1. What is Entrepreneurship
Entrepreneurship Ch. 1
What is Entrepreneurship

2. 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

3. 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

4. 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

5. How Entrepreneurs and Customers Interact
Economics – Study of how people choose to allocate scarce resources to fulfill their unlimited wants

6. 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?

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. Business cycle Economic Indicators
Statistics published by the federal government that helps the entrepreneurs understand the state of the economy and predict possible changes

26. 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

27. 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

28. Expansion and Contraction Expansion – Period of growth and prosperity
Business cycle
Expansion and Contraction
Expansion – Period of growth and prosperity
Contraction – Slow down in growth

29. Inflation Business cycle Growing to fast
Unhealthy jump is prices that slows consumer and business spending
Companies reduce production and lay off workers
Higher unemployment

30. 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

31. 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

32. 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

33. Entrepreneurial Start-up process
5 key components
The Entrepreneur
The Environment
The Opportunity
Start-up Resources
The New Venture Organization

34. 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

35. Entrepreneurial Start-up process
The Environment
Includes variables that affect the venture but are not controlled by the entrepreneur
4 Categories of environmental variables

36. 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

37. 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

38. 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

39. Entrepreneurial Start-up process
New Venture Organization
Company
Foundation that supports all of the products, processes, and services of the new business

40. New Business success and failure
More businesses succeed than fail
66% of small businesses survive the first two years.
40% by six years

41. 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