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Lecture 4

I.

THE CULTURAL DIVERSITY OF ENTREPRENEURSHIP


A. Young Entrepreneurs
1. Generation X, people born between 1965 and 1980, is the most entrepreneurial generation in
history.
2. Members of this generation are responsible for 70 percent of all business start-ups!
3. Recent surveys have found that 60 percent of 18-to 29-year-olds say they hope to launch their
own businesses.
4. Generation X might be more appropriately called Generation E.
B. Women Entrepreneurs
1. Small business has been a leader in offering women opportunities for economic expression
2.

3.
4.
5.
6.

through employment and entrepreneurship.


Increasing numbers of women are discovering that the best way to break the "glass ceiling"
that prevents them from rising to the top of many organizations is to start their own
companies (see Figure 1.3).
Women are opening businesses at a rate twice that of the national average
Women are launching businesses in fields that traditionally have been male-dominated.
The 9.1 million women-owned companies across the United States employ 27.5 million
workers, about 20 percent of all company workers in the country.
Women own about 38 percent of all businesses, and these companies generate approximately
$3.7 trillion in sales each year.

C. Minority Enterprises
1. Asians, Hispanics, and African-Americans, respectively, are most likely to become

entrepreneurs.
2. Like women, minorities cite discrimination as a principal reason for their limited access to

the world of entrepreneurship.


3. Studies show that the nations minority entrepreneurs own 3.2 million businesses that

generate $495 billion in revenues and employ nearly 4 million workers.


D. Immigrant Entrepreneurs
1. Many are lured to the U.S. by its economic freedom.
2. Come with few assets but lots of drive and dreams.
3. Marty and Helen Shih from Taiwan.
4. Mil Kvitchko and Michael Markov story.
a) In 1992, Mik Kvitchko and Michael Markov, migrated from Russia to the United States,

started a business based on a program they had written to help financial advisers evaluate
the quality of investments. Today, Markov Processes International generates more than
$1 million in sales.
E. Part-time entrepreneurs
1. Permits people to try it with low-risk.
2. 16 million Americans are self-employed part-time.
3. Use it to "test the waters."
F. Home-based business owners
1. 53% of all businesses are home-based, but about 80 percent of them are very small with no

employees.
2. Study reported more than 55,000 home-based businesses generating sales of more than $1
million per year.

3.
4.
5.
6.

The biggest advantage is the cost savings of not having to lease or buy an external location.
They also enjoy the benefits of flexible work and lifestyles.
Studies suggest that the success rate for home-based businesses is high.
Dorn Kennison Story
a) Don Kennison launched his business, DMK Productions, a company that creates 3-D
computer animations and sound effects for a variety of applications, from his kitchen table.
His first step was to create a business plan, and then he began calling on prospective clients.
Although Kennisons business has experienced tremendous growth, he still runs the company
from his home in Simi Valley, California.

7. GUIDELINES home-based entrepreneurs should follow.

Managing a Successful Home-Based Business.


a) Do your homework
b) Find out what your zoning restrictions are
c) Choose the most efficient location for your office
d) Focus your home-based business idea
e) Discuss your business rules with your family
f) Select an appropriate business name
g) Buy the right equipment
h) Dress appropriately
i) Learn to deal with distractions
j) Realize that your phone can be your best friend ... or your worst enemy
k) Be firm with friends and neighbors
l) Take advantage of tax breaks
m) Make sure you have adequate insurance coverage
n) Understand the special circumstances under which you can hire outside employees
o) Be prepared if your business requires clients to come to your home
p) Get a post office box
q) Network, network, network
r) Be proud of your home-based business
G. Family business owners
1. Of the 25.5 million businesses in the United States, 90% are family-owned and managed.
2. These companies account for 60 % of total employment in the United States and generate

more than 50% of the U.S. Gross Domestic Product (GDP).


3. 37% of the Fortune 500 companies are family businesses.
4. Only 33% of family businesses survive to the second generation; just 12% make it to the

third generation; and only 3% survive to the fourth generation and beyond.
H. Copreneurs.
1. Entrepreneurial couples who work together as co-owners of their businesses.
2. Companies co-owned by spouses represent one of the fastest growing business sectors.
3. Some of the characteristics they rely on include:
a) personalities that mesh.
b) mutual respect.
c) compatible goals.
d) equal partnership.
e) complementary business skills.
f) open communication.
g) clear division of roles and authority.
h) ability to encourage each other.

i)
j)
k)
l)
I.

separate work spaces.


boundaries between work and personal life.
a sense of humor.
may not work with every couple.

Corporate castoffs
1. As major U.S. companies have "trimmed their ranks," many of these displaced workers
have launched their own companies.
2. 20% of these managers start their own companies.
3. An entrepreneurial offense is the best defense to corporate layoffs.

