual Property Law
 It is important to list anything that you have created for the
purposes of the business.
 Intangibles, or things that have value but are not material goods,
can benefit both the individual and society.
 Intellectual property law is also expanding to accommodate
advances in technology and societal trends.

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Copyright
 Copyright is the exclusive right to perform, display, copy,
or distribute an artistic work.
 Copyright extends to derivatives, or works based on one or more
existing works.
 The © symbol informs or reminds others that the work can be used
only with permission and possibly payment.
 Generally, a copyright exists for 70 years after the creator’s death.

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Patents
 Patents cover industrial works—things that are made
by applying ideas.
 Utility patents are granted for these five types of inventions:
1. Articles of manufacture
2. Machines
3. Processes
4. Compositions
5. Improvements on or new uses
for existing inventions

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Trademarks and Service Marks
 A trademark is a word, phrase, or symbol that a manufacturer
uses to identify its products.
 A service mark is a word, phrase, or symbol that a service-based
business uses to identify its services.
 Trademarks and service marks give the most protection when
they are registered with the United States Patent and Trademark
Office (USPTO) (www.uspto.gov).

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Trade Secrets
 A trade secret is any information that a business keeps
confidential in order to gain advantage over competitors who do
not have that information.
 The Uniform Trade Secrets Act weighs certain factors in
deciding whether the information qualifies as a trade secret:
• The information’s value to the business
• The actual difficulty in obtaining the information
• The intention to keep the information secret
• The business’s role in developing the information

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Leveraging Intellectual Property
 Instead of creating your own internal intellectual property, you can
gain an already existing customer base by paying money to use the
IP of external resources.
• Franchises
• Brand Licensing
 Factors to Consider:
• Franchise and Licensing fees can be expensive.
• You must be approved by the franchisor (McDonald's) or licensor (Disney).
• You also must adhere to all rules, regulations and guidelines in your
agreement. You have less freedom in how you conduct business.

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Extensions Pt 1
 What is the difference between fair use and CC?
Go through this article by CreativeCommonsUSA.org to learn more about copyright laws, including Creative
Commons and Fair Use.

 Trade Secrets
Examine this article by the World Intellectual Property Organization to learn more about trade secrets.
Scroll to the bottom for some examples.

 7 Steps to Manufacture a Product for Startup Businesses

Review this article by Connie Benton for Learn Hub to dive deeper into the steps required to mass produce
a product.
 How to Get Your Product Made: Finding and Working with a ManufacturerTrade Secrets
Examine this article Alexandra Lim-Chua Wee for marthastewart.com to get more tips on which steps should be
taken to mass produce a product.
 How to Establish Quality Control Processes
Examine this article by score.org to learn about the steps companies take to establish and run successful Quality
Control (QC) processes.

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Extensions Pt 2
 Article on Deciding When to Hire
Go through this article by Neil Patel for Entrepreneur magazine about how to decide when to hire your first
employee. Think about whether you agree with the advice that a startup should operate with just the founder(s) as
employees for a while and why you feel that way.

 Understanding the Difference Between Product Businesses vs. Service Businesses

Explore this article by the U.S. Chamber of Commerce about the differences between running products-based ad
service-based businesses. Think about the examples of each and how each might require a different approach
toward sales and advertising.

 Overview of the 4 Most Common Legal Business Structures

Review this overview by Pathway Lending that outlines the most common legal business structures and when each
might be best. Think about what type of business structure might be best for your business and why.
 Understanding a Company's Corporate Structure
Explore this video by Investopedia about corporate roles. Think about which might be helpful for your business.
 Employee Compensation
Learn more about the types of employee pay and when each might be best in this video by GreggU. Think about
which pay structure might work best for your business.

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Exploration Key Resources Analysis
Perform a short exploration to use what you have learned about key resources to identify the
types of key resources that an entrepreneur needs to start a business.
Follow these steps:
 STEP 1: Read Hawk's journal entry about his key resources for his hot sauce business
opportunity. As you do, classify the type of key resource he has mentioned. These
resources are in bold text.
 STEP 2: Think about whether Hawk has thought of all the key resources that he will need
for the business.
 STEP 3: Answer the question that follows.

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Assignment 17 Instructions
Apply what you have learned in this lesson to your seventeenth assignment:
creating an operations plan for your business opportunity.
Follow these steps:
 STEP 1: Complete the Business Overview.
 STEP 2: Complete the Human Resources Overview.
 STEP 3: Complete the Internal / External Resources Overview.
 STEP 4: Complete the Intellectual Property Overview.
 STEP 5: Update your Lean Canvas tiles.

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Entrepreneurial Mindset Reflection
 How did you use communication and collaboration when planning
your team and operations plan?
 Why is it important to treat the people who work for your business
with respect and provide them with fair pay?
 How could entrepreneurs use communication and collaboration
when deciding whether to use internal or external sources for
their businesses?

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