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1 The Foundations of Entrepreneurship Section 1: The Challenge of Entrepreneurship 1 The Foundations of Entrepreneurship Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. Learning Objectives Define the role of the entrepreneur in business in the United States and around the world. Describe the entrepreneurial profile. Describe the benefits of entrepreneurship. Describe the drawbacks of entrepreneurship. Explain the forces that are driving the growth of entrepreneurship. Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. Learning Objectives (continued) Explain the cultural diversity of entrepreneurship. Describe the important role that small businesses play in our nation’s economy. Put failure into the proper perspective. Explain how an entrepreneur can avoid becoming another failure statistic. Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. Entrepreneurship  The process of designing, launching and running a new business, which typically begins as a small business, such as a startup company, offering a product, process or service for sale or hire Creativity: Something new and somehow valuable is formed. The created item may be intangible such as an idea, a scientific theory, …. Copyright © 2016 Pearson Education, Inc.

The World of the Entrepreneur Every month U.S. entrepreneurs launch 514,000 new businesses (One reason the U.S. economy has been so successful over time ). Entrepreneurial spirit - the most significant economic development in recent history. GEM study: 12.7% (one in eight people) of adult population in the United States is actively involved in trying to start a new business. Copyright © 2016 Pearson Education, Inc.

Entrepreneurial Activity Across the Globe Copyright © 2016 Pearson Education, Inc.

Entrepreneurial Activity Across the Globe The Total Entrepreneurial Activity Index (TEA index) is the sum of the number of persons starting a business (starting entrepreneurs) and the number of owners of businesses that were established less than 3.5 years before the reference date (young entrepreneurs), as a percentage of the labor force. The TEA is an index for the degree of new entrepreneurship by country and is calculated as the percentage of people who undertake such activities in comparison to the labor force (population aged 18-64 years) Copyright © 2016 Pearson Education, Inc.

Entrepreneurial Activity Across the Globe Factor-driven economy: Countries compete primarily on the use of unskilled labor and natural resources and companies compete on the basis of price as they buy and sell basic products or commodities. Examples: Egypt, Algeria, Palestine, Pakistan Copyright © 2016 Pearson Education, Inc.

Entrepreneurial Activity Across the Globe Efficiency-driven economy: Growth is based on the development of more efficient production processes and increased product quality. Examples: Croatia, Brazil, China, Russia, Tunisia Copyright © 2016 Pearson Education, Inc.

Entrepreneurial Activity Across the Globe Innovation-driven economy: Companies compete by producing and delivering new and different products and services by using the most sophisticated processes. Examples: USA, United Kingdom, Japan, Republic of Korea. Copyright © 2016 Pearson Education, Inc.

Entrepreneurship-Friendly Nations Copyright © 2016 Pearson Education, Inc.

The World of the Entrepreneur Global Entrepreneurship Monitor (GEM) study: Men are twice as likely to start a business as women. Entrepreneurs are most likely to launch businesses when they are between the ages of 35 and 44. Most people see entrepreneurial activity as a good career choice. Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. Global Entrepreneurship Monitor (GEM): A global study conducted by a consortium of universities It aims to analyze the level of entrepreneurship occurring in a wide basket of countries. It measures entrepreneurship through both surveys and interviews to field experts , conducted by the teams of each country. Copyright © 2016 Pearson Education, Inc.

What Is an Entrepreneur? One who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize on them. Copyright © 2016 Pearson Education, Inc.

Percentage of Start-Up Companies in the United States Entrepreneurs are essential change agents in the global economy, but unfortunately, in the United States, the percentage of private companies that are start-ups has been declining since the 1970s. Copyright © 2016 Pearson Education, Inc.

Characteristics of Entrepreneurs Desire for responsibility Preference for moderate levels of risk: risk eliminators Self-reliance Confidence in their ability to succeed Determination Desire for immediate feedback High level of energy Future orientation Opportunity entrepreneurs Necessity entrepreneurs Serial entrepreneurs Skilled at organizing Value achievement over money Copyright © 2016 Pearson Education, Inc.

Characteristics of Entrepreneurs Opportunity entrepreneurs: start businesses because they spot an opportunity in the marketplace. Necessity entrepreneurs: start businesses because they cannot find work any other way. Serial entrepreneurs: repeatedly start businesses and grow them to a sustainable size before striking out again. Copyright © 2016 Pearson Education, Inc.

