This OpenStax ancillary resource is © Rice University under a CC BY 4.0 International license; it may be reproduced or modified but
must be attributed to OpenStax, Rice University and any changes must be noted.
CHAPTER FIVE
Entrepreneurship: Starting and Managing
Your Own Business
CHAPTER SUMMARY
Entrepreneurship involves taking the risk of starting and managing a business to make a
profit. People become entrepreneurs for various reasons; though successful
entrepreneurs have a high need for achievement, good interpersonal and
communication skills, and sound managerial skills and technological knowledge.
Companies started by entrepreneurs and small-business owners make significant
contributions to the U.S. and global economies. The desire to be one’s own boss cuts
across all age, gender, and ethnic lines.
The Small Business Administration (SBA) is the main federal agency serving small
businesses, providing guarantees of private lender loans and management assistance
services. When starting a new business, the small business owner identifies an unfilled
market need, selects a form of business organization, develops a formal business plan,
and obtains both debt and equity financing to get started. Trends in entrepreneurship
and small business management include changes in demographics, society, and
technology.
LEARNING OUTCOMES
1. Why do people become entrepreneurs, and what are the different types of
entrepreneurs?
Entrepreneurs are innovators who take the risk of starting and managing a
business to make a profit. Most want to develop a company that will grow into a
major corporation. People become entrepreneurs for four main reasons: the
opportunity for profit, independence, personal satisfaction, and lifestyle. Classic
entrepreneurs may be micropreneurs; who plan to keep their businesses small,
or growth-oriented entrepreneurs. Multipreneurs start multiple companies,
while intrapreneurs work within large corporations.
, 2. Which characteristics do successful entrepreneurs share?
Successful entrepreneurs are ambitious, independent, self-confident, creative,
energetic, passionate, and committed. They have a high need for achievement
and a willingness to take moderate risks. Good managerial, interpersonal, and
communication skill, as well as technical knowledge are important for
entrepreneurial success.
3. How do small businesses contribute to the U.S. economy?
Small businesses play an important role in the economy. They account for over
99 percent of all employer firms and produce about half of U.S. economic
output. Most new private-sector jobs created in the United States over the past
decade were in small firms. The Small Business Administration defines a small
business as independently owned and operated, with a local base of operations,
and not dominant in its field. It also defines small business by size, according to
its industry. Small businesses are found in every field; but they dominate the
service, construction, wholesale, and retail categories.
4. What are the first steps to take if you are staring your own business?
After finding an idea that satisfies a market need, the small-business owner
should choose a form of business organization. Preparing a formal business plan
helps the business owner analyze the feasibility of his or her idea. The written
plan describes in detail the idea for the business and how it will be implemented
and operated. The plan also helps the owner obtain both debt and equity
financing for the new business.
5. Why does managing a small business present special challenges for the owner?
At first, small-business owners are involved in all aspects of the firm’s
operations. Hiring and retaining key employees and the wise use of outside
consultants can free up an owner’s time to focus on planning, strategizing, and
monitoring market conditions; in addition to overseeing day-to-day operations.
Expanding into global markets can be a profitable growth strategy for a small
business.
6. What are the advantages and disadvantages facing owners of small
businesses?
Because of their streamlined staffing and structure, small businesses can be
efficiently operated. They have the flexibility to respond to changing market
conditions. Small firms can serve specialized markets more profitably than large
September 17, 2018 2
must be attributed to OpenStax, Rice University and any changes must be noted.
CHAPTER FIVE
Entrepreneurship: Starting and Managing
Your Own Business
CHAPTER SUMMARY
Entrepreneurship involves taking the risk of starting and managing a business to make a
profit. People become entrepreneurs for various reasons; though successful
entrepreneurs have a high need for achievement, good interpersonal and
communication skills, and sound managerial skills and technological knowledge.
Companies started by entrepreneurs and small-business owners make significant
contributions to the U.S. and global economies. The desire to be one’s own boss cuts
across all age, gender, and ethnic lines.
The Small Business Administration (SBA) is the main federal agency serving small
businesses, providing guarantees of private lender loans and management assistance
services. When starting a new business, the small business owner identifies an unfilled
market need, selects a form of business organization, develops a formal business plan,
and obtains both debt and equity financing to get started. Trends in entrepreneurship
and small business management include changes in demographics, society, and
technology.
LEARNING OUTCOMES
1. Why do people become entrepreneurs, and what are the different types of
entrepreneurs?
Entrepreneurs are innovators who take the risk of starting and managing a
business to make a profit. Most want to develop a company that will grow into a
major corporation. People become entrepreneurs for four main reasons: the
opportunity for profit, independence, personal satisfaction, and lifestyle. Classic
entrepreneurs may be micropreneurs; who plan to keep their businesses small,
or growth-oriented entrepreneurs. Multipreneurs start multiple companies,
while intrapreneurs work within large corporations.
, 2. Which characteristics do successful entrepreneurs share?
Successful entrepreneurs are ambitious, independent, self-confident, creative,
energetic, passionate, and committed. They have a high need for achievement
and a willingness to take moderate risks. Good managerial, interpersonal, and
communication skill, as well as technical knowledge are important for
entrepreneurial success.
3. How do small businesses contribute to the U.S. economy?
Small businesses play an important role in the economy. They account for over
99 percent of all employer firms and produce about half of U.S. economic
output. Most new private-sector jobs created in the United States over the past
decade were in small firms. The Small Business Administration defines a small
business as independently owned and operated, with a local base of operations,
and not dominant in its field. It also defines small business by size, according to
its industry. Small businesses are found in every field; but they dominate the
service, construction, wholesale, and retail categories.
4. What are the first steps to take if you are staring your own business?
After finding an idea that satisfies a market need, the small-business owner
should choose a form of business organization. Preparing a formal business plan
helps the business owner analyze the feasibility of his or her idea. The written
plan describes in detail the idea for the business and how it will be implemented
and operated. The plan also helps the owner obtain both debt and equity
financing for the new business.
5. Why does managing a small business present special challenges for the owner?
At first, small-business owners are involved in all aspects of the firm’s
operations. Hiring and retaining key employees and the wise use of outside
consultants can free up an owner’s time to focus on planning, strategizing, and
monitoring market conditions; in addition to overseeing day-to-day operations.
Expanding into global markets can be a profitable growth strategy for a small
business.
6. What are the advantages and disadvantages facing owners of small
businesses?
Because of their streamlined staffing and structure, small businesses can be
efficiently operated. They have the flexibility to respond to changing market
conditions. Small firms can serve specialized markets more profitably than large
September 17, 2018 2
