Appendix 2

The Context of Entrepreneurship Entrepreneurship - the process of starting new businesses, generally in response to opportunities. Entrepreneurial ventures - organizations that pursue opportunities, are characterized by innovative practices, and have growth and profitability as their main goals.

The Context of Entrepreneurship (cont.) Small business - an organization that is independently owned, operated, and financed; has fewer than 100 employees; doesn’t necessarily engage in any new or innovative practices; and has relatively little impact on its industry.

Why Is Entrepreneurship Important? Innovation Engage in the creative destruction process Act as agents of change Number of New Startups Increasing numbers of new firms Job Creation New ventures create 60-80% of net new jobs

Exhibit A-1: Evaluating Potential Ideas Evaluating entrepreneurial ideas revolves around personal and marketplace considerations. Each of these assessments will provide an entrepreneur with key information about the idea’s potential. Exhibit A-1 describes some questions that entrepreneurs might ask as they evaluate potential ideas.

Start-Up and Planning Issues Feasibility study - an analysis of the various aspects of a proposed entrepreneurial venture designed to determine its feasibility. Venture capitalists - External equity financing provided by professionally managed pools of investor money.

Appendix A-2: Feasibility Study Exhibit A-2 provides an outline of a possible approach to a feasibility study. Yes, it covers a lot of territory and takes a significant amount of time, energy, and effort to prepare it. However, an entrepreneur’s potential future success is worth that investment.

Appendix A-2: Feasibility Study (cont.)

Appendix A-2: Feasibility Study (cont.)

Venture Feasibility—Financing Venture capitalists - external equity financing provided by professionally managed pools of investor money. Angel investors - a private investor (or group of private investors) who offers financial backing to an entrepreneurial venture in return for equity in the venture. Initial Public Offering (IPO) - the first public registration and sale of a company’s stock.

Appendix A-3: Possible Financing Options Because funds likely will be needed to start the venture, an entrepreneur must research the various financing options. Possible financing options available to entrepreneurs are shown in Exhibit A-3.

Developing a Business Plan Business plan - a written document that summarizes a business opportunity and defines and articulates how the identified opportunity is to be seized and exploited.

Elements of a Business Plan Executive summary Analysis of opportunity Analysis of context Description of the business Financial data and projections Supporting documentation

Legal Forms of Organization Sole proprietorship - a form of legal organization in which the owner maintains sole and complete control over the business and is personally liable for business debts. General partnership - a form of legal organization in which two or more business owners share the management and risk of the business.

Legal Forms of Organization (cont.) Limited Liability Partnership (LLP) - a form of legal organization consisting of general partner(s) and limited liability partner(s). Corporation - a legal business entity that is separate from its owners and managers. Closely held corporation - a corporation owned by a limited number of people who do not trade the stock publicly.

Legal Forms of Organization (cont.) S corporation - a specialized type of corporation that has the regular characteristics of a C corporation but is unique in that the owners are taxed as a partnership as long as certain criteria are met. Limited Liability Company (LLC) - A form of legal organization that’s a hybrid between a partnership and a corporation.

Legal Forms of Organization (cont.) Operating agreement - the document that outlines the provisions governing the way an LLC will conduct business.

Exhibit A-4: Legal Forms of Business Organization Exhibit A-4 summarizes the basic information about each organizational alternative.

Exhibit A-4: Legal Forms of Business Organization (cont.)

Exhibit A-4: Legal Forms of Business Organization (cont.)

Exhibit A-5: Achieving a Supportive, Growth Oriented Culture Exhibit A-5 lists some suggestions that entrepreneurs might use to ensure that their venture’s culture is one that embraces and supports a climate in which organizational growth is viewed as desirable and important.

Human Resource Management Issues in Entrepreneurial Ventures Employee Recruitment Concerns Locating high potential employees who: can perform multiple roles are willing to “buy-in” (commitment) Filling critical skill gaps Employee Retention Issues Potential for damage to client/customer relationships due to loss of employees Need to offer desirable benefits Compensation: base pay and incentives

Leading Issues Personality Characteristics of Entrepreneurs High level of motivation, abundance of self-confidence, ability to be involved for the long term, high energy level, persistent problem solver, high degree of initiative, ability to set goals, and moderate risk-taker Proactive personality – a personality trait that describes individuals who are more prone to take actions to influence their environments.

Leading Issues (cont.) Motivating Employees Through Empowerment Giving employees the power to make decisions and take actions on their own to solve problems Benefits of Empowerment Improved flexibility and speed Stronger work motivation Higher morale Better work quality Higher job satisfaction Lower turnover Higher productivity Improved quality

Leading Issues (cont.) Empowering Employees Participative decision making Delegation Redesigning jobs

The Entrepreneur as Leader Leading Employee Work Teams Empowered teams Have the authority to plan and implement process improvements Self-directed teams Are nearly autonomous and responsible for many managerial activities Cross-functional teams Are composed of individuals from various specialties who work together on various tasks

Controlling Issues (cont.) Managing Growth Planning for growth Organizing for growth Financing growth Finding people Creating a growth-oriented culture Controlling for growth Managing Downturns Recognizing crisis situations—avoiding the boiled frog phenomenon Dealing with downturns, declines, and crises

Recognizing Crisis Situations “Boiled frog” phenomenon - a perspective on recognizing performance declines that suggests watching out for subtly declining situations.

Exiting the Venture Why Leave? Business Valuation Methods Desiring to harvest the value of the venture Facing serious organizational performance problems Desiring to pursue other interests/opportunities Business Valuation Methods Asset valuations Earnings valuations Cash flow valuations

Exiting the Venture (cont.) Harvesting - exiting a venture when an entrepreneur hopes to capitalize financially on the investment in the venture.

Terms to Know Entrepreneurship Entrepreneurial ventures Small business Feasibility study Venture capitalists Angel investors Initial public offering (IPO) Business plan Sole proprietorship General partnership Limited liability partnership (LLP) Corporation Closely held corporation S corporation Limited liability company (LLC) Operating agreement Proactive personality “boiled frog” phenomenon Harvesting 32