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Essentials of Entrepreneurship and Small Business Management, Fifth Edition

by Thomas W. Zimmerer - St. Leo University; Norman M. Scarborough - Presbyterian College; Doug Wilson - University of Oregon

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Copyright, ii
Preface, xii
Key Text Features, xii
Supplements, xiii
Beyond the Textbook, xiv
Acknowledgments, xiv
Section I. The Challenge of Entrepreneurship, 1
1. The Foundations of Entrepreneurship, 1
The World of the Entrepreneur, 2
What Is an Entrepreneur?, 5
The Benefits of Entrepreneurship, 8
Opportunity to Create Your Own Destiny, 8
Opportunity to Make a Difference, 9
Opportunity to Reach Your Full Potential, 9
Opportunity to Reap Impressive Profits, 9
Opportunity to Contribute to Society and Be Recognized for Your Efforts, 9
Opportunity to Do What You Enjoy and Have Fun at It, 10
The Potential Drawbacks of Entrepreneurship, 12
Uncertainty of Income, 12
Risk of Losing Your Entire Investment, 13
Long Hours and Hard Work, 13
Lower Quality of Life until the Business Gets Established, 13
High Levels of Stress, 14
Complete Responsibility, 14
Discouragement, 15
Behind the Boom: What's Feeding the Entrepreneurial Fire, 15
The Cultural Diversity of Entrepreneurship, 19
Young Entrepreneurs, 19
Women Entrepreneurs, 20
Minority Entrepreneurs, 21
Immigrant Entrepreneurs, 21
Part-Time Entrepreneurs, 21
Home-Based Businesses, 22
Family Businesses, 23
Copreneurs, 24
Corporate Castoffs, 25
Corporate Dropouts, 25
Social Entrepreneurs, 25
The Power of “Small” Business, 26
The Ten Deadly Mistakes of Entrepreneurship, 28
Putting Failure into Perspective, 33
How to Avoid the Pitfalls, 35
Know Your Business in Depth, 35
Develop a Solid Business Plan, 35
Manage Financial Resources, 36
Understand Financial Statements, 36
Learn to Manage People Effectively, 37
Keep in Tune with Yourself, 37
Chapter Summary by Learning Objectives, 37
Discussion Questions, 38
Business Plan Pro, 38
Business Plan Exercises, 39
Beyond the Classroom ..., 40
2. Inside the Entrepreneurial Mind: From Ideas to Reality, 41
Creativity, Innovation, and Entrepreneurship, 42
Creativity—A Necessity for Survival, 45
Can Creativity Be Taught?, 46
Creative Thinking, 47
Barriers to Creativity, 51
How to Enhance Creativity, 55
Enhancing Organizational Creativity, 55
Enhancing Individual Creativity, 59
The Creative Process, 62
Step 1. Preparation, 62
Step 2. Investigation, 63
Step 3. Transformation, 64
Step 4. Incubation, 65
Step 5. Illumination, 66
Step 6. Verification, 66
Step 7. Implementation, 66
Techniques for Improving the Creative Process, 68
Brainstorming, 69
Mind-Mapping, 70
TRIZ, 71
Rapid Prototyping, 71
Intellectual Property: Protecting Your Ideas, 74
Patents, 74
Trademarks, 76
Copyrights, 78
Protecting Intellectual Property, 79
Chapter Summary by Learning Objectives, 80
Discussion Questions, 81
Business Plan Pro, 81
Business Plan Exercises, 81
Beyond the Classroom ..., 82
Section II. Building the Business Plan: Beginning Considerations, 83
3. Designing a Competitive Business Model and Building a Solid Strategic Plan, 83
Building a Competitive Advantage, 85
The Strategic Management Process, 90
Step 1. Develop a Clear Vision and Translate It into a Meaningful Mission Statement, 90
Step 2. Assess the Company's Strengths and Weaknesses, 93
Step 3. Scan the Environment for Significant Opportunities and Threats Facing the Business, 93
Step 4. Identify the Key Factors for Success in the Business, 98
Step 5. Analyze the Competition, 99
Step 6. Create Company Goals and Objectives, 105
Step 7. Formulate Strategic Options and Select the Appropriate Strategies, 106
Step 8. Translate Strategic Plans into Action Plans, 114
Step 9. Establish Accurate Controls, 115
Conclusion, 117
Chapter Summary by Learning Objectives, 118
Discussion Questions, 119
Business Plan Pro, 119
Business Plan Exercises, 119
Beyond the Classroom ..., 120
4. Conducting a Feasibility Analysis and Crafting a Winning Business Plan, 122
Conducting a Feasibility Analysis, 123
