ebook entrep

Developing SuccessfulBusiness Ideas

Developing an

effectivebusiness

model

Recognizingopportunities

and generatingideas

Introduction toentrepreneurship

Feasibilityanalysis

Decision toBecome an

Entrepreneur

Industry andcompetitoranalysis

Writing abusiness plan

CHAPTER 2

CHAPTER 4

CHAPTER 5

CHAPTER 6

CHAPTER 3

CHAPTER 1

Developing Successful Business Ideas

The Entrepreneurial Process

Passion plusPassion plus

Assessing anew ventures

financialstrength and

viability

Gettingfinancing or

funding

Managing andGrowing an

Entrepreneurial Firm

Uniquemarketing

issues

The importanceof intellectual

property

Preparing forand evaluatingthe challenges

of growth

Strategiesfor firmgrowth

Franchising

Building a new-venture team

Preparing theproper ethical

and legalfoundation

Moving from an Ideato an Entrepreneurial Firm

CHAPTER 7

CHAPTER 8

CHAPTER 9

CHAPTER 10

CHAPTER 11

CHAPTER 12

CHAPTER 13

CHAPTER 14

CHAPTER 15

Where a great idea meets a great process

EntrepreneurshipSuccessfully Launching New Ventures

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EntrepreneurshipSuccessfully Launching New Ventures

FOURTH EDITION

Bruce R. BarringerOklahoma State University

R. Duane IrelandTexas A&M University

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Copyright 2012, 2010, 2008, 2006 by Pearson Education, Inc., publishing as Prentice Hall.All rights reserved. Manufactured in the United States of America. This publication is protectedby Copyright, and permission should be obtained from the publisher prior to any prohibitedreproduction, storage in a retrieval system, or transmission in any form or by any means,electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to usematerial from this work, please submit a written request to Pearson Education, Inc., PermissionsDepartment, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax yourrequest to 201-236-3290.

Library of Congress Cataloging-in-Publication Data

Barringer, Bruce R.Entrepreneurship : successfully launching new ventures / Bruce R. Barringer, R. Duane Ireland.4th ed.

p. cm.Includes bibliographical references and index.ISBN 978-0-13-255552-4

1. Entrepreneurship. 2. New business enterprises. I. Ireland, R. Duane. II. Title.

HB615.B374 2012658.1'1dc23

2011025010

ISBN 10: 0-13-255552-2ISBN 13: 978-0-13-255552-4

10 9 8 7 6 5 4 3 2 1

Many of the designations by manufacturers and sellers to distinguish their products are claimedas trademarks. Where those designations appear in this book, and the publisher was aware of atrademark claim, the designations have been printed in initial caps or all caps.

DEDICATION

To my wife Jan. Thanks for your never-ending encouragement andsupport. Without you, this book would have never been possible. Also,thanks to all the student entrepreneurs who contributed to the chapteropening features in the book. Your stories are both insightful and inspiring.

Bruce R. Barringer

To my family: I am so proud of each of you and so blessed by yourperseverance and never-ending love and support. I know thatsometimes it seems as though we lose ourselves in work to do andbills to pay and that its a ride, ride, ride without much cover. But youare always in my heart, a gift for which I remain deeply grateful.

R. Duane Ireland

Preface xvii

PART 1 Decision to Become an Entrepreneur 1CHAPTER 1 Introduction to Entrepreneurship 3

PART 2 Developing Successful Business Ideas 39CHAPTER 2 Recognizing Opportunities and Generating

Ideas 41

CHAPTER 3 Feasibility Analysis 77

CHAPTER 4 Writing a Business Plan 111

CHAPTER 5 Industry and Competitor Analysis 147

CHAPTER 6 Developing an Effective Business Model 179

PART 3 Moving from an Idea to anEntrepreneurial Firm 211CHAPTER 7 Preparing the Proper Ethical and Legal

Foundation 213

CHAPTER 8 Assessing a New Ventures Financial Strengthand Viability 253

CHAPTER 9 Building a New-Venture Team 289

CHAPTER 10 Getting Financing or Funding 319

PART 4 Managing and Growing anEntrepreneurial Firm 355CHAPTER 11 Unique Marketing Issues 357

CHAPTER 12 The Importance of Intellectual Property 393

CHAPTER 13 Preparing for and Evaluating the Challenges ofGrowth 431

CHAPTER 14 Strategies for Firm Growth 461

CHAPTER 15 Franchising 495

Glossary 535

Name Index 547

Company Index 551

Subject Index 557

BRIEF CONTENTS

vii

Preface xvii

PART 1 Decision to Become an Entrepreneur 1CHAPTER 1 Introduction to Entrepreneurship 3

Opening ProfileGIFTZIP.COM: The Classic Entrepreneurial Story 3

INTRODUCTION TO ENTREPRENEURSHIP 4

What Is Entrepreneurship? 6

Why Become an Entrepreneur? 7

Characteristics of Successful Entrepreneurs 9

WHAT WENT WRONG? How a Lack of Passion and Too Few CustomersCan Kill a Business 12

SAVVY ENTREPRENEURIAL FIRM: Angry Birds and Zeo 14

Common Myths About Entrepreneurs 15

Types of Start-Up Firms 17

CHANGING DEMOGRAPHICS OF ENTREPRENEURS 18

ENTREPRENEURSHIPS IMPORTANCE 21

Economic Impact of Entrepreneurial Firms 21

Entrepreneurial Firms Impact on Society 22

Entrepreneurial Firms Impact on Larger Firms 22

PARTNERING FOR SUCCESS: Working Together: How Biotech Firms andLarge Drug Companies Bring Pharmaceutical Products to Market 23

THE ENTREPRENEURIAL PROCESS 23

Decision to Become an Entrepreneur (Chapter 1) 24

Developing Successful Business Ideas (Chapters 26) 24

Moving from an Idea to an Entrepreneurial Firm (Chapters 710) 25

Managing and Growing an Entrepreneurial Firm (Chapters 1115) 26

Chapter Summary 26 | Key Terms 27 | Review Questions 27Application Questions 28 | You Be the VC 1.1 29 | You Be the VC 1.2 30 | CASE 1.1 31 | CASE 1.2 33

ENDNOTES 36

PART 2 Developing Successful Business Ideas 39CHAPTER 2 Recognizing Opportunities and Generating Ideas 41

Opening ProfileBENCHPREP: Solving a Problem by Merging a CustomerPain with an Emerging Technology 41

IDENTIFYING AND RECOGNIZING OPPORTUNITIES 43

Observing Trends 44

Solving a Problem 50

SAVVY ENTREPRENEURIAL FIRM: Xhale and Vestagen: Solving theSame Problem in Different Ways 52

FINDING GAPS IN THE MARKETPLACE 53

Personal Characteristics of the Entrepreneur 55

WHAT WENT WRONG? Clearly Canadian: What Happens When YouDont Deliver on Your Promises 56

TECHNIQUES FOR GENERATING IDEAS 59

Brainstorming 59

Focus Groups 60

CONTENTS

viii

Library and Internet Research 61

Other Techniques 61

PARTNERING FOR SUCCESS: Want Help Fine-Tuning a Business Idea?Find a Mentor 62

ENCOURAGING AND PROTECTING NEW IDEAS 62

Establishing a Focal Point for Ideas 63

Encouraging Creativity at the Firm Level 63

Protecting Ideas from Being Lost or Stolen 64


ENDNOTES 73

CHAPTER 3 Feasibility Analysis 77Opening ProfileMORPHOLOGY: The Value of Validating a Business Idea 77

FEASIBILITY ANALYSIS 79

WHAT WENT WRONG? eBay Drop-Off Stores: How Feasible WereThey? 80

Product/Service Feasibility Analysis 81

SAVVY ENTREPRENEURIAL FIRM: How Learning from CustomersCaused a Successful Firm to Make a 180-Degree Turn on thePositioning of a Product 87

Industry/Target Market Feasibility Analysis 88

Organizational Feasibility Analysis 91

PARTNERING FOR SUCCESS: Finding the Right Business Partner 92

Financial Feasibility Analysis 93

First Screen 95

Chapter Summary 96 | Key Terms 97 | Review Questions 97Application Questions 97 | You Be the VC 3.1 99 | You Be the VC3.2 99 | CASE 3.1 100 | CASE 3.2 102

ENDNOTES 105Appendix 3.1 106Appendix 3.2 108

CHAPTER 4 Writing a Business Plan 111Opening ProfileLINCOLN&LEXI: Proceeding on the Strength of a Winning Business Plan 111

THE BUSINESS PLAN 113

Reasons for Writing a Business Plan 113

Who Reads the Business PlanAnd What Are They Looking For? 115

Guidelines for Writing a Business Plan 116

OUTLINE OF THE BUSINESS PLAN 119

Exploring Each Section of the Plan 119

SAVVY ENTREPRENEURIAL FIRM: Know When to Hold Them, KnowWhen to Fold Them 120

PARTNERING FOR SUCCESS: Types of Partnerships That Are Common in Business Plans 125

WHAT WENT WRONG? What StyleHop Learned About the Valueof Planning the Hard Way 132

PRESENTING THE BUSINESS PLAN TO INVESTORS 133

The Oral Presentation of a Business Plan 133

Questions and Feedback to Expect from Investors 135

CONTENTS ix


ENDNOTES 145

CHAPTER 5 Industry and Competitor Analysis 147Opening ProfileELEMENT BARS: Occupying a Unique Position in a Difficult Industryand Thriving 147

