ENTREPRENEURS RECOGNIZE OPPORTUNITIES UNIT 1• ENTREPRENEURIAL PATHWAYS ENTREPRENEURS RECOGNIZE OPPORTUNITIES Class Name Instructor Name Date, Semester

Performance Objectives After this lecture, you should be able to complete the following Performance Objectives 1. Explain what entrepreneurs do. 2. Describe how free enterprise economies work and how entrepreneurs fit into them. 3. Find and evaluate opportunities to start your own business. 4. Explain how profit works as a signal to the entrepreneur.

1 What Is Entrepreneurship? Entrepreneurship—a person who assumes the risks of organizing and managing a business for the sake of potential rewards. Product—a tangible item that exists in nature or is made by people. Service—intangible work that provides time, skills, or expertise in exchange for money.

1 The Economic Questions What will be produced? When will it be produced? How will it be produced? Who will produce it? Who will get what is produced? An economy is a region’s or nation’s financial structure. It is the system that produces and distributes wealth.

1 Free Enterprise System Free Enterprise System-economic system in which businesses are privately owned and operate relatively free of government interference. Capitalism – the free-market system. Capital-money or property owned or used in business. Voluntary Exchange-a transaction between two parties who agree to trade money for a product or service

1 What is a Small Business? 0 to 500 full time employees Annual sales < $5 million

1 Why Be an Entrepreneur? Control over time Fulfillment Creation/Ownership Control over compensation - Salary - Wage - Dividend - Commission Control over working conditions

1 Business Success The Desire to Make Money Is Not the Only Reason to Start a Business. Definitions of Success-Monetary and Other Taking the Long View

Benefits and Costs of Becoming an Entrepreneurship 1 Benefits Independence Satisfaction Financial reward Self-esteem Contribution to society Costs Business failure Obstacles Loneliness Financial insecurity Long hours/hard work Strain on personal relationships

1 Cost/Benefit Analysis Cost/Benefit Analysis—a decision-making process in which the costs of taking an action are compared to the benefits. Costs—money and time invested Benefits—money earned and knowledge and experience gained Opportunity Cost— the value of what must be given up in order to obtain something else For cost/benefit analysis to be accurate, opportunity cost must be included.

1 Entrepreneurial Options Social entrepreneurship Venture philanthropy Green entrepreneurship

Shumpeter’s Five Basic Ways for Sources of Opportunities 1 Use a new technology to produce a new product. Use an existing technology to produce a new product. Use an existing technology to produce an old product in a new way. Find a new source of resources to produce more efficiently and cheaply. Develop a new market for an existing product.

1 Entrepreneurs Creatively Exploit Changes in Our World Where Others See Problems, Entrepreneurs Recognize Opportunities How Do Entrepreneurs Create Business Ideas? - they listen, observe & think Train Your Mind to Recognize Business Opportunities Entrepreneurs Use Their Imaginations

An Idea Is Not Necessarily an Opportunity 1 An Idea Is Not Necessarily an Opportunity An opportunity is an idea that is based on what customers need or want and are willing to buy sufficiently often at a high enough price to sustain the business.

Timmon’s Business Opportunity= Idea + 4 Characteristics 1 Attractive to customers Will work in the business environment Can be executed in the window of opportunity that exists Resources and skills to create the business available to the entrepreneur

1 Use SWOT to Evaluate Business Ideas Strengths Weaknesses Opportunities Threats

1 Five Roots of Opportunity in the Marketplace Problems Changes Inventions Competition Technological advances

1 Integrating Internal and External Opportunities Internal Opportunities-comes from inside you; from a personal hobby, interest, passion or organization. External Opportunities-is generated by a noticeable out-side circumstance.

1 Establishing Strategies Strategy-a plan for how an organization or individual plans to perform and outdo competitors. Porter’s “Strategy Framework”-this framework delineates “cost leadership” and “differentiation” as low-cost and product- uniqueness strategies.

1 Paths to Small Business Ownership Start from the beginning Buy an existing business Secure a franchise rights License technology (Do not steal someone else’s creativity)

1 Paths to Small Business Ownership (cont.) Franchise-a business that markets a product or service developed by a franchisor, typically in the manner specified by that franchisor. Acquisition-the purchase of a business. Due Diligence-the exercise of reasonable care in the evaluation of a business opportunity

1 The Many Faces of Entrepreneurship Gazelle-a company that achieves an annual growth rate of 20% or greater, typically measured by the increase of sales revenue. Microenterprise-a firm with five or fewer employees, initial capitalization requirements of under $35,000, and the consistent operational involvement of the owner. Lifestyle Business-are microenterprise that permits its owners to follow a desired pattern of living!

Trade-off-the act of giving up one thing for another. Making the Business Work Personally and Professionally 1 Profit—amount of money remaining from the revenue of a business after all costs are deducted. Profit signals that an entrepreneur is adding value to scarce resources. Trade-off-the act of giving up one thing for another.

Seven Rules for Building a Successful Business 1 Seven Rules for Building a Successful Business Recognize an opportunity Evaluate it with critical thinking (SWOT) Build a team Create a business plan Gather resources Establish ownership Create wealth

Key Terms acquisition capital capitalism commission cost/benefit analysis dividend due diligence entrepreneur franchise free enterprise system gazelle green entrepreneurship lifestyle business microenterprise opportunity cost product profit salary service social entrepreneurship strategy trade-off venture philanthropy voluntary exchange wage