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Entrepreneurship Ch. 1. What is Entrepreneurship. Becoming an Entrepreneur. Entrepreneur – Individual who undertakes the creation, and ownership of an innovative business with potential for growth

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entrepreneurship ch 1

Entrepreneurship Ch. 1

What is Entrepreneurship

becoming an entrepreneur
Becoming an Entrepreneur
  • Entrepreneur – Individual who undertakes the creation, and ownership of an innovative business with potential for growth
    • Accepts the risks and responsibilities of business ownership to earn profits, create wealth, and achieve personal satisfaction.
    • Creating and running a business venture (new business undertaking that involves risk) requires a variety of skills
becoming an entrepreneur1
Becoming an Entrepreneur
  • Entrepreneurship – Process of recognizing or creating an opportunity, testing it in the market, and gathering the resources necessary to go into business
  • More than 90% of all businesses are small businesses with fewer than 100 employees
  • 62% of those are home-based businesses
becoming an entrepreneur2
Becoming an Entrepreneur
  • Owning and operating a business is very different today than it was in the past
  • Customers now demand that business transactions and communication take place quickly
how entrepreneurs and customers interact
How Entrepreneurs and Customers Interact
  • Economics – Study of how people choose to allocate scarce resources to fulfill their unlimited wants
economic system
Economic System
  • Economic System includes a set of laws, institutions, and activities that guide economic decision making.
  • Answer the following questions:
    • What goods and services should be produced?
    • What quantity should be produced?
    • How should they be produced?
    • For Whom should they be produced for?
economic systems
Economic Systems
  • Traditional Economic System – Relies on farming and simple barter
  • Pure Market System – Based on supply and demand with little government control
  • Command Economic System – Run by strong centralized government
  • Mixed Economic System – Combination of market and command systems
free enterprise system
Free Enterprise System
  • People have an important right to make economic choices:
    • People can choose what products to buy
    • People can choose to own private property
    • People can choose to start a business and compete with other businesses
  • Also called:
    • Market Economy
    • Capitalism
free enterprise system1
Free Enterprise System
  • Profit Motive
    • Making a profit (Money that is kept after all expenses of running a business have been deducted from the income) is a primary incentive
    • The only way to measure success
    • There is a risk of failure
      • It encourages the production of quality product that truly meets the needs of consumers
free enterprise system2
Free Enterprise System
  • Role of Competition
    • Competition is one of the basic characteristics of a free enterprise system
    • Good for consumers because it provides choices, it forces companies to improve quality and become more efficient, and it lead to a surplus, which brings down the prices
    • Prices, Quality, Service, Reputation
free enterprise system3
Free Enterprise System
  • Market Structures
    • Nature and degree of competition among businesses operating in the same industry
    • Affect market prices
    • Four different market structures:
      • Perfect Competition
      • Monopolistic Competition
      • Monopoly
      • Oligopolies
free enterprise system4
Free Enterprise system
  • Perfect Competition
    • Numerous buyers and sellers and many products that are very similar so they can be substituted for consumers
    • No difference in quality
    • Easy for new companies to enter the market
    • Prices are determined by supply and demand
free enterprise system5
Free Enterprise system
  • Monopolistic Competition
    • Many sellers produce similar but differentiated products
    • Substitution is not always possible
    • Through differentiation, sellers have some power to control the price of their product
    • By making its product slightly different, the monopolistic competitor tries to dominate a small portion of the market
free enterprise system6
Free Enterprise system
  • Monopolies
    • Particular commodity has only one seller who has control over supply and can exert nearly total control over prices
    • Discouraged in free market however they are sometimes in the publics best interest
free enterprise system7
Free Enterprise system
  • Oligopoly
    • Structure in which there are just a few competing firms
    • Example: Auto industry – several large companies can sell their automobiles at a lower price than small manufacturers
basic economic concept
Basic Economic Concept
  • Goods and Services
    • Products that our economic system produces to satisfy consumers’ wants and needs
    • Goods – tangible (physical) products
    • Services – intangible (Non-physical) products
    • Need – Basic requirements for survival
    • Wants – Something that you do not have to have for survival but would like to have
basic economic concept1
Basic Economic Concept
  • Factors of Production
    • Resources businesses use to produce the goods and services that people want
    • Four Factor or Production
      • Land
      • Labor
      • Capital
      • Entrepreneurship
basic economic concept2
Basic Economic Concept
  • Scarcity
    • Demand exceeds supply
    • Because resources are in limited supply, to have one thing may mean that you have to give up something else
basic economic concept3
Basic Economic Concept
  • Supply and Demand Theory
    • Sellers want to sell at the highest price and Buyers want to buy at the lowest price
    • Supply and Demand interact to determine prices customers are willing to pay for the number of products producers are willing to make
basic economic concept4
Basic Economic Concept
  • Three basic tenets of supply and demand theory
    • If something is in heavy demand but in short supply, prices will go up. Rise in price will lower demand.
    • If something is in plentiful supply but demand is lacking, prices will go down. Decline in price will expand demand and contract supply
    • Prices tend to stabilize at the level where demand equals supply
basic economic concept5
Basic Economic Concept
  • Demand
    • Quantity of goods or services that consumers are willing and able to buy.
    • Demand Elasticity
      • Degree to which demand for a product affected by its price
      • Elastic Demand
        • Situation in which a change in price creates a change in demand
        • Lower-priced substitutes
      • Inelastic Demand
        • Change in price has very little effect on demand
        • No acceptable substitutes, product is a necessity
basic economic concept6
Basic Economic Concept
  • Demand
    • Diminishing Marginal Utility
      • Price alone does not determine demand
      • Other factors play a role:
        • Income – Taste – the amount of the product already owned
basic economic concept7
Basic Economic Concept
  • Supply
    • The amount of a good or service that producers are willing to provide
    • Producers are willing to supply more when prices are high
    • Market prices provide an incentive to produce goods or service
    • As price goes up, the quantity supplied goes up
basic economic concept8
Basic Economic Concept
  • Surplus, Shortage, Equilibrium
    • Surplus – more supplies than needed
    • Shortage – fewer supplies than needed
    • Equilibrium – Point at which consumer buy all of a product that is supplied
      • Neither a shortage or surplus
business cycle
Business cycle
  • Economic Indicators
    • Statistics published by the federal government that helps the entrepreneurs understand the state of the economy and predict possible changes
business cycle1
Business cycle
  • Economic Indicators
    • Some examples are: Employment Rate, consumer confidence, and the GDP
      • Gross Domestic Product – total market value of goods and services produced by a nation during a given period.
        • Consists of the consumption of goods and services, investment, government expenditures, and net exports to other countries
business cycle2
Business cycle
  • The Federal Reserve
    • Government agency that controls the economy and regulates the nations money supply
    • Tells the banks the percentage of their money it can lend
    • Controls interest rates, raising them to increase the cost of borrowing and reducing them to decrease the cost of borrowing
    • Buys and sells government securities to increase or decrease the money supply
    • Head of Federal Reserve is:
      • Ben S. Bernanke
business cycle3
Business cycle
  • Expansion and Contraction
    • Expansion – Period of growth and prosperity
    • Contraction – Slow down in growth
business cycle4
Business cycle
  • Inflation
    • Growing to fast
    • Unhealthy jump is prices that slows consumer and business spending
    • Companies reduce production and lay off workers
    • Higher unemployment
what entrepreneurs contribute
What Entrepreneurs contribute
  • New companies are the driving force behind economic growth
  • Business start-ups are beneficial because they generate employment and increase the production of goods and services
history of entrepreneurship
History of Entrepreneurship
  • Early years to 1980’s
    • Small businesses were the norm
    • Supplied basic needs
    • 1960 – Huge companies were common
      • No international competition
      • Job security
    • 1970 – High levels of inflation
      • Companies were facing competition
      • Introduction of microprocessor and personal computer – Information Age
history of entrepreneurship1
History of Entrepreneurship
  • 1980s to Present
    • Large companies suffering
    • New, smaller companies were responding to the changing market
    • Known as “Decade of Entrepreneurship”
    • Entrepreneurs had increasing impact on the economy and economic growth
    • 1990s – advent of Internet
      • Spurred new entrepreneurial ventures
    • Recent – Advent of new media technology
      • Made it possible to do business anywhere
entrepreneurial start up process
Entrepreneurial Start-up process
  • 5 key components
    • The Entrepreneur
    • The Environment
    • The Opportunity
    • Start-up Resources
    • The New Venture Organization
entrepreneurial start up process1
Entrepreneurial Start-up process