INDUSTRY ANALYSIS 149

Studying Industry Trends 150

PARTNERING FOR SUCCESS: Three Ts That Are Important for BecomingActive in an Industry: Trade Associations, Trade Shows, and TradeJournals 151

The Five Forces Model 152

The Value of the Five Forces Model 158

Industry Types and the Opportunities They Offer 160

WHAT WENT WRONG? Eclipse Aviation: Sometimes an Industry CantBe Revitalized 162

COMPETITOR ANALYSIS 163

Identifying Competitors 164

SAVVY ENTREPRENEURIAL FIRM: Thriving in a Crowded Industry by Creating Meaningful Value and Differentiation from Competitors 165

Sources of Competitive Intelligence 166

Completing a Competitive Analysis Grid 167


ENDNOTES 177

CHAPTER 6 Developing an Effective Business Model 179Opening ProfileSTROOME: Working to Find a Viable Business Model for an Exciting New Web-Based Service for Editing and Remixing Video 179

BUSINESS MODELS 181

The Importance and Diversity of Business Models 182

SAVVY ENTREPRENEURIAL FIRM: Three Industries, Three BusinessModel Innovators 183

How Business Models Emerge 186

Potential Fatal Flaws of Business Models 187

COMPONENTS OF AN EFFECTIVE BUSINESS MODEL 189

Core Strategy 189

WHAT WENT WRONG? Joost: Why It's Important to Be Sensitive to AllAspects of Your Business Model 190

Strategic Resources 192

Partnership Network 194

PARTNERING FOR SUCCESS: 99designs: Making Partnering withFreelancers the Essence of Its Disruptive Business Model 196

Customer Interface 197


ENDNOTES 208

x CONTENTS

PART 3 Moving from an Idea to an Entrepreneurial Firm 211

CHAPTER 7 Preparing the Proper Ethical and Legal Foundation 213Opening ProfileXPLOSAFE: Proceeding on a Firm Legal Foundation 213

INITIAL ETHICAL AND LEGAL ISSUES FACING A NEW FIRM 215

Establishing a Strong Ethical Culture for a Firm 216

Choosing an Attorney for a Firm 220

Drafting a Founders Agreement 221

SAVVY ENTREPRENEURIAL FIRM: Vesting Ownership in Company Stock:A Sound Strategy for Start-Ups 222

Avoiding Legal Disputes 223

WHAT WENT WRONG? How Legal and Management Snafus Can Kill aBusiness 224

PARTNERING FOR SUCCESS: Patagonia and Build-A-Bear Workshop:Picking Trustworthy Partners 227

OBTAINING BUSINESS LICENSES AND PERMITS 228

Business Licenses 228

Business Permits 228

Choosing a Form of Business Organization 229

Sole Proprietorship 230

Partnerships 232

Corporations 233

Limited Liability Company 236


ENDNOTES 247Appendix 7.1 249

CHAPTER 8 Assessing a New Ventures Financial Strengthand Viability 253Opening ProfileKLYMIT: The Critical Importance of Cash Flow 253

INTRODUCTION TO FINANCIAL MANAGEMENT 255

Financial Objectives of a Firm 256

The Process of Financial Management 257

PARTNERING FOR SUCCESS: Organizing Buying Groups to Cut Costsand Maintain Competitiveness 258

FINANCIAL STATEMENTS AND FORECASTS 259

Historical Financial Statements 260

SAVVY ENTREPRENEURIAL FIRM:Know the Facts Behind the Numbers 262

Forecasts 267

PRO FORMA FINANCIAL STATEMENTS 271

WHAT WENT WRONG? Be Careful What You Wish For: How GrowingToo Quickly Overwhelmed One Companys Cash Flow 272

Pro Forma Income Statement 273

Pro Forma Balance Sheet 273

Pro Forma Statement of Cash Flows 275

Ratio Analysis 277

CONTENTS xi


ENDNOTES 286

CHAPTER 9 Building a New-Venture Team 289Opening ProfileSCRIPPED: Hitting the Ground Running 289

CREATING A NEW-VENTURE TEAM 291

The Founder or Founders 292

WHAT WENT WRONG? Devver: How Miscues in Regard to the Composition and Management of a New-Venture Team Can Kill a Start-up 293

Recruiting and Selecting Key Employees 296

SAVVY ENTREPRENEURIAL FIRM: Overcoming a Lack of BusinessExperience 297

The Roles of the Board of Directors 300

ROUNDING OUT THE TEAM: THE ROLE OF PROFESSIONALADVISERS 302

Board of Advisers 302

Lenders and Investors 303

PARTNERING FOR SUCCESS: Need Help with Product Development? Consider Establishing a Customer Advisory Board 304

Other Professionals 306


ENDNOTES 316

CHAPTER 10 Getting Financing or Funding 319Opening ProfileINDINERO: Raising Money Carefully and Deliberately 319

THE IMPORTANCE OF GETTING FINANCING OR FUNDING 321

Why Most New Ventures Need Funding 321

Sources of Personal Financing 322

Preparing to Raise Debt or Equity Financing 324

PARTNERING FOR SUCCESS: TechStars and Y Combinator: A NewBreed of Start-Up Incubators 328

SOURCES OF EQUITY FUNDING 329

Business Angels 329

Venture Capital 330

SAVVY ENTREPRENEURIAL FIRM: Open Angel Forum and AngelList:New Options for Getting in Front of Angel Investors 332

WHAT WENT WRONG? How One Start-Up Caught the Attention of VCs,Raised Money, and Still Failed 334

Initial Public Offering 335

SOURCES OF DEBT FINANCING 336

Commercial Banks 337

SBA Guaranteed Loans 338

Other Sources of Debt Financing 338

CREATIVE SOURCES OF FINANCING AND FUNDING 339

Leasing 339

SBIR and STTR Grant Programs 340

xii CONTENTS

Other Grant Programs 341

Strategic Partners 342


ENDNOTES 352

PART 4 Managing and Growing an Entrepreneurial Firm 355

CHAPTER 11 Unique Marketing Issues 357Opening ProfileTRUE YOU COSMETICS: Creating a New Brand in the Cosmetics Industry 357

SELECTING A MARKET AND ESTABLISHING A POSITION 359

Segmenting the Market 359

Selecting a Target Market 360

Establishing a Unique Position 361

BRANDING 362

WHAT WENT WRONG? How Failing to Establish a Clear Position in theMarketplace Forced an Adorable Robotic Dinosaur to Fall Silent 363

SAVVY ENTREPRENEURIAL FIRM: How Airbnb Used Blogs as aStepping-Stone to Generate Substantial Buzz About Its Service 366

THE 4PS OF MARKETING FOR NEW VENTURES 367

Product 367

Price 368

Promotion 370

PARTNERING FOR SUCCESS: How Landing a Partnership with anInfluential Web Site and Soliciting Feedback from Customers CanAccelerate a Start-Ups Visibility and Growth 376

Place (or Distribution) 377

SALES PROCESS AND RELATED ISSUES 378Chapter Summary 381 | Key Terms 382 | Review Questions 382Application Questions 382 | You Be the VC 11.1 384 | You Be the VC 11.2 384 | CASE 11.1 385 | CASE 11.2 388

ENDNOTES 390

CHAPTER 12 The Importance of Intellectual Property 393Opening ProfileMETROLEAP MEDIA, INC.: The Key Role of IntellectualProperty in Its Early and Ongoing Success 393

THE IMPORTANCE OF INTELLECTUAL PROPERTY 395

Determining What Intellectual Property to Legally Protect 396

WHAT WENT WRONG? Dippin Dots: Why the USPTO Invalidated ItsPatent and It Now Has Two New Competitors 398

The Four Key Forms of Intellectual Property 399

PATENTS 399

Types of Patents 401

Who Can Apply for a Patent? 402

The Process of Obtaining a Patent 403

SAVVY ENTREPRENEURIAL FIRM: Knowing the Ins and Outs of Filing a Provisional Patent Application 405

PARTNERING FOR SUCCESS: Individual Inventors and Large Firms:Partnering to Bring New Products to Market 407

Patent Infringement 407

CONTENTS xiii

TRADEMARKS 408

The Four Types of Trademarks 408

What Is Protected Under Trademark Law? 409

Exclusions from Trademark Protection 410

The Process of Obtaining a Trademark 411

COPYRIGHTS 412

What Is Protected by a Copyright? 413

Exclusions from Copyright Protection 414

How to Obtain a Copyright 414

Copyright Infringement 414

Copyrights and the Internet 416

TRADE SECRETS 416

What Qualifies for Trade Secret Protection? 417

Trade Secret Disputes 417

Trade Secret Protection Methods 418

CONDUCTING AN INTELLECTUAL PROPERTY AUDIT 419

Why Conduct an Intellectual Property Audit? 419

The Process of Conducting an Intellectual Property Audit 420


ENDNOTES 428

CHAPTER 13 Preparing for and Evaluating the Challenges ofGrowth 431

xiv CONTENTS

Opening ProfilePURBLU BEVERAGES, INC.: Growing in a Cautious, Yet Deliberate Manner 431

PREPARING FOR GROWTH 433

Appreciating the Nature of Business Growth 433

Staying Committed to a Core Strategy 435

PARTNERING FOR SUCCESS: How Threadless Averted Collapse by Bringing on a Partner with Back-End Operational Expertise 436

Planning for Growth 437

REASONS FOR GROWTH 438

SAVVY ENTREPRENEURIAL FIRM: Dogfish Head Brewery: How a Simple Initiative Can Contribute to a Start-Ups Early Growth 439

