Section 1:

The Challenge of Entrepreneurship

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Essentials of Entrepreneurship and Small
Business Management
Ninth Edition

Chapter 1
The Foundations of
Entrepreneurship

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Learning Objectives (1 of 3)
1. Define the role of the entrepreneur in business in the
United States and around the world.
2. Describe the entrepreneurial profile.

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Learning Objectives (2 of 3)
3-A. Describe the benefits of entrepreneurship.
3-B. Describe the drawbacks of entrepreneurship.
4. Explain the forces that are driving the growth of
entrepreneurship.
5. Explain the cultural diversity of entrepreneurship.
6. Describe the important role that small businesses play
in our nation’s economy.

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Learning Objectives (3 of 3)
7. Put failure into the proper perspective.
8. Explain how an entrepreneur can avoid becoming
another failure statistic.
9. Discover how the skills of entrepreneurship, including
critical thinking and problem solving, written and oral
communication, teamwork and collaboration, leadership,
creativity, and ethics and social responsibility, apply to
every career choice and every avenue of life.

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The World of the Entrepreneur (1 of 2)
• Every year U.S. entrepreneurs launch more than 6.6
million new businesses.
• Entrepreneurial spirit - the most significant economic
development in recent history.
• Globally, nearly one in eight adults is actively engaged in
launching a business.

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Figure 1.1 Entrepreneurial Activity across the
Globe

Source: Based on data from Donna Kelley, Slavica Singer, and Mike Herrington, Global
Entrepreneurship Monitor 2016/17 Global Report, Global Entrepreneurship Monitor, 2017, pp. 39–102.

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Table 1.1 Entrepreneurship-Friendly Nations
Which nations provide the best environment for cultivating entrepreneurship? A recent study ranked 137
countries on the quality of the entrepreneurial ecosystem in each nation using the Global
Entrepreneurship and Development Index (GEDI), an index that includes a variety of factors that range
from the availability of capital and workforce quality to attitudes toward entrepreneurs and technology
available. The maximum GEDI score is 100.

GEDI Score, Top Ten Countries GEDI Score, Bottom Ten Countries
1. United States 83.4 128. Venezuela 13.0
2. Switzerland 78.0 129. Nicaragua 12.7
3. Canada 75.6 130. Malawi 125
4. Sweden 75.5 131. Guinea 12.1
5. Denmark 74.1 132. Burkina Faso 11.9
6. Iceland 73.5 133. Bangladesh 11.8
7. Australia 72.5 134. Mauritania 11.6
8. United Kingdom 71.3 135. Sierra Leone 11.4
9. Ireland 71.0 136. Burundi 11.4
10. Netherlands 67.8 137. Chad 8.8
Source: Global Entrepreneurship Index, The Global Entrepreneurship and Development Institute, 2017,
https://thegedi.org/global-entrepreneurship-and-development-index/.

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The World of the Entrepreneur (2 of 2)
• Global Entrepreneurship Monitor (GEM) study:
– 12.6% of the U.S. population aged 18 to 64 is engaged
in entrepreneurial activity.
– 68% of working adults around the world perceive
entrepreneurs as having high status.

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What is an Entrepreneur?
• 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.

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Figure 1.2 Percentage of Start-Up Companies
in the United States

Source: Business Dynamics Statistics Data Tables: Firm Age, U.S. Department of Commerce, U.S.
Census Bureau, 2017, www.census.gov/ces/dataproducts/bds/data_firm.html.

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Characteristics of Entrepreneurs (1 of 2)
• Desire for responsibility • Desire for immediate
• Preference for moderate feedback
levels of risk • High level of energy
• Willingness to break the • Competitive
rules • Future orientation
• Self-reliance
• Confidence in their ability
to succeed
• Determination

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Characteristics of Entrepreneurs (2 of 2)
• Skilled at organizing • Flexibility
• Value achievement over • Resourcefulness
money • Willingness to work hard
• High degree of • Tenacity
commitment
• Tolerance for ambiguity
• Creativity

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Figure 1.3 Most Important Qualities of an
Entrepreneur

Source: Ryan Westwood, “What Traits Do We Need to Succeed as Entrepreneurs?” Forbes, September 4, 2015,
www.forbes.com/sites/ryanwestwood/2015/09/04/what-traits-do-we-need-tosucceed-as-entrepreneurs/#4d7f537f8ff4.

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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).

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Benefits of Entrepreneurship
• The opportunity to:
– Create your own destiny.
– Make a difference.
– Reach your full potential.
– Reap impressive profits.
– Contribute to society and to be recognized for your
efforts.
– Do what you enjoy and to have fun at it.