The Entrepreneur

  • Driving force of the start-up process
  • Recognizes opportunity and pulls together the resources
  • Creates company to execute opportunity
  • Brings all life experiences and expertise
  • Calculated Risk Taker
entrepreneurial start up process2
Entrepreneurial Start-up process

The Environment

  • Includes variables that affect the venture but are not controlled by the entrepreneur
  • 4 Categories of environmental variables
entrepreneurial start up process3
Entrepreneurial Start-up process

The Environment

  • 4 Categories of environmental variables
    • The nature of the environment, whether it is uncertain, fast-changing, stable, or highly competitive
    • The availability of resources, such as skilled labor, start-up capital, and sources of assistance
    • Ways to realize value, such as favorable taxes, good markets, and supportive government policies
    • Incentives to create new businesses – Enterprise Zones – Designated area of the community that provide tax benefits and grants for new product development
entrepreneurial start up process4
Entrepreneurial Start-up process

The Opportunity

  • Is an idea that has commercial potential
  • Opportunity has value only when customers are ready and willing to buy
  • Idea + Market = Opportunity
  • New businesses are founded on recognized and created opportunities
entrepreneurial start up process5
Entrepreneurial Start-up process

Start-up Resources

  • When ready to execute a new business, creative talent is needed to pull together the necessary people and capital.
  • Includes – Capital, Skilled Labor, Equipment, Management Expertise, Legal and Financial Advice, facility and customer
entrepreneurial start up process6
Entrepreneurial Start-up process

New Venture Organization

  • Company
    • Foundation that supports all of the products, processes, and services of the new business
new business success and failure
New Business success and failure
  • More businesses succeed than fail
  • 66% of small businesses survive the first two years.
  • 40% by six years
new business success and failure1
New Business success and failure
  • Business Failure – business that has stopped operating with a loss to creditors
  • Usually files for bankruptcy
  • Discontinuance – Business that was purposely discontinued by an owner who wanted to start a new one
    • Closing planned and caused no harm