MANAGING GROWTH 441

Knowing and Managing the Stages of Growth 442

CHALLENGES OF GROWTH 444

Managerial Capacity 445

Day-to-Day Challenges of Growing a Firm 446

WHAT WENT WRONG? How Trying to Build Out Its Own Capabilities in a Key Area Contributed to the Failure of a Promising Firm 447


ENDNOTES 459

CHAPTER 14 Strategies for Firm Growth 461Opening ProfilePHONE HALO: Pivoting to Pursue New Strategies for Growth 461

INTERNAL GROWTH STRATEGIES 463

New Product Development 464

SAVVY ENTREPRENEURIAL FIRM: SwitchFlops: How to Create Built-InAvenues for Future Growth 465

Other Product-Related Strategies 467

International Expansion 470

EXTERNAL GROWTH STRATEGIES 472

Mergers and Acquisitions 474

WHAT WENT WRONG? Be Careful What You Wish For: HowStumbleUpons Founder Sold His Company to eBay and Two YearsLater Bought It Back Again 476

Licensing 477

Strategic Alliances and Joint Ventures 479

PARTNERING FOR SUCCESS: Three Steps to Alliance Success 480Chapter Summary 482 | Key Terms 483 | Review Questions 483Application Questions 484 | You Be the VC 14.1 485 | You Be the VC 14.2 486 | CASE 14.1 487 | CASE 14.2 489

ENDNOTES 492

CHAPTER 15 Franchising 495Opening ProfileCOLLEGE NANNIES & TUTORS: Franchising as a Form of Business Ownership and Growth 495

WHAT IS FRANCHISING AND HOW DOES IT WORK? 497

What Is Franchising? 497

How Does Franchising Work? 498

ESTABLISHING A FRANCHISE SYSTEM 501

When to Franchise 501

SAVVY ENTREPRENEURIAL FIRM: Wahoos Fish Taco: A Moderate-Growth Yet Highly Successful Franchise Organization 502

Steps to Franchising a Business 503

Selecting and Developing Effective Franchisees 504

Advantages and Disadvantages of Establishing a Franchise System 505

BUYING A FRANCHISE 507

WHAT WENT WRONG? Trouble at Curves International 508

Is Franchising Right for You? 509

The Cost of a Franchise 509

PARTNERING FOR SUCCESS: Using Co-Branding to Reduce Costs and Boost Sales 512

Finding a Franchise 513

Advantages and Disadvantages of Buying a Franchise 513

Steps in Purchasing a Franchise 514

Watch Out! Common Misconceptions About Franchising 516

LEGAL ASPECTS OF THE FRANCHISE RELATIONSHIP 517

Federal Rules and Regulations 518

State Rules and Regulations 520

CONTENTS xv

MORE ABOUT FRANCHISING 520

Franchise Ethics 520

International Franchising 521

The Future of Franchising 523


ENDNOTES 533

Glossary 535

Name Index 547

Company Index 551

Subject Index 557

xvi CONTENTS

INTRODUCTIONWe are truly excited about the fourth edition of our book and the promise it bringsto you. A key reason for this is that in many parts of the world, studying andpracticing entrepreneurship are very exciting and potentially highly rewardingactivities for entrepreneurs and the nations in which they launch their venturesand conduct their operations. In this sense then, across the world, even duringwhat are challenging economic conditions on a global basis, entrepreneurialventures are creating and bringing to market new products and services thatmake our lives easier, enhance our productivity at work, improve our health, andentertain us in new and fascinating ways. As you will see from reading this book,entrepreneurs are some of the most passionate and inspiring people youll evermeet. This is why successful firms have been launched in a variety of unexpectedplaces such as garages and an array of coffeehouses with wireless hot spots.Indeed, we never know the amount of success the person sitting next to usdrinking coffee might achieve after launching an entrepreneurial venture!

As you might anticipate, the passion an entrepreneur has about a businessidea, rather than fancy offices or other material things, is typically the numberone predictor of a new ventures success. Conversely, a lack of passion oftenleads to entrepreneurial failure.

The purpose of this book is to introduce you, our readers and students ofentrepreneurship, to the entrepreneurial process. We do this because evidencesuggests that the likelihood entrepreneurs will be successful increases whenthey thoroughly understand the parts of the entrepreneurial process as well ashow to effectively use those parts. The fact that in the United States aloneroughly one-third of new firms fail within the first two years while another20 percent fail within four years of their launching is the type of evidence wehave in mind. These failure rates show that while many people are motivatedto start new firms, motivation alone is not enough; indeed, motivation mustbe coupled with accurate and timely information, a solid business idea, an effec-tive business plan, and sound execution to maximize chances for success.In this book, we discuss many examples of entrepreneurial ventures and theactions separating successful firms from unsuccessful ones.

This book provides a thoughtful, practical guide to the process of successfullylaunching and growing an entrepreneurial venture. To do this, we provide youwith a thorough analysis of the entrepreneurial process. We model this processfor you in the first chapter and then use the models components to frame thebooks remaining parts. Because of its importance, we place a special emphasison the beginnings of the entrepreneurial processparticularly opportunity recog-nition and feasibility analysis. We do this because history shows that many entre-preneurial ventures struggle or fail not because the business owners werentcommitted or didnt work hard, but because the idea they were pushing to bringto the marketplace wasnt the foundation for a vibrant, successful business.

WHAT IS NEW TO THIS EDITION?We are committed to presenting you with the most up-to-date and applicabletreatment of the entrepreneurial process available in the marketplace. Whileserving your educational interests, we want to simultaneously increase thelikelihood that you will become excited by entrepreneurships promise as youread and study current experiences of entrepreneurs and their ventures as wellas the findings springing from academic research.

PREFACE

xvii

To verify currency, thoroughness, and reader interest, we have made severalimportant changes, as presented next, while preparing this fourth edition of our book:

Opening Profile Each chapter opens with a profile of an entrepreneurialventure that was started by one or more students while completing theiruniversity-level educational experience. All 15 Opening Profiles (one for eachchapter) are new to this edition. These descriptions of real-life entrepreneursdemonstrate that many of us have the ability to be entrepreneurs even whileenrolled as a college student. Each profile is specific to a chapters topic. Wecompleted extensive interviews with each student entrepreneur(s) to obtainthe required materials. While reading each profile, imagine yourself in the roleof one or more of the entrepreneurs who launched a venture as a student.

Student Entrepreneurs Insights At the side of each Opening Profile,we present entrepreneurs answers to a series of questions. In providing answersto these questions, the entrepreneurs who launched their venture while enrolledin school express their perspectives about various issues. An important benefitassociated with thinking about these responses is that those reading this booktoday have opportunities to see that they, too, may indeed have the potential tolaunch an entrepreneurial venture quicker than originally thought.

Updated Features Almost every one of the What Went Wrong? SavvyEntrepreneurial Firm, Partnering for Success, and You Be the VC featuresare new to this edition. The very few features we did retain have beenthoroughly updated. These features present you with contemporary issuesfacing todays entrepreneurial ventures. The You Be the VC features, forexample, allow readers to decide if the potential of a proposed entrepreneurialventure is sufficient to warrant funding.

New and Updated Cases Virtually all of the pairs of end-of-chapter casesare new to this edition. Those retained have been completely updated.Comprehensive in nature, we wrote these cases with the purpose of presentingreaders with opportunities to use chapter-specific concepts to identify problemsand propose solutions to situations facing actual entrepreneurial ventures.Questions appearing at the end of each case can be used to stimulate classroomdiscussions.

Updated References The amount of academic research examiningentrepreneurship topics continues to grow. To provide you, our readers, withthe most recent insights from the academic literature, we draw from newlypublished articles in important journals such as Strategic EntrepreneurshipJournal, Entrepreneurship Theory and Practice, Journal of Business Venturing,and Academy of Management Journal. Similarly, we relied on the most currentarticles appearing in business publications such as The Wall Street Journaland Entrepreneur among others, to present you with examples of the actionsbeing taken by todays entrepreneurial ventures.

HOW IS THIS BOOK ORGANIZED?To explain the entrepreneurial process and the way it typically unfolds, wedivide our book into four parts and 15 chapters. The four parts of the entrepre-neurial process model are:

Part 1: Decision to Become an Entrepreneur

Part 2: Developing Successful Business Ideas

Part 3: Moving from an Idea to an Entrepreneurial Firm

Part 4: Managing and Growing an Entrepreneurial Firm

xviii PREFACE

We believe that this sequence will make your journey toward understandingthe entrepreneurial process both enjoyable and productive. The model isshown above. The step in the model that corresponds to the chapter beingintroduced is highlighted to help you form a picture of where each chapter fitsin the entrepreneurial process.