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Drawbacks of Entrepreneurship
• 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
• Discouragement

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Feeding the Entrepreneurial Fire (1 of 3)
• Entrepreneurs as heroes
• Entrepreneurial education
• Demographic factors

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Figure 1.4 Global Entrepreneurial Activity by
Age Group

Source: Based on Zoltán J. Ács, László Szerb, and Erkko Autio, Global Entrepreneurship Index, 2016, Global
Entrepreneurship and Development Institute, p. 2.

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Feeding the Entrepreneurial Fire (2 of 3)
• Entrepreneurs as heroes
• Entrepreneurial education
• Demographic factors
• Shift to a service economy
• Technology advancements
• Independent lifestyle
• The Internet, cloud computing, and mobile marketing

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Figure 1.5 U.S. Online Retail Sales

Source: Based on data from Forrester Research, 2016.

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Feeding the Entrepreneurial Fire (3 of 3)
• 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 – micromultinationals

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The Cultural Diversity of Entrepreneurship
(1 of 4)

• Young entrepreneurs
• Women entrepreneurs

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Figure 1.6 Characteristics of Women-Owned
Businesses

Source: Based on data from the 2016 State of Women-Owned Businesses Report, American Express OPEN, 2016, p. 3.

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The Cultural Diversity of Entrepreneurship
(2 of 4)

• Young entrepreneurs
• Women entrepreneurs
• Minority-owned enterprises

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Growth of New Entrepreneurs by Minority
Group
Figure 1.7 Percentage of
New Entrepreneurs in the
U.S. by Minority Group,
1996 and 2016

Source: Based on data from Robert Fairlie,

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The Cultural Diversity of Entrepreneurship
(3 of 4)

• Young entrepreneurs
• Women entrepreneurs
• Minority-owned enterprises
• Immigrant entrepreneurs
• Part-time entrepreneurs

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The Cultural Diversity of Entrepreneurship
(4 of 4)

• Home-based businesses
• Family businesses
– Family-owned business
• Copreneurs
• Corporate castoffs
• Encore entrepreneurs
• Retiring baby boomers

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Figure 1.8 Entrepreneurial Activity in the U.S.
by Age Group

Source: Based on data from Robert W. Fairlie and Inara Tareque, 2017 Kauffman Index of Startup Activity, Kauffman
Foundation, 2017, p. 34.

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The Power of Small Businesses (1 of 2)
• Small businesses:
– Make up 99.7% of the 28.8 million businesses in the
United States
– Employ 48% of the nation’s private sector workforce
– Create more jobs than big businesses
▪ Created 63% of net new jobs over the last decade
▪ 5% of small companies create 67% of net new jobs
in the economy
– Gazelles

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Figure 1.9 Small Businesses by Industry

Source: Based on data from “Statistics of U.S. Businesses, U.S. and States, NAICS Sectors, Small Employment Sizes,”
United States Census Bureau, 2013, www.census.gov/econ/susb/.

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The Power of Small Businesses (2 of 2)
• Small businesses:
– Produce 48.5% of the nation’s private GDP.
– Account for 47% of business sales.
– Create 16 times more patents per employees than
large companies.
▪ Zipper, FM radio, the laser, air conditioning, the
escalator, the lightbulb, the personal computer,
automatic transmission, and many more!

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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.

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Figure 1.10 Small Business Failure Rate

Source: Based on data from “Survival Rates of Establishments, by Year Started and Number of Years Since Starting,
1994–2016,” Business Employment Dynamics, U.S. Bureau of Labor Statistics,
www.bls.gov/bdm/entrepreneurship/bdm_chart3.htm.

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Avoiding the Pitfalls of Small Business
Failure (1 of 2)
• Know your business in-depth
• Build a viable business model – and test it
• Use lean start-up principles
• Know when to pivot
• Develop a solid business plan
• Understand financial statements

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Avoiding the Pitfalls of Small Business
Failure (2 of 2)
• Manage financial resources
• Understand financial statements
• Build the right team
• Learn to manage people effectively
• Set your business apart from the competition
• Maintain a positive attitude

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Developing Career Skills
• Critical thinking and problem solving
• Written and oral communication
• Teamwork and collaboration
• Leadership
• Creativity
• Ethics and social responsibility

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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

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What is Ahead?
Chapter 2 Ethics and Social Responsibility
Section 2 The Entrepreneurial Journey Begins
Section 3 Launching the Business
Section 4 Putting the Business Plan to Work

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Copyright

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