Characteristics of Entrepreneurs Entrepreneurs tend to exhibit: A high degree of commitment Tolerance for ambiguity (غموض) Creativity Flexibility Resourcefulness Bootstrapping is a strategy that involves conserving money and cutting costs during start-up so that entrepreneurs can pour every available dollar into their businesses A willingness to work hard Tenacity (الاصرار والعناد) Copyright © 2016 Pearson Education, Inc.

Most Important Qualities of an Entrepreneur الشغف المرونة الاستباقية No single set of characteristics describes successful entrepreneurs. Anyone can become an entrepreneur. متصلب الرأي Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. Entrepreneurship One characteristic of entrepreneurs stands out: diversity! Anyone – regardless of age, race, gender, color, national origin, or any other characteristic – can become an entrepreneur (although not everyone should). Copyright © 2016 Pearson Education, Inc.

Benefits of Entrepreneurship The opportunity to: Create your own destiny (المستقبل). Make a difference. Reach your full potential. Reap (يجني) impressive profits. Contribute to society and to be recognized for your efforts. Do what you enjoy and to have fun at it. Copyright © 2016 Pearson Education, Inc.

Drawbacks of Entrepreneurship Uncertainty of income The entrepreneur is the last one to be paid, as employees must be paid first Risk of losing your entire investment Long hours and hard work Lower quality of life until the business gets established High levels of stress Copyright © 2016 Pearson Education, Inc.

Sources of Stress for Entrepreneurs Starting and managing your own business can be a very rewarding experience, but it can also be highly stressful! Copyright © 2016 Pearson Education, Inc.

Drawbacks of Entrepreneurship (continued from 1-16) Uncertainty of income Risk of losing your entire investment Long hours and hard work Lower quality of life until the business gets established High levels of stress Complete responsibility Discouragement Copyright © 2016 Pearson Education, Inc.

Feeding the Entrepreneurial Fire Some of the most significant factors that have led to this age of entrepreneurship include: Entrepreneurs as heroes (as model to follow) Entrepreneurial education Universities and colleges should include it in course study Copyright © 2016 Pearson Education, Inc.

Feeding the Entrepreneurial Fire Demographic and economic factors Many people start their business in age of 24- 44. Economic growth that spanned most of the 80s created significant amount of wealth among people of this age group and many business opportunities Copyright © 2016 Pearson Education, Inc.

Feeding the Entrepreneurial Fire Shift to a service economy In US service sector (low start-up cost) produce 80% of the jobs and 64% of GDP (Gross Domestic Product) GDP: a monetary measure  of the market value of all final goods and services produced in a period (quarterly or yearly). Used to determine the economic performance of a whole country or region, and to make international comparisons. Copyright © 2016 Pearson Education, Inc.

Feeding the Entrepreneurial Fire Technology advancements Technology has changed the ways to do business, such as computers, voice mail, e-commerce, fax,….. Copyright © 2016 Pearson Education, Inc.

Feeding the Entrepreneurial Fire Independent lifestyle The Internet (www), cloud computing, and mobile marketing Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. Cloud computing: Internet-based subscription or pay-per-use software services that allow business owners to use a variety of business applications, from database management and inventory control to customer relationship management and accounting Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. U.S. Online Retail Sales Currently, about 60 percent of small business have Web sites. Copyright © 2016 Pearson Education, Inc.

Feeding the Entrepreneurial Fire (continued from 1-19) Entrepreneurs as heroes Entrepreneurial education Demographic and economic factors Shift to a service economy Technology advancements Independent lifestyle The Internet, cloud computing, and mobile marketing International opportunities Copyright © 2016 Pearson Education, Inc.

The Cultural Diversity of Entrepreneurship Young entrepreneurs Women entrepreneurs Copyright © 2016 Pearson Education, Inc.

Characteristics of Women-Owned Businesses For many women, the best way to break the “glass ceiling” is through entrepreneurship. The number of women-owned businesses is growing 1.5 times faster than the national average. Copyright © 2016 Pearson Education, Inc.

The Cultural Diversity of Entrepreneurship (continued from 1-22) Young entrepreneurs Women entrepreneurs Minority-owned enterprises Copyright © 2016 Pearson Education, Inc.