WHAT ARE THE BOOKS BENEFICIAL FEATURES?To provide as thorough and meaningful an introduction to the entrepreneurialprocess as possible, we include several features, as follows, in each chapter ofthe book:

PREFACE xix

Developing SuccessfulBusiness Ideas

Developingan

effectivebusinessmodel

Recognizingopportunities

and generatingideas

Introduction toentrepreneurship

Feasibilityanalysis

Decision toBecome an

Entrepreneur

Industry andcompetitor

analysis

Writing abusiness plan

CHAPTER 2

CHAPTER 4

CHAPTER 5

CHAPTER 6

CHAPTER 3

CHAPTER 1

Developing Successful Business Ideas

Assessing anew ventures

financialstrength and

viability

Gettingfinancing or

funding

Managing andGrowing an

Entrepreneurial Firm

Uniquemarketing

issues

The importanceof intellectual

property

Preparing forand evaluatingthe challenges

of growth

Strategiesfor firmgrowth

Franchising

Building a new-venture team

Preparing theproper ethical

and legalfoundation

Moving from an Ideato an Entrepreneurial Firm

CHAPTER 7

CHAPTER 8

CHAPTER 9CHAPTER 10

CHAPTER 11

CHAPTER 12

CHAPTER 13

CHAPTER 14

CHAPTER 15

FEATURE INCLUDED INEACH CHAPTER BENEFIT

Learning objectives

`Help focus the readers attention on the major topics in the chapter

Chapter openingprofile

Introduces the chapters topic by focusing on acompany that was started while its founder orfounders were still in college, showing that you donot have to wait until you have years and years ofexperience to launch your entrepreneurial venture

Boldfaced key terms Draw the readers attention to key concepts

Examples andanecdotes

Liven up the text and provide descriptions of bothsuccessful and unsuccessful approaches to con-fronting the challenges discussed in each chapter

End-of-chaptersummary

Integrates the key topics and concepts included ineach chapter

20 review questions Allow readers to test their recall of chapter material

15 applicationquestions

Allow readers to apply what they learned from thechapter material

WHAT ARE SOME OTHER UNIQUEFEATURES OF THIS BOOK?While looking through your book, we think youll find several unique features,as presented next, that will work to your benefit as a student of entrepreneur-ship and the entrepreneurial process.

xx PREFACE

4 case discussionquestions

Provide opportunities to use concepts examinedfollowing each case in each chapter to evaluatesituations faced by entrepreneurs

2 case applicationquestions

Provide opportunities to use a chapters materialsfollowing each case for situations readers mightface as entrepreneurs

UNIQUE FEATURE OF THE BOOK EXPLANATIONFocus on opportunity recognitionand feasibility analysis

We open your book with strong chapters on opportunityrecognition and feasibility analysis. This is important,because opportunity recognition and feasibility analysis arekey activities that must be completed early when investigating a new business idea.

What Went Wrong? boxed feature Each chapter contains a boxed feature titled What WentWrong? We use these features to explain the missteps ofseemingly promising entrepreneurial firms. The purposeof these features, as you have no doubt already guessed,is to highlight the reality that things can go wrong whenthe fundamental concepts in the chapters arent carefullyfollowed.

Partnering for Success boxedfeature

Each chapter contains a boxed feature titled Partnering forSuccess. The ability to partner effectively with other firmsis becoming an increasingly important attribute forsuccessful entrepreneurial ventures.

Savvy Entrepreneurial Firm boxed feature

Each chapter contains a boxed feature titled SavvyEntrepreneurial Firm. These features illustrate the typesof business practices that facilitate the success of entrepre-neurial ventures. As such, these are practices you shouldstrongly consider putting into play when you are using theentrepreneurial process.

You Be the VC end-of-chapterfeatures

Two features, titled You Be the VC, are provided at the endof each chapter. These features present a pitch for fundingfrom an emerging entrepreneurial venture. The features aredesigned to stimulate classroom discussion by sparkingdebate on whether a particular venture should or shouldntreceive funding. All the firms featured are real-life entrepre-neurial start-ups. Thus, youll be talking about realnothypothetical or fictitiousentrepreneurial ventures.

A total of 30 original end-of-chapter cases

Two medium-length cases, written by the authors of thebook, are featured at the end of each chapter. The cases aredesigned to stimulate classroom discussion between youand your professor and with your follow students for thepurpose of illustrating the issues discussed in the chapter.

Student Resources

CourseSmart eTextbookCourseSmart eTextbooks were developed forstudents looking to save on required or recommended textbooks. Studentssimply select their eText by title or author and purchase immediate accessto the content for the duration of the course using any major credit card.With a CourseSmart eText, students can search for specific keywords orpage numbers, take notes online, print out reading assignments thatincorporate lecture notes, and bookmark important passages for laterreview. For more information or to purchase a CourseSmart eTextbook,visit www.coursesmart.com.

Companion Website: www.pearsonhighered.com/barringercontainsfree access to a student version of the PowerPoint package, chapterquizzes, and links to featured Web sites.

Business Feasibility Analysis ProThis wizard-based software is astep-by-step guide and an easy-to-use tool for completing a feasibilityanalysis of a business idea. The program allows instructors the flexibilityto assign each step in the feasibility analysis separately or to assign theentire feasibility analysis as a semester-long project. It can be packagedwith the textbook at a nominal cost.

FEEDBACKIf you have questions related to this book about entrepreneurship, pleasecontact our customer service department online at http://247.pearsoned.com.

PREFACE xxi

We are pleased to express our sincere appreciation to four groups of people forhelping bring both editions of our book to life.

Prentice Hall Professionals A number of individuals at Prentice Hallhave worked with us conscientiously and have fully supported our efforts tocreate a book that will work for those both studying and teaching theentrepreneurial process. From Prentice Hall, we want to extend our sincereappreciation to our senior acquisitions editor, Kim Norbuta; our director ofmarketing, Patrice Lumumba Jones; and our editorial project manager,Claudia Fernandes. Each individual provided us invaluable guidance andsupport, and we are grateful for their contribution.

Student Entrepreneurs We want to extend a heartfelt thank you to thestudent entrepreneurs who contributed to the opening features in our book.Our conversations with these individuals were both informative and inspiring.We enjoyed getting to know these bright young entrepreneurs, and wish themnothing but total success as they continue to build their ventures.

Academic Reviewers We want to thank our colleagues who participatedin reviewing individual chapters of the book while they were being written. Wegained keen insight from these individuals (each of whom teaches courses inentrepreneurship) and incorporated many of the suggestions of our reviewersinto the final version of the book.

Thank you to these professors who participated in reviews:

ACKNOWLEDGMENTS

Dr. Richard Bartlett, Columbus StateCommunity College

Greg Berezewski, Robert Morris College

Jeff Brice, Jr., Texas Southern University

Ralph Jagodka, Mt. San Antonio College

Christina Roeder, James Madison University

Aron S. Spencer, New Jersey Institute ofTechnology

Vincent Weaver, Greenville TechnicalCollege

Lisa Zidek, Florida Gulf Coast University

Academic Colleagues. We thank this large group of professors whosethoughts about entrepreneurial education have helped shape our bookscontents and presentation structure:

