what is entrepreneurship. entrepreneur – individual who undertakes the creation, and ownership of...
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ENTREPRENEURSHIP CH. 1
What is Entrepreneurship
BECOMING AN ENTREPRENEUR
Entrepreneur – Individual who undertakes the creation, and ownership of an innovative business with potential for growthAccepts 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
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
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
HOW ENTREPRENEURS AND CUSTOMERS INTERACT
Economics – Study of how people choose to allocate scarce resources to fulfill their unlimited wants
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?
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
FREE ENTERPRISE SYSTEM People have an important right to make
economic choices:People can choose what products to buyPeople can choose to own private propertyPeople can choose to start a business and
compete with other businesses Also called:
Market EconomyCapitalism
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 successThere is a risk of failure
It encourages the production of quality product that truly meets the needs of consumers
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
FREE ENTERPRISE SYSTEM Market Structures
Nature and degree of competition among businesses operating in the same industry
Affect market pricesFour different market structures:
1. Perfect Competition2. Monopolistic Competition3. Monopoly4. Oligopolies
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 qualityEasy for new companies to enter
the marketPrices are determined by supply and
demand
FREE ENTERPRISE SYSTEM Monopolistic Competition
Many sellers produce similar but differentiated products
Substitution is not always possibleThrough 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
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
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
BASIC ECONOMIC CONCEPT Goods and Services
Products that our economic system produces to satisfy consumers’ wants and needs
Goods – tangible (physical) productsServices – intangible (Non-physical)
productsNeed – Basic requirements for survivalWants – Something that you do not
have to have for survival but would like to have
BASIC ECONOMIC CONCEPT Factors of Production
Resources businesses use to produce the goods and services that people want
Four Factor or Production1. Land2. Labor3. Capital4. Entrepreneurship
BASIC ECONOMIC CONCEPT Scarcity
Demand exceeds supplyBecause resources are in limited supply, to have one thing may mean that you have to give up something else
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
BASIC ECONOMIC CONCEPT Three basic tenets of supply and
demand theory1. If something is in heavy demand
but in short supply, prices will go up. Rise in price will lower demand.
2. If something is in plentiful supply but demand is lacking, prices will go down. Decline in price will expand demand and contract supply
3. Prices tend to stabilize at the level where demand equals supply
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 demandNo acceptable substitutes, product is a
necessity
BASIC ECONOMIC CONCEPT Demand
Diminishing Marginal UtilityPrice alone does not determine demand
Other factors play a role:Income – Taste – the amount of the product already owned
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
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 suppliedNeither a shortage or surplus
BUSINESS CYCLE Economic Indicators
Statistics published by the federal government that helps the entrepreneurs understand the state of the economy and predict possible changes
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
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
BUSINESS CYCLE Expansion and ContractionExpansion – Period of growth and prosperity
Contraction – Slow down in growth
BUSINESS CYCLE Inflation
Growing to fastUnhealthy jump is prices that slows consumer and business spending
Companies reduce production and lay off workers
Higher unemployment
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
HISTORY OF ENTREPRENEURSHIP Early years to 1980’s
Small businesses were the normSupplied basic needs1960 – Huge companies were commonNo international competition Job security
1970 – High levels of inflationCompanies were facing competition Introduction of microprocessor and
personal computer – Information Age
HISTORY OF ENTREPRENEURSHIP 1980s to Present
Large companies sufferingNew, smaller companies were responding
to the changing marketKnown as “Decade of Entrepreneurship”Entrepreneurs had increasing impact on
the economy and economic growth1990s – advent of Internet
Spurred new entrepreneurial venturesRecent – Advent of new media technology
Made it possible to do business anywhere
ENTREPRENEURIAL START-UP PROCESS
5 key components1. The Entrepreneur2. The Environment3. The Opportunity4. Start-up Resources5. The New Venture
Organization
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
ENTREPRENEURIAL START-UP PROCESS
The Environment Includes variables that
affect the venture but are not controlled by the entrepreneur
4 Categories of environmental variables
ENTREPRENEURIAL START-UP PROCESS
The Environment 4 Categories of environmental variables
1. The nature of the environment, whether it is uncertain, fast-changing, stable, or highly competitive
2. The availability of resources, such as skilled labor, start-up capital, and sources of assistance
3. Ways to realize value, such as favorable taxes, good markets, and supportive government policies
4. Incentives to create new businesses – Enterprise Zones – Designated area of the community that provide tax benefits and grants for new product development
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
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
ENTREPRENEURIAL START-UP PROCESS
New Venture Organization Company
Foundation that supports all of the products, processes, and services of the new business
NEW BUSINESS SUCCESS AND FAILURE
More businesses succeed than fail
66% of small businesses survive the first two years.
40% by six years
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 oneClosing planned and caused no harm