Industry and Market Feasibility Analysis, 123
Product or Service Feasibility Analysis, 130
Financial Feasibility Analysis, 132
Why Develop a Business Plan?, 134
The Elements of a Business Plan, 137
Title Page and Table of Contents, 138
Executive Summary, 138
Vision and Mission Statement, 138
Company History, 138
Business and Industry Profile, 139
Business Strategy, 139
Description of the Firm's Product or Service, 140
Marketing Strategy, 141
Competitor Analysis, 144
Description of the Management Team, 144
Plan of Operation, 145
Pro Forma (Projected) Financial Statements, 145
The Loan or Investment Proposal, 146
What Lenders and Investors Look for in a Business Plan, 149
Capital, 149
Capacity, 149
Collateral, 149
Character, 149
Conditions, 150
Making the Business Plan Presentation, 150
Conclusion, 153
Business Plan Format, 153
Chapter Summary by Learning Objectives, 156
Discussion Questions, 157
Business Plan Pro, 157
Business Plan Exercises, 157
Beyond the Classroom ..., 158
5. Forms of Business Ownership, 159
The Sole Proprietorship, 163
The Advantages of a Proprietorship, 164
The Disadvantages of a Proprietorship, 164
The Partnership, 166
The Uniform Partnership Act, 167
The Advantages of the Partnership, 167
The Disadvantages of the Partnership, 169
Limited Partnerships, 172
Limited Liability Partnerships, 173
Master Limited Partnership, 174
Corporations, 174
How to Incorporate, 174
The Advantages of the Corporation, 176
The Disadvantages of the Corporation, 178
Other Forms of Ownership, 179
The S Corporation, 179
Liquidating an S Corporation, 181
The Limited Liability Company (LLC), 181
The Professional Corporation, 184
The Joint Venture, 184
Chapter Summary by Learning Objectives, 186
Discussion Questions, 186
Business Plan Pro, 186
Business Plan Exercises, 187
Beyond the Classroom ..., 187
6. Franchising and the Entrepreneur, 188
Types of Franchising, 190
The Benefits of Buying a Franchise, 191
Management Training and Support, 191
Brand Name Appeal, 192
Standardized Quality of Goods and Services, 192
National Advertising Programs, 193
Financial Assistance, 193
Proven Products and Business Formats, 194
Centralized Buying Power, 194
Site Selection and Territorial Protection, 194
Greater Chance for Success, 195
The Drawbacks of Buying a Franchise, 196
Franchise Fees and Ongoing Royalties, 196
Strict Adherence to Standardized Operations, 197
Restrictions on Purchasing, 197
Limited Product Line, 197
Contract Terms and Renewal, 198
Unsatisfactory Training Programs, 198
Market Saturation, 198
Less Freedom, 199
Franchising and the Law, 201
The Right Way to Buy a Franchise, 205
Evaluate Yourself, 206
Research Your Market, 206
Consider Your Franchise Options, 207
Get a Copy of the Franchiser's UFOC, 207
Talk to Existing Franchisees, 208
Ask the Franchiser Some Tough Questions, 208
Make Your Choice, 209
Trends Shaping Franchising, 211
Changing Face of Franchisees, 211
Multiple-Unit Franchising, 211
International Opportunities, 212
Smaller, Nontraditional Locations, 214
Conversion Franchising, 214
Master Franchising, 215
Piggybacking (or Combination or Multibranded Franchising), 215
Serving Dual-Career Couples and Aging Baby Boomers, 215
Conclusion, 215
Chapter Summary by Learning Objectives, 216
Discussion Questions, 216
Business Plan Pro, 217
Business Plan Exercises, 217
Beyond the Classroom ..., 218
Appendix A. A Franchise Evaluation Checklist, 218
7. Buying an Existing Business, 220
Buying an Existing Business, 221
The Advantages of Buying an Existing Business, 221
Disadvantages of Buying an Existing Business, 223
The Steps in Acquiring a Business, 226
Analyze Your Skills, Abilities, and Interests, 226
Prepare a List of Potential Candidates, 227
Investigate and Evaluate Candidate Businesses and Evaluate the Best One, 228
Explore Financing Options, 228
Ensure a Smooth Transition, 229
Evaluating an Existing Business—The Due Diligence Process, 231
Why Is The Business for Sale?, 232
The Condition of the Business, 233
Products and Services, 235
Legal Aspects, 236
Financial Soundness of the Business, 238