David C. Adams, Manhattanville College

Sol Ahiarah, SUNYBuffalo State College

Frederic Aiello, University of SouthernMaine

James J. Alling Sr., Augusta TechnicalCollege

Jeffrey Alstete, Iona College

Jeffrey Alves, Wilkes University

Joe Aniello, Francis Marion University

Mary Avery, Ripon College

Jay Azriel, Illinois State University

Richard Barker, Upper Iowa University

Jim Bell, Texas State University

Robert J. Berger, SUNY Potsdam

James Bloodgood, Kansas StateUniversity

Jenell Bramlage, University ofNorthwestern Ohio

Michael Brizek, South Carolina StateUniversity

Barb Brown, Southwestern CommunityCollege

James Burke, Loyola UniversityChicago

Lowell Busenitz, University of Oklahoma

John Butler, University of TexasAustin

xxii

ACKNOWLEDGMENTS xxiii

Jane Byrd, University of Mobile

Art Camburn, Buena Vista University

Carol Carter, Louisiana State University

Gaylen Chandler, Utah State University

James Chrisman, Mississippi StateUniversity

Delena Clark, Plattsburgh State University

Dee Cole, Middle Tennessee StateUniversity

Roy Cook, Fort Lewis College

Andrew Corbett, Babson College

Simone Cummings, Washington UniversitySchool of Medicine

Suzanne DAgnes, QueensboroughCommunity College

Douglas Dayhoff, Indiana University

Frank Demmler, Carnegie MellonUniversity

David Desplaces, University ofHartford/Barney

Vern Disney, University of SouthCarolinaSumter

Dale Eesley, University of Toledo

Alan Eisner, Pace University

Susan Everett, Clark State CommunityCollege

Henry Fernandez, North Carolina CentralUniversity

Charles Fishel, San Jose State University

Dana Fladhammer, Phoenix College

Brenda Flannery, Minnesota StateUniversity

John Friar, Northeastern University

Barbara Fuller, Winthrop University

Barry Gilmore, University of Memphis

Caroline Glackin, Delaware StateUniversity

Cheryl Gracie, Washtenaw CommunityCollege

Frederick Greene, Manhattan College

Lee Grubb, East Carolina University

Brad Handy, Springfield TechnicalCommunity College

Carnella Hardin, Glendale College

Ashley Harmon, Southeastern TechnicalCollege

Steve Harper, University of North Carolina at Wilmington

Alan Hauff, University of MissouriSt. Louis

Gordon Haym, Lyndon State College

Andrea Hershatter, Emory University

Richard Hilliard, Nichols College

Jo Hinton, Copiah Lincoln CommunityCollege

Dennis Hoagland, LDS Business College

Kathie Holland, University of Central Florida

Frank Hoy, University of Texas at El Paso

Jeffrey Jackson, Manhattanville College

Grant Jacobsen, Northern VirginiaCommunity CollegeWoodbridge

Susan Jensen, University of NebraskaKearney

Alec Johnson, University of St. Thomas

James M. Jones, University of theIncarnate Word, ERAU, Del Mar College

Jane Jones, Mountain Empire CommunityCollege

Joy Jones, Ohio Valley College

Tom Kaplan, Fairleigh DickinsonUniversityMadison

Elizabeth Kisenwether, Penn StateUniversity

James Klingler, Villanova University

Edward Kuljian, Saint Josephs University

James Lang, Virginia Tech University

Allon Lefever, Eastern MennoniteUniversity

Anita Leffel, University of TexasSanAntonio

Gary Levanti, Polytechnic UniversityLI Campus

Benyamin Lichtenstein, University ofMassachusetts, Boston

Bruce Lynskey, Vanderbilt University

Janice Mabry, Mississippi Gulf CoastCommunity College

Jeffrey Martin, University of Alabama

Greg McCann, Stetson University

Elizabeth McCrea, Pennsylvania StateGreat Valley

Brian McKenzie, California StateUniversityHayward

Chris McKinney, Vanderbilt University

Dale Meyer, University of Colorado

Steven C. Michael, University of IllinoisUrbanaChampaign

Angela Mitchell, Wilmington College

Bryant Mitchell, University of MarylandEastern Shore

Rob Mitchell, University Western Ontario

Patrick Murphy, DePaul University

Charlie Nagelschmidt, Champlain College

William Naumes, University of New Hamp-shire

Connie Nichols, Odessa College

Gary Nothnagle, Nazareth College

Edward OBrien, Scottsdale CommunityCollege

David Orozco, Florida State University

Haesun Park, Louisiana State University

John Pfaff, University of the Pacific

Joseph Picken, University of Texas at Dallas

Emmeline de Pillis, University of HawaiiHilo

Carol Reeves, University of Arkansas

John Richards, Brigham Young University

Christo Roberts, University of MinnesotaTwin Cities

George Roorbach, Lyndon State College

Michael Rubach, University of CentralArkansas

Janice Rustia, University of NebraskaMedical Center

James Saya, The College of Santa Fe

William Scheela, Bemidji State University

Gerry Scheffelmaier, Middle TennesseeState University

Gerald Segal, Florida Gulf Coast University

Cynthia Sheridan, St. Edwards University

Donald Shifter, Fontbonne University

C. L. J. Spencer, Kapiolani CommunityCollege

Joseph Stasio, Merrimack College

Deborah Streeter, Cornell University

Dara Szyliowicz, University of Denver

Clint B. Tankersley, Syracuse University

Craig Tunwall, Empire State College

Barry Van Hook, Arizona State University

George Vozikis, University of Tulsa

David Wilemon, Syracuse University

Charlene Williams, Brewton Parker College

Doug Wilson, University of Oregon

Diana Wong, Eastern Michigan University

xxiv ACKNOWLEDGMENTS

Finally, we want to express our appreciation to our home institutions(Oklahoma State University and Texas A&M University) for creating environ-ments in which ideas are encouraged and supported.

We wish each of youour readersall the best in your study of theentrepreneurial process. And, of course, we hope that each of you will be highlysuccessful entrepreneurs as you pursue the ideas youll develop at differentpoints in your careers.

xxv

Bruce R. Barringer Bruce R. Barringer holds the Johnny D. PopeEntrepreneurship Chair in the Department of Entrepreneurship at OklahomaState University. He earned his PhD from the University of Missouri and hisMBA from Iowa State University. His research interests include feasibilityanalysis, firm growth, corporate entrepreneurship, and the impact of interorga-nizational relationships on business organizations. Over the years, he hasworked with a number of technology-based incubators and student-ledentrepreneurship activities and clubs.

He serves on the editorial review board of Entrepreneurship Theory andPractice and Journal of Small Business Management. His work has beenpublished in Strategic Management Journal, Journal of Management, Journal ofBusiness Venturing, Journal of Small Business Management, Journal ofDevelopmental Entrepreneurship, and Quality Management Journal.

Bruces outside interests include running, trail biking, and swimming.

R. Duane Ireland R. Duane Ireland is a University DistinguishedProfessor and holds the Conn Chair in New Ventures Leadership in the MaysBusiness School, Texas A&M University. Previously, he served on the faculties atUniversity of Richmond, Baylor University, and Oklahoma State University. Hisresearch interests include strategic entrepreneurship, corporate entrepreneur-ship, strategic alliances, and effectively managing organizational resources.

Duanes research has been published in journals such as Academy ofManagement Journal, Academy of Management Review, Academy of ManagementExecutive, Strategic Management Journal, Administrative Science Quarterly,Journal of Management, Journal of Business Venturing, Entrepreneurship Theoryand Practice, and Strategic Entrepreneurship Journal among others. He is aco-author of both scholarly books and textbooks, including best-selling strategicmanagement texts. Along with Dr. Mike Morris (Syracuse University), Duaneserves as a co-editor for the Prentice Hall Entrepreneurship Series. These booksoffer in-depth treatments of specific entrepreneurship topics, such as BusinessPlans for Entrepreneurs (authored by Bruce Barringer).

Duane has served or is serving on the editorial review boards for a numberof journals, including AMJ, AMR, AME, JOM, JBV, and ETP. He just completeda term as Editor for AMJ. He has completed terms as an associate editor forAME and as a consulting editor for ETP and has served as a guest co-editor forspecial issues of a number of journals including AMR, AME, and SMJ. He is aFellow of the Academy of Management and a Fellow of the StrategicManagement Society. He is the current Vice President and Program Chair forthe Academy of Management. He is the recipient of both teaching and researchawards.

Duanes outside interests include running, reading, listening to a variety ofmusic, and playing with his grandson.

ABOUT THE AUTHORS

PA R T 1

Decision to Become an Entrepreneur

CHAPTER 1Introduction to Entrepreneurship

1

Founder:

SAM HOGGMBA, Michigan State University, 2008

Dialogue withSam Hogg

MY BIGGEST WORRY AS ANENTREPRENEURCash flow

WHAT I DO WHEN IM NOTWORKINGGet outside

MY FAVORITE SMARTPHONE APPYelp!

MY FIRST ENTREPENEURIALEXPERIENCESelling wholesale sporting goodson eBay

BEST PART OF BEING ASTUDENTYour classmates

FAVORITE PERSON I FOLLOWON TWITTERMy social media manager, Mallory.Shes hilarious and a great writer.

Getting Personal with GIFTZIP.COM

Trum

pie

Pho

togr

aphy

OPENING PROFILE

GIFTZIP.COMThe Classic Entrepreneurial StoryWeb: www.giftzip.comTwitter: GiftZipFacebook: GiftZip

It all started in a sustainable supply chain management class at Michigan StateUniversity. Sam Hogg, an MBA student, started thinking about the waste plastic giftcards create. The class challenged Hogg and his classmates to think about the path

that a product travels from inception to disposal. Gift cards are made, sold, redeemed,and are then immediately discardeda wasteful supply chain. In fact, according toPlenty, a leading sustainable periodical, about 75 million pounds of them go into land-fills every year.1

Largely as result of his experience in this class, in November 2008, roughly eightmonths after he earned his MBA, Hogg launched GiftZip.com, anonline gift card aggregation site. The site allows people to buyelectronic gift cards from popular retailers like Amazon.com, Target,Bass Pro Shops, and Pottery Barn. All are delivered in ways thataddress Hoggs sustainability concerns. For example, if you logonto GiftZip.com and click on the Pottery Barn icon, youre sent toPottery Barns gift card site. There, you can buy a gift card forbetween $25 and $250, and its delivered via e-mail or Facebook.You can also select from Pottery Barns choices for the design ofthe card, or upload your own design. The card will be electronicallydelivered to the recipient within hours, with a message saying itcame from you. The recipient can then take the e-mail or Facebookvoucher and redeem it on Pottery Barns Web site or in a PotteryBarn store.

Hogg gives his MBA program at Michigan State credit forhelping him formulate his business model. In particular, a marketingprofessor influenced his thinking about how to display the cards on hissite. The professor suggested that consumers are more likely to buya product when given multiple choices, even if those choices sit nextto competing brands. GiftZip.com is strictly a pass-through site,meaning that it doesnt process transactions. Instead, when youclick on a retailers emblem, youre passed through to the retailersWeb site where you place your order. GiftZip.com receives an affili-ate fee for purchases that originate from its site. GiftZip.coms value

LEARNING OBJECTIVESAfter studying this chapter you should beready to:

1. Explain entrepreneurship and discuss itsimportance.

2. Describe corporate entrepreneurshipand its use in established firms.

3. Discuss three main reasons peopledecide to become entrepreneurs.

4. Identify four main characteristics ofsuccessful entrepreneurs.

5. Explain the five common mythsregarding entrepreneurship.

6. Explain how entrepreneurial firms differfrom salary-substitute and lifestyle firms.

7. Discuss the changing demographics ofentrepreneurs in the United States.

8. Discuss the impact of entrepreneurialfirms on economies and societies.

9. Identify ways in which large firms benefitfrom the presence of smallerentrepreneurial firms.

10. Explain the entrepreneurial process.

CHAPTER 1Introduction to Entrepreneurship

3

4 PART 1 DECISION TO BECOME AN ENTREPRENEUR

added is that it provides a single place for people to search for gift cards. It also dividesgift cards into categories such as Apparel, Gourmet, Family, and Sporting Goods. Thisapproach allows searchers to see gift card choices that they might not have knownabout otherwise.

Signing up retailers was the biggest challenge Hogg confronted in makingGiftZip.com a success. He made cold calls and got hung up on repeatedly. A break-through in his thinking was that he didnt have to convince an entire company, likeAmazon.com, to participate on his site, just the person in the company that had the say soregarding gift cards. He found that once he got one company signed up in an industry, itwas much easier to get others. He almost gave up several times when the going wastough. He found that perseverance is a necessary quality for successful entrepreneurs.

