Chapter 1 What is Entrepreneurship Entrepreneurship and the Economy Section 1

Small Business and Entrepreneurship Entrepreneur: An individual who undertakes the creation, organization, and ownership of a business. Venture: A new business undertaking that involves risk. Entrepreneurship: The process of recognizing an opportunity, testing it in the market, and gathering resources necessary to go into business. Entrepreneurial: Acting like an entrepreneur or having an entrepreneurial mind set.

Entrepreneurship Today 1 in 3 households is involved with a new venture or small business. 90% of all businesses are small businesses (fewer than 100 employees) 62% of these are home based businesses

Economic Systems Economics: The study of how people choose to allocate scarce resources to fulfill their unlimited wants. What goods and services should be produced? What quantity of good and services should be produced? How should good and services be produced? For whom should goods and services be produced?

Free Enterprise System Also called Capitalism, or a market economy People have the 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.

The Profit Motive Profit: Money that is left after all expenses of running a business have been deducted from the income. Measures success Risk of failure Should encourage the production of quality products that meets consumers needs and wants.

The Role of Competition Competition is a basic characteristic of a free enterprise system. Businesses compete on price and non price factors. What are some non price factors? Stores can lower prices by increasing volume. Entrepreneurs typically avoid competing on price factors.

Market Structures The nature and degree of competition among businesses operating in the same industry. Perfect Competition Numerous buyers and seller, nobody affects the price. Monopolistic Competition Many sellers produce similar but differentiated products. Dominate small portion of market. Monopoly One seller dominates and can control supply and therefore prices. Oligopoly A few competing firms

Basic Economic Concepts Goods and Services Needs and Wants Factors of Production: Land Labor Capital-Equipment, factory, tools, and goods used to create products. Includes $$$ for expenses. Entrepreneurship Scarcity: Occurs when demand exceeds supply.

Supply and Demand Sellers want the highest price possible. Buyers want the lowest price possible. Heavy demand and short supply prices goes up. Heavy supply but little demand prices goes down. Prices stabilize where demand equals supply.

Demand The quantity of goods or services that consumers are willing and able to buy. As price goes up the quantity demanded goes down. Inverse Relationship

Demand Elasticity Elastic Demand: Refers to situations in which a change in price creates a change in demand. Depends on the number of substitutes Inelastic Demand: A change in price has very little effect on demand for products. No substitutes Diminishing Marginal Utility: Price alone does not determine demand. Other factors income, taste, amount already owned plays a role as well.

Supply The amount of a good or service that producers are willing to provide. Producers are more willing to supply products when the price is high. Direct Relationship

Surplus, Shortage, and Equilibrium Supply and demand is continuously moving Surplus: More supplies than needed. Any price above the equilibrium price Shortages: Fewer supplies than needed. Any price below the equilibrium price. Equilibrium: The point at which consumers buy all of a product that is supplied. There is neither a shortage or surplus.

Economic Indicators Gross Domestic Product (GDP): The total market values of good and services produced by workers and capital within a nation during a given period. The Federal Reserve (FED): A government agency that controls the economy and regulates the nation’s money supply. Tells bank what percentage of money they can lend Controls interest rates Buys and sells government securities to increase or decrease the money supply.

The Business Cycle The general pattern of expansion and contraction that the economy goes through.

Government Reactions to Business Cycle Economy growing rapidly Raise interest rates Raise Taxes Economy slipping into a recession Increase the money supply Lower interest rates Lower Taxes

What Entrepreneurs Contribute Recognize consumer wants Provide Jobs Change Society Create new wants to be satisfied

Small Businesses & Entrepreneurial Ventures Create jobs for themselves Create lifestyles to meet personal goals Examples: Innovate and grow the venture Create new value Expand to regional, national, or global level Examples:

Section 2 The Entrepreneurial Process Chapter 1 What is Entrepreneurship?

Famous Entrepreneurs Pick an entrepreneur you respect. Short bio. Personal data Business/product/service Competitive advantage (what makes this product/service more desirable) What characteristic(s) does this person possess that you feel contribute to their success?

History of Entrepreneurship Large Diversified Companies Little competition from Japan or Europe 1970s High Interest Rates International Competition Technology Revolution starting 1980s More government regulation Smaller entrepreneurial companies emerging

History of Entrepreneurship Less job security Fewer benefits Move to a service based economy Rise of the Internet

The Entrepreneurial Start-Up Process The Environment The Opportunity Start-Up Resources The New Venture Organization

The Entrepreneur The driving force Recognizes opportunity Creates the company Life Experiences Risk Taker Passion Persistence

The Environment The Nature of the Environment Stable, changing, competitive, uncertain The Availability of Resources Skilled labor, start up capital, sources of assistance Ways to Realize Value Favorable taxes, good markets, governmental policies Incentives to Create New Businesses Enterprise Zones: Specially designated areas of a community that provide tax benefits to new businesses locating there.

The Opportunity An idea that has commercial value. But you also need a market Idea + Market = Opportunity

Start-Up Resources Capital Skilled Labor Management Expertise Legal and Financial Advice Facility Equipment Customers

The New Venture Organization The infrastructure of the business. Execution of the business concept Create value to benefit: Yourself Employees Customers Economy

Business Failure Business Failure: A business that has stopped operating with a loss to creditors. Files Chapter 7 Bankruptcy Loses money for creditors, investors, or anyone else who lent it money. Discontinuance: A business that may be operating under a new name, or a business where the owner has purposely discontinued to start a new one. This would not be considered a failure.