Methods for Determining the Value of a Business, 240
Balance Sheet Techniques: Net Worth = Assets ? Liabilities, 241
Earnings Approach, 243
Market Approach, 247
Understanding the Seller's Side, 250
Structuring the Deal, 252
Exit Strategies, 252
Negotiating the Deal, 256
Factors Affecting the Negotiation Process, 257
The Negotiation Process, 257
Chapter Summary by Learning Objectives, 260
Discussion Questions, 261
Business Plan Pro, 261
Business Plan Exercises, 261
Beyond the Classroom ..., 262
Section III. Building the Business Plan: Marketing and Financial Considerations, 263
8. Building a Powerful Marketing Plan, 263
Building a Guerrilla Marketing Plan, 264
Pinpointing the Target Market, 265
Determining Customer Needs and Wants through Market Research, 269
The Value of Market Research, 270
How To Conduct Market Research, 273
Plotting a Guerrilla Marketing Strategy: How to Build a Competitive Edge, 278
Guerrilla Marketing Principles, 280
Marketing on the World Wide Web, 300
The Marketing Mix, 301
Product, 302
Place, 304
Price, 305
Promotion, 305
Chapter Summary by Learning Objectives, 305
Discussion Questions, 306
Business Plan Pro, 307
Business Plan Exercises, 307
Beyond the Classroom ..., 309
9. E-Commerce and the Entrepreneur, 310
Benefits of Selling on the Web, 313
Factors to Consider before Launching into E-Commerce, 316
Twelve Myths of E-Commerce, 317
Myth 1. Setting up a Business on the Web Is Easy and Inexpensive, 317
Myth 2. If I Launch a Site, Customers Will Flock to It, 318
Myth 3. Making Money on the Web Is Easy, 319
Myth 4. Privacy Is Not an Important Issue on the Web, 319
Myth 5. The Most Important Part of Any E-Commerce Effort Is Technology, 320
Myth 6. “Strategy? I Don't Need a Strategy to Sell on the Web! Just Give Me a Web Site, and the Rest Will Take Care of Itself”, 321
Myth 7. On the Web, Customer Service Is Not As Important As It Is in a Traditional Retail Store, 322
Myth 8. Flash Makes a Web Site Better, 322
Myth 9. It's What's up Front That Counts, 323
Myth 10. E-Commerce Will Cause Brick-and-Mortar Retail Stores to Disappear, 324
Myth 11. The Greatest Opportunities for E-Commerce Lie in the Retail Sector, 325
Myth 12. It's Too Late to Get on the Web, 325
Strategies for E-Success, 327
Focus on a Niche in the Market, 328
Develop a Community, 329
Attract Visitors by Giving Away “Freebies”, 329
Make Creative Use of E-mail, but Avoid Becoming a Spammer, 330
Make Sure Your Web Site Says “Credibility”, 330
Consider Forming Strategic Alliances, 332
Make the Most of the Web's Global Reach, 332
Promote Your Web Site Online and Offline, 334
Develop an Effective Search Engine Optimization (SEO) Strategy, 334
Designing a Killer Web Site, 338
Understand Your Target Customer, 338
Give Customers What They Want, 338
Select an Intuitive Domain Name, 338
Make Your Web Site Easy to Navigate, 339
Create a Gift Idea Center, 341
Build Loyalty by Giving Online Customers a Reason to Return to Your Web Site, 341
Establish Hyperlinks with Other Businesses, Preferably Those Selling Products or Services That Complement Yours, 341
Include an E-mail Option and a Telephone Number in Your Site, 341
Give Shoppers the Ability to Track Their Orders Online, 342
Offer Web Shoppers a Special All Their Own, 342
Follow a Simple Design, 342
Create a Fast, Simple Checkout Process, 343
Assure Customers That Their Online Transactions Are Secure, 343
Post Shipping and Handling Charges up Front, 343
Confirm Transactions, 344
Keep Your Site Updated, 344
Test Your Site Often, 344
Consider Hiring a Professional to Design Your Site, 344
Tracking Web Results, 346
Software Solutions, 346
Gathering Performance Indicators, 347
Ensuring Web Privacy and Security, 349
Privacy, 349
Security, 349
Chapter Summary by Learning Objectives, 351
Discussion Questions, 353
Business Plan Pro, 353
Business Plan Exercises, 353
Beyond the Classroom ..., 354
10. Pricing Strategies, 355
Three Potent Forces: Image, Competition, and Value, 357
Price Conveys Image, 357
Competition and Pricing, 358
Focus on Value, 359