Hogg feels he got a little lucky in that GiftZip.com had perfect timing. At the time helaunched, which was fall 2008, three things were happening in his favor: (1) the gift cardmarket was growing, (2) people were becoming increasingly comfortable buying online,and (3) it was becoming increasingly more affordable to launch an online business. All ofthese factors continue to evolve in GiftZip.coms favor.

Another thing Hogg feels has benefited his business is positive PR, which has beengenerated in part by the fact that he originated his business idea while in college.GiftZip.com has been recognized twice by Entrepreneur magazine, for example. It wasrecognized in March 2009 in an article titled The Gift Card Economy. The article high-lighted several companies in the gift card industry, and drew attention to the fact thatHogg came up with the idea for GiftZip.com while a student at Michigan StateUniversity. The other mention was in June 2009, when GiftZip.com was designated oneof Americans 10 Hot Startups to watch.

GiftZip.com appears to have substantial potential. The gift card industry is expectedto top $100 billion in 2012, and is continuing to gain momentum.2

In this first chapter of your book about the successful launching of an entrepre-neurial firm, we define entrepreneurship and discuss why some people decideto become entrepreneurs. We then look at successful entrepreneurs character-istics, the common myths surrounding entrepreneurship, the different types ofstart-up firms, and the changing demographics of entrepreneurs in the UnitedStates and in nations throughout the world. We then examine entrepreneur-ships importance, including the economic and social impact of new firms as wellas the importance of entrepreneurial firms to larger businesses. To close thischapter, we introduce you to the entrepreneurial process. This process, whichwe believe is the foundation for successfully launching a start-up firm, is theframework we use to present the books materials to you.

INTRODUCTION TO ENTREPRENEURSHIPThere is tremendous interest in entrepreneurship around the world. Althoughthis statement may seem bold, there is evidence supporting it, some of which isprovided by the Global Entrepreneurship Monitor (GEM). GEM, which is a jointresearch effort by Babson College, London Business School, and Universidaddel Desarrollo, Santiago, Chile, tracks entrepreneurship in 59 countries, including the United States. Of particular interest to GEM is early stage entre-preneurial activity, which consists of businesses that are just being startedand businesses that have been in existence for less than three and one-halfyears. The 2010 survey shows, in the countries analyzed, some 110 million

people between 18 and 64 years old just starting businesses, and another140 million running businesses they started less than three and one-half yearsago. Taken together, some 250 million people were involved in early entre-preneurial activity in the 59 countries included in the study. A sample of therate of early-stage entrepreneurial activity in countries included in the GEMstudy is shown in Table 1.1. While the highest rates of entrepreneurial start-upactivities occur in low-income countries, where good jobs are not plentiful, therates are also impressive in high-income countries like France (5.8 percent),United Kingdom (6.4 percent), and the United States (7.6 percent). What the7.6 percent means for the United States is that almost 1 out of every 13 Americanadults is actively engaged in starting a business or is the owner/manager of abusiness that is less than three and one-half years old.3

The GEM study also identifies whether its respondents are starting a newbusiness to take advantage of an attractive opportunity or because of necessityto earn an income. The majority of people in high-income countries are drawnto entrepreneurship to take advantage of attractive opportunities. The reverseis true of people in low-income countries, who tend to be drawn to entrepre-neurship primarily because of necessity (resulting from a lack of careerprospects).4

One criticism of entrepreneurship, which is often repeated in the press, isthat the majority of new businesses fail. It simply isnt true. The often usedstatistic that 9 out of 10 businesses fail in their first few years is an exaggera-tion. According to Brian Headd, an economist for the U.S. Small BusinessAdministration, after four years 50 percent of new businesses are still open,33 percent have failed, and 17 percent are closed but were considered to besuccessful by their owners.5 While overall these figures are heartening, the 33 percent of start-ups that fail show that a motivation to start and run a busi-ness isnt enough; it must be coupled with a solid business idea, good financialmanagement, and effective execution to maximize chances for success. In thisbook, well discuss many examples of entrepreneurial firms and the factorsseparating successful new ventures from unsuccessful ones.

CHAPTER 1 INTRODUCTION TO ENTREPRENEURSHIP 5

TABLE 1.1 RATES OF EARLY-STAGE ENTREPRENEURIALACTIVITY (AGES 18 TO 64)

CountryPercent of Population Starting

a New Business

Argentina 14.2%

Brazil 17.5%

China 14.4%

France 5.8%

Germany 4.2%

Peru 27.2%

Russia 3.9%

Turkey 8.6%

United Kingdom 6.4%

United States 7.6%

Source: Based on D. Kelley, N. Bosma, and J. E. Amoros, GlobalEntrepreneurship Monitor 2010 Global Report (Babson College andUniversidad del Desarrollo, 2010).

LEARNING OBJECTIVE

1. Explain entrepreneurshipand discuss itsimportance.


Many people see entrepreneurship as an attractive career path. Think aboutyour friends and others you know. In all probability, you are acquainted with atleast one or two people who want to become an entrepreneureither now or atsome point in the future. The number of books dealing with starting ones ownbusiness is another indication entrepreneurship is growing in popularity.Amazon.com, for example, currently lists over 35,600 books and other itemsdealing with entrepreneurship and over 62,700 books concerned with smallbusinesses.

What Is Entrepreneurship?

The word entrepreneur derives from the French words entre, meaning between,and prendre, meaning to take. The word was originally used to describe peoplewho take on the risk between buyers and sellers or who undertake a task suchas starting a new venture.6 Inventors and entrepreneurs differ from each other. Aninventor creates something new. An entrepreneur assembles and then integratesall the resources neededthe money, the people, the business model, the strategy,and the risk-bearing abilityto transform the invention into a viable business.7

Entrepreneurship is defined as the process by which individuals pursueopportunities without regard to resources they currently control.8 Others suchas venture capitalist Fred Wilson define it more simply, seeing entrepreneurshipas the art of turning an idea into a business. In essence, an entrepreneursbehavior finds him or her trying to identify opportunities and putting usefulideas into practice.9 The tasks called for by this behavior can be accomplishedby either an individual or a group and typically require creativity, drive, and awillingness to take risks. Sam Hogg, the cofounder of GiftZip.com, exemplifiesall these qualities. Hogg saw an opportunity to create a single place for people toshop for electronic gift cards, he risked his career by passing up alternatives towork on GiftZip.com full-time, and hes now working hard to put GiftZip.com ina position to deliver a creative and useful service to its customers.

In this book, we focus on entrepreneurship in the context of an entrepre-neur or team of entrepreneurs launching a new business. However, ongoingfirms can also behave entrepreneurially. Typically, established firms with anentrepreneurial emphasis are proactive, innovative, and risk-taking. Forexample, Apple Inc. is widely recognized as a firm in which entrepreneurialbehaviors are clearly evident. Steve Jobs is at the heart of Apples entrepre-neurial culture. With his ability to persuade and motivate others imaginations,Jobs continues to inspire Apples employees as they develop innovative productafter innovative product. To consider the penetration Apple has with some ofits innovations, think of how many of your friends own an iPhone, iPad, orMacintosh computer. Similarly, studying Facebook or Zyngas ability to growand succeed reveals a history of entrepreneurial behavior at multiple levelswithin the firms.10 In addition, many of the firms traded on the NASDAQ, suchas Intuit, Amazon.com, Google, and Research In Motion are commonly thoughtof as entrepreneurial firms. The NASDAQ is the largest U.S. electronic stockmarket, with over 2,850 companies listed on the exchange.

We want to note here that established firms with an orientation to actingentrepreneurially practice corporate entrepreneurship.11 All firms fall alonga conceptual continuum that ranges from highly conservative to highly entre-preneurial. The position of a firm on this continuum is referred to as itsentrepreneurial intensity.12 As we mentioned previously, entrepreneurialfirms are typically proactive innovators and are not averse to taking calculatedrisks. In contrast, conservative firms take a more wait and see posture, areless innovative, and are risk averse.

One of the most persuasive indications of entrepreneurships importance toan individual or to a firm is the degree of effort undertaken to behave in an

LEARNING OBJECTIVE

2. Describe corporateentrepreneurship and itsuse in established firms.


entrepreneurial manner. Firms with higher entrepreneurial intensity regularlylook for ways to cut bureaucracy. For example, Virgin Group, the large Britishconglomerate, works hard to keep its units small and instill in them an entre-preneurial spirit. Virgin is one of the most recognized brands in Britain and isinvolved in businesses as diverse as airlines and music. In the following quote,Sir Richard Branson, the founder and CEO of Virgin, describes how his com-pany operates in an entrepreneurial manner:

Convention . . . dictates that big is beautiful, but every time one of our ventures getstoo big we divide it up into smaller units. I go to the deputy managing director, thedeputy sales director, and the deputy marketing director and say, Congratulations.Youre now MD [managing director], sales director and marketing directorof a newcompany. Each time weve done this, the people involved havent had much morework to do, but necessarily they have a greater incentive to perform and a greaterzeal for their work. The results for us have been terrific. By the time we sold VirginMusic, we had as many as 50 subsidiary record companies, and not one of them hadmore than 60 employees.13

Why Become an Entrepreneur?

The three primary reasons that people become entrepreneurs and start theirown firms are to be their own boss, pursue their own ideas, and realize finan-cial rewards.