Growth of New Entrepreneurs by Minority Group Minority-owned businesses have grown significantly over the last two decades, but still have a long way to go. Copyright © 2016 Pearson Education, Inc.

The Cultural Diversity of Entrepreneurship (continued from 1-24) Young entrepreneurs Women entrepreneurs Minority-owned enterprises Immigrant entrepreneurs Part-time entrepreneurs Copyright © 2016 Pearson Education, Inc.

The Cultural Diversity of Entrepreneurship (continued) Home-based businesses Family businesses Copreneurs entrepreneurial couples who work together as co- owners of their businesses. Corporate castoffs Corporate dropouts Retiring baby boomers Copyright © 2016 Pearson Education, Inc.

The Cultural Diversity of Entrepreneurship Corporate castoffs: Those individuals who are unemployed and are highly educated and skilled, and had corporate executive jobs. Corporate dropouts: Executives who leave the corporate to pursue their own dreams and aspirations by starting their own businesses. Copyright © 2016 Pearson Education, Inc.

The Cultural Diversity of Entrepreneurship Retiring baby boomers Baby boomer is a group of people who were born between 1946 and 1964. Labeled so because during this period of time , there was a statistically significant increase in the number of births that occurred. During the 22-year period , 76.4 million people were born (one quarter of US population) Copyright © 2016 Pearson Education, Inc.

Entrepreneurial Activity by Age Group One advantage that older entrepreneurs have is the wisdom that comes from experience. Copyright © 2016 Pearson Education, Inc.

The Power of Small Businesses Small businesses (employs less than 100 people). Capital: in Jordan defined that business with a capital less than 25-30JD Make up 99.7% of the 27.8 million businesses in the United States Employ 49.2% of the nation’s private sector workforce Create more jobs than big businesses Created 64% of net new jobs over the last decade 5% of small companies create 67% of net new jobs in the economy Gazelles Copyright © 2016 Pearson Education, Inc.

The Power of Small Businesses Gazelles are small companies that are growing at 20 percent or more per year with at least $100,000 in annual sales; they create 70 percent of net new jobs in the economy Copyright © 2016 Pearson Education, Inc.

Small Businesses by Industry The majority of small businesses are concentrated in the service, construction, and retail industries. Copyright © 2016 Pearson Education, Inc.

The Power of Small Businesses (continued from 1-29) Small businesses: Produce 46% of the nation’s private GDP. Account for 47% of business sales. Create 16 times more patents per employees than large companies. Zipper, light bulb, FM radio, laser, air conditioning, escalator, personal computer, automatic transmission, and many more! Copyright © 2016 Pearson Education, Inc.

Putting Failure into Perspective Entrepreneurs are not paralyzed by the prospect of failure. Failure: a natural part of the creative process. Successful entrepreneurs learn to fail intelligently. Copyright © 2016 Pearson Education, Inc.

Small Business Failure Rate Failure isn’t necessarily bad! New companies that replace old ones with better ideas, market approaches, and products are a sign of a healthy entrepreneurial economy. Copyright © 2016 Pearson Education, Inc.

Avoiding the Pitfalls of Small Business Failure Know your business in depth Build a viable business model – and test it Develop a solid business plan Understand financial statements Manage financial resources Learn to manage people effectively Set your business apart from the competition Maintain a positive attitude Copyright © 2016 Pearson Education, Inc.

Avoiding the Pitfalls of Small Business Failure The Ten Deadly Mistakes of Entrepreneurship: Management mistakes Lack of experience Poor financial control Weak marketing efforts Failure to develop a strategic plan Copyright © 2016 Pearson Education, Inc.

Avoiding the Pitfalls of Small Business Failure 6. Uncontrolled growth 7. Poor location 8. Improper inventory control 9. Incorrect pricing 10. Inability to make the “entrepreneurial transition” Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. Conclusion Entrepreneurs: Are an important part of the free enterprise system Are a diverse and talented group of people Represent a cross-section of society as a whole Are able to enhance the profitability of their businesses through acquiring additional knowledge and experience Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc. What Is Ahead? Chapter 2: Ethics and Social Responsibility Chapter 3: Inside the Entrepreneurial Mind: From Ideas to Reality Section 2: The Entrepreneurial Journey Begins Section 3: Launching a Business Section 4: Growing the Business Copyright © 2016 Pearson Education, Inc.

Copyright © 2016 Pearson Education, Inc.