Pricing Strategies and Tactics, 363
Introducing a New Product, 363
Pricing Established Goods and Services, 365
Pricing Strategies and Methods for Retailers, 369
Markup, 369
Follow-the-Leader Pricing, 371
Below-Market Pricing, 371
Pricing Concepts for Manufacturers, 371
Direct Costing and Price Formulation, 372
Computing the Break-Even Selling Price, 373
Pricing Strategies and Methods for Service Firms, 376
The Impact of Credit on Pricing, 379
Credit Cards, 379
Installment Credit, 380
Trade Credit, 380
Chapter Summary by Learning Objective, 380
Discussion Questions, 381
Business Plan Pro, 381
Business Plan Exercises, 381
Beyond the Classroom ..., 382
11. Creating a Successful Financial Plan, 383
Basic Financial Statements, 384
The Balance Sheet, 384
The Income Statement, 386
The Statement of Cash Flows, 387
Creating Projected Financial Statements, 389
Pro Forma Statements for the Small Business, 389
Ratio Analysis, 397
Twelve Key Ratios, 398
Interpreting Business Ratios, 411
What Do All of These Numbers Mean?, 413
Break-Even Analysis, 417
Calculating the Break-Even Point, 417
Adding in a Profit, 418
Break-Even Point in Units, 418
Constructing a Break-Even Chart, 419
Using Break-Even Analysis, 420
Chapter Summary by Learning Objectives, 421
Discussion Questions, 422
Business Plan Pro, 422
Business Plan Exercises, 422
Beyond the Classroom ..., 423
12. Managing Cash Flow, 424
Cash Management, 426
Cash and Profits Are Not the Same, 429
The Cash Budget, 430
Preparing a Cash Budget, 430
Step 1. Determining an Adequate Minimum Cash Balance, 431
Step 2. Forecasting Sales, 432
Step 3. Forecasting Cash Receipts, 437
Step 4. Forecasting Cash Disbursements, 439
Step 5. Estimating the End-of-Month Cash Balance, 439
The “Big Three” of Cash Management, 441
Accounts Receivable, 441
Accounts Payable, 448
Inventory, 450
Avoiding the Cash Crunch, 452
Barter, 452
Trim Overhead Costs, 453
Start Selling Gift Cards, 456
Be on the Lookout for Employee Theft, 456
Keep Your Business Plan Current, 458
Invest Surplus Cash, 458
Conclusion, 459
Chapter Summary by Learning Objectives, 459
Discussion Questions, 460
Business Plan Pro, 460
Business Plan Exercises, 460
Beyond the Classroom ..., 461
Section IV. Putting the Business Plan to Work: Sources of Funds, 462
13. Sources of Financing: Debt and Equity, 462
Planning for Capital Needs, 464
Fixed Capital, 465
Working Capital, 465
Growth Capital, 465
Equity Capital versus Debt Capital, 466
Sources of Equity Financing, 467
Personal Savings, 467
Friends and Family Members, 467
”Angels”, 469
Partners, 472
Corporate Venture Capital, 472
Venture Capital Companies, 473
Public Stock Sale (“Going Public”), 478
Simplified Registrations and Exemptions, 483
The Nature of Debt Financing, 487
Commercial Banks, 489
Non-Bank Sources of Debt Capital, 492
Federally Sponsored Programs, 499
Economic Development Administration, 499
Department of Housing and Urban Development, 499
U.S. Department of Agriculture's Rural Business-Cooperative Service, 500
Small Business Innovation Research Program, 500
The Small Business Technology Transfer Program, 501
Small Business Administration, 502
SBA Loan Programs, 503
State and Local Loan Development Programs, 507
Internal Methods of Financing, 507
Factoring Accounts Receivable, 508
Leasing, 508
Credit Cards, 508
Chapter Summary by Learning Objectives, 509
Discussion Questions, 511
Business Plan Pro, 511
Business Plan Exercises, 511
Beyond the Classroom ..., 512
14. Choosing the Right Location and Layout, 514
Location: A Source of Competitive Advantage, 515
Choosing the Region, 515
Choosing the State, 518
Choosing the City, 522
Choosing the Site, 526
Location Criteria for Retail and Service Businesses, 526
Trade Area Size, 527
Retail Compatibility, 527
Degree of Competition, 528
The Index of Retail Saturation, 528
Reilly's Law of Retail Gravitation, 529
Transportation Network, 529
Physical, Racial, or Emotional Barriers, 529
Political Barriers, 530
Customer Traffic, 530
Adequate Parking, 530
Reputation, 530
Room for Expansion, 531
Visibility, 531