Be Their Own Boss The first of these reasonsbeing ones own bossisgiven most commonly. This doesnt mean, however, that entrepreneurs are dif-ficult to work with or that they have trouble accepting authority. Instead, manyentrepreneurs want to be their own boss because either they have had a long-time ambition to own their own firm or because they have become frustratedworking in traditional jobs. The type of frustration that some entrepreneurs feelworking in conventional jobs is exemplified by Wendy DeFeudis, the founder ofVeryWendy, a company that makes customized social invitations. Commentingon how her experiences working for herself have been more satisfying thanworking for a large firm, DeFeudis remarked:

I always wanted to be my own boss. I felt confined by the corporate structure. I found it frustrating and a complete waste of timea waste to have to sell myideas to multiple people and attend all kinds of internal meetings before movingforward with a concept.14

Sometimes the desire to be their own boss results from a realization thatthe only way theyll achieve an important personal or professional goal is tostart their own business. Christopher Jones, David LaBat, and Mary McGrathstarted a business for this reason. The three, who are educational psycholo-gists, had secure jobs at a public school in the Santa Clarita Valley, north ofLos Angeles. Over time, they felt inhibited by the limited range of services theywere able to provide students in a school setting, so they left their jobs to startDynamic Interventions, a more full-service educational psychology and coun-seling center. Recalling why it was necessary for him and his colleagues toleave their jobs to become their own bosses Jones said:

The idea came from some general frustrations with not being able to practice thebreadth of service that [we wanted to]. And instead of going to work and beingangry about it for the next 30 years, we decided to do something about it. WithDynamic Interventions, our service doesnt stop at the end of the school day. Wecan go more in-depth and be more beneficial to the whole family.15

LEARNING OBJECTIVE

3. Discuss three mainreasons people decide tobecome entrepreneurs.


Pursue Their Own Ideas The second reason people start their ownfirms is to pursue their own ideas.16 Some people are naturally alert, andwhen they recognize ideas for new products or services, they have a desire tosee those ideas realized. Corporate entrepreneurs who innovate within thecontext of an existing firm typically have a mechanism for their ideas tobecome known. Established firms, however, often resist innovation. Whenthis happens, employees are left with good ideas that go unfulfilled.17

Because of their passion and commitment, some employees choose to leavethe firm employing them in order to start their own business as the means todevelop their own ideas.

This chain of events can take place in noncorporate settings, too. For exam-ple, some people, through a hobby, leisure activity, or just everyday life, recog-nize the need for a product or service that is not available in the marketplace.If the idea is viable enough to support a business, they commit tremendoustime and energy to convert the idea into a part-time or full-time firm. InChapters 2 and 3, we focus on how entrepreneurs spot ideas and determine iftheir ideas represent viable business opportunities.

An example of a person who left a job to pursue an idea is Kevin Mann,the founder of Graphic.ly, a social digital distribution platform for comicbook publishers and fans. Mann became discouraged when he couldnt finda comic book in which he was interested. He even took a 100 mile train rideto search for it in a neighboring city. His frustration boiled over on the trainride home:

I kept thinking that there had to be a better way of buying comics; and then itdawned on me. That morning I had purchased a movie from iTunes, which I waswatching right there on the train. Why shouldnt buying comics be just as easy?Why did I have to travel over a 100 miles and waste the better part of day, all fornothing? I realized I had two options. I could quit buying comics or I could quit myjob and build the iTunes of comics.18

This revelation led to the launch of Graphic.ly in the fall of 2009. Today,Graphic.ly is both a robust platform for the sale of digital comics and a social

Steve Jobs is perhapsAmericas best-knownentrepreneur. Hecofounded Apple Inc. in1976, and has since builtthe company into apremier entrepreneurialfirm. Apples lastestinnovations include thewidely popular iPhone,iPad, iPod, and ApplesApp Store and its iTunesmusic store.

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network for people who enjoy discussing the comics theyre reading. Followingup on the story about the train ride, Mann went on to say:

Thats how Graphic.ly started and my enthusiasm for comics has now transferredto a business I love being part of. Every single day I am excited to go to work. I getto create and innovate in a sector I love. Ultimately, Ill solve a problem that wasruining something very special to me.19

Pursue Financial Rewards Finally, people start their own firms to pur-sue financial rewards. This motivation, however, is typically secondary to thefirst two and often fails to live up to its hype. The average entrepreneur doesnot make more money than someone with a similar amount of responsibility ina traditional job. The financial lure of entrepreneurship is its upside potential.People such as Jeff Bezos of Amazon.com, Mark Zuckerberg of Facebook, andLarry Page and Sergey Brin of Google made hundreds of millions of dollarsbuilding their firms. Money is also a unifier. Making a profit and increasing thevalue of a company is a solidifying goal that people can rally around. Butmoney is rarely the primary motivation behind the launch of an entrepreneur-ial firm. Some entrepreneurs even report that the financial rewards associatedwith entrepreneurship can be bittersweet if they are accompanied by losingcontrol of their firm. For example, Sir Richard Branson, after selling VirginRecords, wrote, I remember walking down the street [after the sale wascompleted]. I was crying. Tears . . . [were] streaming down my face. And thereI was holding a check for a billion dollars. . . . If youd have seen me, you wouldhave thought I was loony. A billion dollars.20 For Branson, it wasnt just themoneyit was the thrill of building the business and of seeing the success ofhis initial idea.

Characteristics of Successful Entrepreneurs

Although many behaviors have been ascribed to entrepreneurs, several arecommon to those who are successful. Those in new ventures and those who arealready part of an entrepreneurial firm share these qualities, which are shownin Figure 1.1 and described in the following section.

Passion for the Business The number one characteristic shared by suc-cessful entrepreneurs is a passion for their business, whether it is in thecontext of a new firm or an existing business. This passion typically stemsfrom the entrepreneurs belief that the business will positively influence peo-ples lives. This is the case with PatientsLikeMe, the subject of Case 1.2, whichis a company that allows people with life-changing diseases to converse withone another, share their experiences, and learn techniques from one anotherthat help them better cope with their diseases. Making a difference in peopleslives is also the primary motivator behind many social enterprises, which areoften started by people who set aside promising careers to pursue a socialgoal. This was the case with John Wood, who founded Room to Read, and isthe author of the book Leaving Microsoft to Change the World. Woods deeppassion to help children in the developing world caused him to start cashingin small amounts of Microsoft stock to buy books and build schools, evenbefore he left the company. In excerpts from a 2007 interview published byForbes magazine, Wood said:

During my travels, I met so many children in the poorest parts of the world, lackingaccess to school, books, and libraries, that I began cashing in small amounts ofstocks to help them. Two hundred shares of Microsoft stock was enough to build anentire school in rural Napal.21

LEARNING OBJECTIVE

4. Identify four maincharacteristics ofsuccessful entrepreneurs.

Wood eventually left Microsoft to work on Room to Read full-time. As of May 2011,Room to Read had built over 1,440 schools and distributed over 9.4 million booksin developing parts of the world.

Passion is particularly important for both for-profit and not-for-profitentrepreneurial organizations because, although rewarding, the process ofstarting a firm or building a social enterprise is demanding. There are fiveprimary reasons passion is important, as reflected in Table 1.2. Each of thesereasons reflects a personal attribute that passion engenders. Removing justone of these qualities would make it much more difficult to launch and sustaina successful entrepreneurial organization.


Passion forthe business

Successful entrepreneur

Tenacity despitefailure

Execution intelligence

Product/customerfocus

FIGURE 1.1Four PrimaryCharacteristicsof SuccessfulEntrepreneurs

TABLE 1.2 FIVE PRIMARY REASONS PASSION IS IMPORTANT FOR THE LAUNCH OF A SUCCESSFULENTREPRENEURIAL ORGANIZATION

Reason Passion Is Important Explanation

1. The ability to learn and iterate Founders dont have all the answers. It takes passion and drive to solicit feedback,make necessary changes, and move forward. The changes wont always be obvious.Passion makes the search for the right answers invigorating and fun.

2. A willingness to work hard for an extended period of time

Commonly, entrepreneurs work longer hours than people with traditional jobs. Youcan only do that, on a sustained basis, if youre passionate about what youre doing.

3. Ability to overcome setbacks and nos

Its rare that an entrepreneur doesnt experience setbacks and hear many nos frompotential customers, investors, and others while building an entrepreneurial businessor social enterprise. The energy to continue comes from passion for an idea.

4. The ability to listen to feedback on the limitations of yourorganization and yourself

Youll meet plenty of people along the waysome with good intentions and somewithoutwho will tell you how to improve your organization and how to improveyourself. You have to be willing to listen to the people with good intentions and makechanges if it helps. You have to be able to brush aside feedback from people withbad intentions without letting them get you down.

5. Perseverance and persistence when the going gets tough

Perseverance and persistence come from passion. As an entrepreneur, youll havedown days. Building an entrepreneurial organization is fraught with challenges.Passion is what provides an entrepreneur the motivation to get through tough times.

Source: Adapted from A. Sack, Why Is Passion so Important to a Startup, A Sack of Seattle blog, http://asack.typepad.com/a_sack_of_seattle/2010/03/why-is-passion-so-important-to-a-startup.html (accessed May 22, 2011, originally posted on March 16, 2010).


A note of caution is in order here: While entrepreneurs should havepassion, they should not wear rose-colored glasses. It would be a mistake tobelieve that all one needs is passion and anything is possible. It is important tobe enthusiastic about a business idea, but it is also important to understandits potential flaws and risks. In addition, entrepreneurs should understandthat the most effective business ideas take hold when their passion isconsistent with their skills and is in an area that represents a legitimatebusiness opportunity.