J. Corporate dropouts
1. Downsizing has diminished employee loyalties.
2. Many are striking out on their own for more opportunity, better income, and more job

security.
3.
II. THE TEN DEADLY MISTAKES OF ENTREPRENEURSHIP
A. Small businesses have a much higher failure rate than larger businesses.
1. 60% will fail in six years.
2. Causes of small business failure
a) Limited resources, inexperienced management, and lack of financial stability.
B. Managerial incompetence.
1. Management inexperience or poor decision making ability is the chief problem of the failing

enterprise.
2. The owner-leader lacks the knowledge or ability needed.
3. ANDREW KAY STORY.
a) Andrew Kay was a pioneer in the earliest days of the portable computer with his Kaypro
model. Unfortunately, he had no experience in running a high-tech startup, and, despite
the popularity of his computer, Kay made a series of managerial blunders that ultimately
forced the company into bankruptcy.
C. Undercapitalization.
1. Any successful business venture requires proper financial control.
2. Two pitfalls affecting small business's financial health are common: undercapitalization and poor

cash management.
3. Entrepreneurs tend to be overly optimistic and often underestimate the financial requirements of
launching a business or the amount of time required for the company to become self-sustaining.
D. Poor Cash Management.
1. Insufficient cash flow due to poor cash management is a common cause of business failure.
2. Maintaining adequate cash flow to pay bills in a timely fashion is a constant challenge for small

companies.
3. Poor credit and collection practices on accounts receivable, sloppy accounts payable practices

that exert undue pressure on a companys cash balance, and uncontrolled spending are common
to many small business bankruptcies.
4. Boo.com story.
a) The founders of Boo.com, a highly publicized Internet clothing retailer, failed to establish
adequate financial controls in the business, and it ultimately caused the company to run out
of cash and fold. Although the companys sales reached $1.1 million per month, its expenses

were running ten times that amount! The companys cash drained away, and by the time the
company went into bankruptcy.
E. Lack of Strategic Management.
1. Too many small business managers neglect the process of strategic management.
2. Failure to plan, however, usually results in failure to survive.
3. Clearly defined strategy is necessary for creating and maintaining a competitive edge.
4. Building a strategic plan forces an entrepreneur to assess realistically the proposed business's

potential.
F. Weak Marketing Effort.
1. Sometimes entrepreneurs believe that if they build it, customers automatically will come.
2. Stephen Mason and Alan Davis story.
a) Stephen Mason and Alan Davis are cofounders of Catamount Brewery, one of New

Englands first microbreweries. Early on, customers, intrigued by the romance and mystique
of microbreweries, flocked to Catamounts unique beers. Within six years, Catamounts
production had climbed from 3,500 barrels a year to 12,000 barrels a year. Unfortunately, its
marketing efforts did not keep pace. Sales slipped as customers drifted away, and the
company could not generate enough cash to repay the debt it took on to expand its plant,
forcing it into bankruptcy.
G. Uncontrolled growth.
1. They will outgrow their capital base with every 40 to 50% increase in sales.
2. Ideally the business should expand on retained earnings.
3. Growth also requires structural and other changes.
4. The most important change occurs in managerial expertise.
H. Poor location.
1. Location is part art and part science.
2. Owners need to investigate before they locate.
a) It's critical in retail.
3. Keys to location.
a) What it costs.
b) What it generates in sales volume.
I.

Lack of Inventory Control


1. Inventory control is one of the most neglected areas in small business.
2. Insufficient inventory levels result in shortages and stockouts causing customers to become
disillusioned and not return.
3. Has too much inventory or has too much of the wrong type of inventory.

J. Inability to Make the Entrepreneurial Transition.


1. Many businesses fail when their founders are unable to make the transition from entrepreneur to

manager and are unwilling to bring in a professional management team.


2. Growth requires entrepreneurs to delegate authority.
3. They should avoid micromanaging.
4. Joe Kraus story.
a) Joe Kraus launched the Internet portal Excite (now Excite at Home) and became Excites first

chief executive officer. After the company grew, he and his co founders decided that Excite
needed experienced, professional management to guide its rapid growth. Hiring an
experienced manger proved to be a wise move for Excite and for Kraus.

III. PUTTING FAILURE INTO PERSPECTIVE


1. It is a natural part of the process. The only way to not fail is to not do anything.
2. Learn from failures and be more successful the next time. It's not mistake avoidance but

learning from mistakes that counts.


3. Entrepreneurship requires persistence and resilience.
IV. HOW TO AVOID THE PITFALLS.
A. Know your business in depth
1. Get the best education and experience before you start.
2. Example of Stephanie Ann.
B. Prepare A Business Plan.
1. Planning replaces "I think" with "I know."
2. Most entrepreneurs don't have a solid plan.
3. Entrepreneurs attempt to build businesses on faulty assumptions.
C. Manage Financial Resources.
1. Develop a practical information system and use it to make decisions.
2. To have adequate startup capital.
3. Estimate capital needed then double it.
4. Cash is your most valuable resource.
D. Understand Financial Statements.
1. These documents are reliable indicators of the small business's health. Know them.
2. Know the financial danger signs to look for.
E. Learn To Manage People Effectively.
1. Your hires will determine where your company will go.
2. Share information.
F. Set your business apart from the competition
1. Differentiate your company and products.
2. Convince your customers that you are different from competitors.
3. For small companies, that basis often is customer service, convenience, speed, quality, or

whatever else is important to attracting and keeping happy customers.


G. Keep in tune with yourself.
1. Requires lots of energy and enthusiasm.
2. Manage yourself.
3. Keep a positive attitude.
4. Keep your passion

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