Location Options for Retail and Service Businesses, 532
Central Business District, 532
Neighborhood Locations, 533
Shopping Centers and Malls, 533
The Location Decision for Manufacturers, 538
Foreign Trade Zones, 539
Empowerment Zones, 540
Business Incubators, 540
Layout and Design Considerations, 541
Size, 541
Construction and External Appearance, 541
Entrances, 542
The Americans with Disabilities Act, 542
Signs, 543
Building Interiors, 543
Lighting and Scent, 546
Layout: Maximizing Revenues, Increasing Efficiency, or Reducing Costs, 547
Layout for Retailers, 548
Layout for Manufacturers, 553
Chapter Summary by Learning Objectives, 556
Business Plan Pro, 556
Business Plan Exercises, 557
Discussion Questions, 557
Beyond the Classroom ..., 558
15. Global Aspects of Entrepreneurship, 559
Why Go Global?, 562
Strategies for Going Global, 565
Creating a Presence on the Web, 565
Trade Intermediaries, 567
Joint Ventures, 572
Foreign Licensing, 573
International Franchising, 574
Countertrading and Bartering, 576
Exporting, 576
Establishing International Locations, 583
Importing and Outsourcing, 584
Barriers to International Trade, 586
Domestic Barriers, 586
International Barriers, 586
Political Barriers, 587
Business Barriers, 587
Cultural Barriers, 588
International Trade Agreements, 591
The World Trade Organization (WTO), 591
NAFTA, 592
Central America Free Trade Agreement (CAFTA), 592
Conclusion, 593
Chapter Summary by Learning Objectives, 594
Business Plan Pro, 594
Business Plan Exercises, 595
Discussion Questions, 595
Beyond the Classroom ..., 595
16. Building a New Venture Team and Planning for the Next Generation, 596
Leadership in the New Economy, 597
Building an Entrepreneurial Team: Hiring the Right Employees, 602
Avoiding Hiring Mistakes, 604
Creating an Organizational Culture That Encourages Employee Retention, 614
Company Culture, 614
Managing Growth and a Changing Culture, 617
Rewards and Compensation, 621
Management Succession: Passing the Torch of Leadership, 626
How to Develop a Management Succession Plan, 627
Exit Strategies, 634
Selling to Outsiders, 634
Selling to Insiders, 635
Chapter Summary by Learning Objectives, 636
Discussion Questions, 637
Business Plan Pro, 637
Business Plan Exercises, 637
Beyond the Classroom ..., 638
Appendix: Total Health and Fitness, 639
Executive Summary, 640
Vision, 641
Mission Statement, 641
Company Values, 642
Competitive Advantage, 642
Industry Profile and Overview, 642
Industry Analysis, 642
Regulatory Restrictions, 643
Significant Trends, 643
Growth Rate, 643
Key Success Factors in the Industry, 644
Outlook for the Future, 644
Business Strategy, 645
Goals and Objectives, 645
SWOT Analysis, 646
Competitive Strategy, 647
Competitor Analysis, 647
Marketing Strategy, 648
Market Analysis, 648
Location and Layout, 650
Description of Management Team, 651
Company Structure, 651
Financial Forecasts, 651
Loan Proposal, 652
Appendix A. Total Health and Fitness Layout, 653
Appendix B. Financial Forecasts, 655
Case 1 Noah's Arf: Coming to the Dogs, 661
Exercises, 661
Case 2 Timbuk2: When Less Is More, 663
Exercises, 663
Case 3 Cloudveil: Dreams for Sale, 664
Exercises, 665
Case 4 WindVest Motorcycle Products: Down the Windy Road, 666
Exercises, 667
Case 5 Danielson Designs: Sign Me Up!, 668
Exercises, 669
Case 6 School Zone Publishing: Educating the Competition, 670
Exercises, 671
Case 7 Eminence Style: Running Away with It, 672
Exercises, 672
Case 8 MTH Electric Trains: When Locomotives Collide, 673
Exercises, 674
Case 9 TerraCycle: Garbage In, Garbage Out, 675
Exercises, 676
Case 10 Technorati: “I've Been Googled!”, 677
Exercises, 678
Case 11 Handmark: Hold the Phone, 679
Exercises, 680
Endnotes, 681
Chapter 1, 681
Chapter 2, 683
Chapter 3, 685
Chapter 4, 686
Chapter 5, 687
Chapter 6, 687
Chapter 7, 688
Chapter 8, 689
Chapter 9, 691
Chapter 10, 694
Chapter 11, 695
Chapter 12, 695
Chapter 13, 697
Chapter 14, 700
Chapter 15, 701
Chapter 16, 702
Appendix, 704
Photo Credits, 705
Name Index, 707
Subject Index, 717

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