To illustrate the importance of passion, as well as other factors that arecritical in determining a firms success or failure, we include a boxed featuretitled What Went Wrong? in each chapter. The feature for this chapter showshow YouCastr, an online platform that people used to provide live commentaryfor sporting events, ultimately failed in part because its founders were not ableto remain passionate about their business idea.

Product/Customer Focus A second defining characteristic of successfulentrepreneurs is a product/customer focus. This quality is exemplified bySteven Jobs, the cofounder of Apple Inc., who wrote, The computer is the mostremarkable tool weve ever built . . . but the most important thing is to get themin the hands of as many people as possible.22 This sentiment underscores anunderstanding of the two most important elements in any businessproductsand customers. While its important to think about management, marketing,finance, and the like, none of those functions makes any difference if a firmdoes not have good products with the capability to satisfy customers.

Its also important to focus on the right things. For example, JibJab is adigital entertainment company, which was founded in 1999 by Evan and GreggSpiridellis. It gained attention during the 2004 presidential election when itsanimated video of George W. Bush and John Kerry singing This Land Is YourLand became a hit. (Its been viewed on YouTube over 2.1 million times.)The goal of the company, from the start, was to build a scalable platform forcreating and distributing digital entertainment products. A problem thefounders had was they were really good animated content creators, so wouldget offers to do side jobs while working on their core business. They learnedthey needed to be disciplined and quit doing this because it took time awayfrom their real passion:

You need to be disciplined. You need to turn down jobs. You need to say, I couldreally use that $50,000 gig, but if we do that, were going to be locked down forthree months and were not going to be able to do these other projects. So it doesrequire discipline and passing on opportunities. Knowing what to pass on is areally important skill we developed.23

A product/customer focus also involves the diligence to spot productopportunities and to see them through to completion. The idea for the AppleMacintosh, for example, originated in the early 1980s when Steven Jobs andseveral other Apple employees took a tour of a Xerox research facility. They wereastounded to see computers that displayed graphical icons and pull-downmenus. The computers also allowed users to navigate desktops using a small,wheeled device called a mouse. Jobs decided to use these innovations to createthe Macintosh, the first user-friendly computer. Throughout the two and one-halfyears the Macintosh team developed this new product, it maintained an intenseproduct/customer focus, creating a high-quality computer that is easy to learn, isfun to use, and meets the needs of a wide audience of potential users.24

Tenacity Despite Failure Because entrepreneurs are typically tryingsomething new, the failure rate associated with their efforts is naturally high.In addition, the process of developing a new business is somewhat similar to what


WHAT WENT WRONG?

How a Lack of Passion and Too Few Customers Can Kill a Business

The idea for YouCastr was hatched in mid-2006,during a road trip involving Ariel Diaz, Jay Peak, andJeff Dwyer. Throughout the ride, the friends bouncedbusiness ideas off each other. One idea stuck. Howabout creating a platform that people could use toprovide live commentary for sporting events? It would befun, the friends thought, for people to watch a sportingevent, like a high school football game, and stream theirown live commentary across the Web.

Diaz shared the idea with Jeff Hebert, a friend, andwithin a couple of months he, Hebert, Peak, and Dwyerstarted building an alpha version of the site. Initially, eachmember of the group kept his day job, working on theidea, which they dubbed YouCastr, on nights and week-ends. Eventually, each quit his job, and the four spent thenext three years raising money, opening an office, hiringpeople, getting YouCastr up and running and pivoting thebusiness. (A pivot is when a business changes course.)Often, start-ups iterate or pivot based on user feedback.YouCastr started as a virtual sports bar where peoplecould chime in audio commentary on televised sportingevents. That approach didnt stick. It then pivoted tofocusing on enabling people to provide commentary onsporting events that werent televised, like high schoolfootball games. Its final pivot was to expand beyondsports, mainly by de-emphasizing the sports branding onits Web site, by adding a few features geared moretoward video producers than ordinary sports enthusiasts.All this time, YouCastrs revenue model called for the firmto take a commission on the sales its site generated.Each person who used the site to provide live commen-tary of a sporting event would sign up listeners whowould pay a small fee to listen to the event.

Ultimately, YouCastr didnt work. In a blog post aboutYouCastrs failure, Diaz provided five reasons thatYouCastr failed, three of which involved either a lack ofpassion or an absence of customers.

First, the company ran out of money. Despite operatingin a very lean manner, toward the end there simply wasntenough money to continue operating. Second, the marketwas not there. The underlying assumption of YouCastrsbusiness model is that people would pay for audio andvideo commentary of sporting events that werent covered

on radio or TV. As it turned out, not enough people wantedit. YouCastr did find some narrow markets where peoplewould pay, such as high school sports, some boxingmatches, and some mixed martial arts events. But thesemarkets werent large enough to build a sustainablecompany. Third, the team was ready to move on. The fourcofounders started YouCastr because they wanted to dosomething entrepreneurialnot because they lovedbroadcasting or loved sports. They werent the core usersof their own product. This made it hard to sustain effortwhen things got tough. Fourth, they saw no light at theend of the tunnel. Theyd guessed wrong about peopleswillingness to pay to listen to live broadcasts of sportingevents, and didnt see any prospects that would change.Finally, three and a half years after that car ride, it wastime to call it quits. Although the founders consideredthemselves to be survivors, they made the tough decisionto shut things down and move on.

Questions for Critical Thinking1. Why do you think Ariel Diaz and his cofounders

didnt realize that they were starting a business thatthey werent really passionate about? Should thathave been a warning sign to them? Describe what youbelieve are the keys to ensuring that a person is trulypassionate about a business idea before movingforward with the idea.

2. Why is passion such a critical component ofentrepreneurial success? If people are willing to workhard and dedicate themselves, do you think they canbuild a successful business without being passionateabout their business idea?

3. How could YouCastrs cofounders have betteranticipated that people would be reluctant to pay tolisten to or watch sporting events that werent beingcovered on radio or TV?

4. Do you think YouCastr could have been saved? If so, how?

Source: A. Diaz, YouCastrA Post-Mortem, The Ambitious LifeBlog, http://theambitiouslife.com/youcastr-a-post-mortem, June 3,2010 (accessed February 28, 2011).

a scientist experiences in the laboratory. A chemist, for example, typically has totry multiple combinations of chemicals before finding an optimal combinationthat can accomplish a certain objective. In a similar fashion, developing a newbusiness idea may require a certain degree of experimentation before a success isattained. Setbacks and failures inevitably occur during this process. The litmustest for entrepreneurs is their ability to persevere through setbacks and failures.

An example of the degree of tenacity it sometimes takes to launch a suc-cessful firm is provided by Kyle Smitley, the founder of barley & birch, a busi-ness that sells organic childrens clothing. Smitley launched barley & birch inJanuary 2009, at age 22, with the goal of giving parents and children the mostenvironmentally friendly clothing possible. Despite having flawless credit, shewas turned down at every bank she approached. She finally received a $10,000loan from ACCION, a microfinance organization. She next embarked on amajor marketing campaign, sending 500 hand-signed letters with literatureabout her products to environmentally friendly stores. That effort fell flat. Shefinally reached out to mom bloggers, who spread the word about her company,and motivated their readers to start asking about barley & birch products atchildrens clothing stores. By the end of 2009, Smitleys products were in 30stores. 25 Only sheer tenacity and will prevented Smitley from giving up beforeshe reached this critical milestone.

Two additional examples of tenacity are provided in the boxed feature titledSavvy Entrepreneurial Firm. In each chapter, this feature will provide anillustration of the exemplary behavior of one or more entrepreneurial firms orwill provide an example of a tool or technique that well-managed entrepreneurialfirms use to improve their performance.

Execution Intelligence The ability to fashion a solid idea into a viablebusiness is a key characteristic of successful entrepreneurs. Commonly, thisability is thought of as execution intelligence.26 In many cases, executionintelligence is the factor that determines whether a start-up is successful orfails. An ancient Chinese saying warns, To open a business is very easy; tokeep it open is very difficult.

The ability to effectively execute a business idea means developing a busi-ness model, putting together a new venture team, raising money, establishingpartnerships, managing finances, leading and motivating employees, and soon. It also demands the ability to translate thought, creativity, and imaginationinto action and measurable results. As Jeff Bezos, the founder of Amazon.comonce said, Ideas are easy. Its execution thats hard.27 For many entrepre-neurs, the hardest time is shortly after they launch their firm. This reality wasexpressed by Jodi Gallaer, the founder of a lingerie company, who said, Themost challenging part of my job is doing everything for the first time.28

To illustrate solid execution, lets look at Starbucks. Although Starbucks isnot growing as fast and profitably as it once did, it is still a remarkablesuccess story. The business idea of Howard Schultz, the entrepreneur whopurchased Starbucks in 1987, was his recognition of the fact that mostAmericans didnt have a place to enjoy coffee in a comfortable, quiet setting.Seeing a great opportunity to satisfy customers needs, Schultz attacked themarketplace aggressively to make Starbucks the industry leader and toestablish a national brand. First, he hired a seasoned management team,constructed a world-class roasting facility to supply his outlets with premiumcoffee beans, and focused on building an effective organizational infrastruc-ture. Then Schultz recruited a management information systems expert fromMcDonalds to design a point-of-sale system capable of tracking consumerpurchases across 300 outlets. This decision was crucial to the firms ability tosustain rapid growth over the next several years. Starbucks succeededbecause Howard Schultz knew how to execute a busine

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