Chapter 3 Study Guide

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6 Apr 2011
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Chapter 3: Understanding Entrepreneurship,
Small Business, and New Venture Creation
Small Business: An owner managed business with less than 100 employees.
New Venture/Firm: a recently formed commercial organization that provides goods and/or
services for sale.
Entrepreneurship: the process of identifying an opportunity in the marketplace and accessing
the resources needed to capitalize on it.
Entrepreneurs: people who recognize and seize opportunities.
Private Sector: the part of the economy that is made up of companies and organizations that are
not owned or controlled by the government.
THE ENTREPRENEURIAL PROCESS
The Entrepreneur:
Important is not who the person is but what the person does
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Characteristics: Commitment, Determination, Integrity and Reliability, need to achieve, risk
taker, seeking feedback, high energy level, vision, perceptiveness, intelligence, creativity
Personal Characteristics often have less impact on a persons actions that the situation a person
is in
Identifying Opportunities:
Idea Generation~ generating ideas involves abandoning traditional assumptions about how
things work and how they ought to be. The majority of ideas generate from work in everyday life.
Screening~ Entrepreneurs often generate many ideas, and screening them is a key part of the
Entrepreneurial process. The faster you can weed out “dead-end” venture ideas, the more time
and effort you can devote to the ones that remain.
The Idea Creates or Adds Value for the Customer~ a product or service that creates or adds
value for the customer is one that solves a significant problem, or meets a significant need in new
or different ways.
The Idea Provides a Competitive Advantage that Can Be Sustained~ a competitive advantage
exists when potential customers see the product or service as better than that of the competitors.
Sustaining a competitive advantage involves maintaining it in the face of competitors’ actions or
changes in the industry. All other things being equal, the longer markets are in a state of flux, the
greater the likelihood of being able to sustain a competitive advantage. The absence of a
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competitive advantage or developing a competitive advantage that is not sustainable constitutes
two fatal flaws of many new ventures.
The Idea is Marketable and Financially Viable~ while it is important to determine whether
there are enough customers who are willing to buy the product or service, it is also important to
determine whether sales will lead to profits.
Sales Forecast: an estimate of how much of a product or service will be purchased by
prospective customers over a specific period.
The Idea has Low Exit Costs: Exit costs are low if a venture can be shut down without a
significant loss of time, money, or reputation.
Franchise: an arrangement in which a buyer (franchisee) purchases the right to sell the product
or service to the seller (franchiser).
Accessing Resources:
Business Plan: a document that describes the entrepreneurs proposed business venture; explains
why it is an opportunity; and outlines its marketing plan, its operational and financial details, and
its managers’ skills and abilities.
1)Cover Page: name of venture and owners, date prepared, contact person, his/her address,
telephone and fax numbers, email address, and the name of the organization the plan is
being presented to. The easier it is for the reader to contact the entrepreneur, the more
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