SMALL BUSINESS MANAGEMENT AND ENTREPRENEURSHIP
SMALL BUSINESS MANAGEMENT AND ENTREPRENEURSHIP
LEARNING OUTCOMES
After reading this chapter, you should be able to:
2.۱ Articulate the differences between the small business manager and the entrepreneur.
2.۲ Discuss the steps in preparing for small business ownership.
2.۳ Enumerate the advantages and disadvantages of self-employment.
2.۴ Explain the role of innovation to small business.
Entrepreneurs solve problems. That’s really what they do—they identify problems and create a business to solve them. So, when’s a good time to start solving problems? How about now?
You’ve heard stories of many famous entrepreneurs who dropped out of college to start their wildly successful business, insert Mark Zuckerberg or Steve Jobs story here.
But you don’t have to drop out to start a business.
Meet Kimberly and Logan
Kimberly Hruda and Logan Rae met while attending Florida Atlantic University. Rae made a bouquet—but not of owers.
Hers was made of bacon! The pair knew they were on to a good business idea so they launched Bacon Boxes in 2015.
They grew their product line of savory treats distributed via an online direct to consumer business model.
Bacon Boxes augments its direct e-commerce by offering pairing events and subscription boxes. Hruda and Rae soon moved into an industrial kitchen in Boca Raton.
The pair has created gifts that are unique while also being environmentally sound.
Meet Seung
Seung Shin recognized a different kind of problem once his very traditional family saw his new tattoo for the rst time.
The $3,000 laser surgery process to remove his ink made him wonder if he could develop a permanent-yet-removable ink.
Shin assembled a team of fellow New York University (NYU) students. Some 4 a.m. meetings and some all-nighter product development sessions led their company Ephemeral to win
$۷۵,۰۰۰ in NYU’s Stern School of Business 200K Entrepreneurial Challenge.
Their goal of using existing tattoo equipment but delivering high-quality ink and an optional proprietary removal solution was achieved. Sources: Yeho Lucy Hwang, “Meet This Year’s Coolest College Startups Winner,” Inc., April 4, 2017, Helena Ball, “This Startup Wants You to Never Regret Getting a Tattoo,” Inc., April 7, 2016, ; “Ephemeral: Developer of Tattoo Ink with a Safe Removal Solution,” Inc.,
Concept Module 2.1: The
Entrepreneur–Manager Relationship
• LO 2.1: Articulate the differences between the small business manager and the entrepreneur.
What is the difference between a small business manager and an entrepreneur? Aren’t all small business owners also entrepreneurs?
Don’t all entrepreneurs start as small business owners?
The terms are often used interchangeably, and although some overlap exists between them, there are enough differences to warrant studying them separately.
In fact, entrepreneurship and small business management are both processes, not isolated incidents. Entrepreneurship is the process of identifying opportunities for which marketable needs exist and assuming the risk of creating an organization to satisfy them. An entrepreneur needs the vision to spot opportunities and the ability to capitalize on them.
Small business management, by contrast, is the ongoing process of owning and operating an established business.
A small business manager must be able to deal with all the challenges of moving the business forward—hiring and retaining good employees, reacting to changing customer wants and needs, making sales, and keeping cash flow positive, for example.
The processes of entrepreneurship and small business management both present challenges and rewards as the business progresses through different stages.
What Is an Entrepreneur?
An entrepreneur is a person who takes advantage of a business opportunity by assuming the financial, material, and psychological risks of starting or running a company.
The risks that go with creating an organization can be financial, material, and psychological.
The term entrepreneur, a French word that dates from the 17th century, translates literally as “between-taker” or “go-between.”۱ It originally referred to men who organized and managed exploration expeditions and military maneuvers.
The term has evolved over the years to have a multitude of definitions, but most include the following behaviors:
Creation. A new business is started.
• Innovation. The business involves a new product,process, market, material, or organization.
• Risk assumption. The owner of the business bears the risk of potential loss orfailure of the business.
• General management. The owner of the business guides the business and allocates the business’s resources.
• Performance intention. High levels of growth and/or profit are expected.2
All new businesses require a certain amount of entrepreneurial skill.
The degree of entrepreneurship involved depends on the amount of each of these behaviors that is needed.
Current academic research in the field of entrepreneurship emphasizes opportunity recognition, social capital, and trust.
For an interesting article reviewing the scholarly development of entrepreneurship topics, see “Is There ConceptualConvergence in Entrepreneurship Research?”
Entrepreneurship and the Small Business Manager Entrepreneurship involves the start-up process.
Small business management focuses on running a business over a long period of time and may or may not involve the start-up process.
Although you cannot study one without considering the other, they are different. In managing a small business, most of the “entrepreneuring” was done a long time ago.
Of course, a good manager is always looking for new ways to please customers, but the original innovation and the triggering event that launched the business make way for more stability in the maturity stage of the business.
The manager of a small business needs perseverance, patience, and critical-thinking skills to deal with the day-to-day challenges that arise in running a business over a long period of time.
An entrepreneur is a person who takes advantage of a business opportunity by assuming the financial, material, and psychological risks of starting or running a company.”
“
“The manager of a small business needs perseverance, patience, and critical-thinking skills to deal with the day-to-day challenges that arise in running a business over a long period of time.”
Concept Check Questions
1. What do entrepreneurs do that distinguishes them from other persons involved in business?
2. Imagine that the principal from the high school you attended called to invite you to make a presentation to a newly founded entrepreneurship club at the school.
What would you tell this group of high school students about owning their own business as a career option?
Concept Module 2.2: A Model of the Start-Up Process
• LO 2.2: Discuss the steps in preparing for small business ownership.
The processes of entrepreneurship and small business management can be thought of as making up a spectrum that includes six distinct stages (Figure 2.1).
The stages of the entrepreneurship process are innovation, a triggering event, and implementation.
The stages of the small business management process are growth, maturity, and harvest.
The entrepreneurship process begins with an innovative idea for a new product, process, or service, which is refined as you think it through. You may tell your idea to family members or close friends to get their feedback as you develop and cultivate it.
You may visit a consultant at a local small business development center for more outside suggestions for your innovative business idea.
Perhaps you even wake up late at night thinking of a new facet of your idea. That is your brain working through the creative process subconsciously.
The time span for the innovation stage may be months or even years before the potential entrepreneur moves on to the next stage.
Usually a specific event or occurrence sparks the entrepreneur to proceed from thinking to doing—a triggering event.
When a triggering event occurs in the entrepreneur’s life, he or she begins bringing the organization to life.
This event could be the loss of a job, the successful gathering of resources to support the organization, or some other factor that sets thewheels in motion.
Implementation is the stage of the entrepreneurial process in which the organization is formed.
It can also be called the entrepreneurial event.5 Risk increases at this stage of the entrepreneurial process because a business is now formed.
The innovation goes from being just an idea in your head to committing resources to bring it to reality. The commitment needed to bring an idea to life is a key element in entrepreneurial behavior.
Implementation involves one of the following:
(۱) introducing new products
(۲) introducing new methods of production
(۳) opening new markets
(۴) opening new supply sources
(۵) industrial reorganization.
Entrepreneurship is, in essence, the creation of a new organization.7 By defining entrepreneurship in terms of the organization rather than the person involved, we can say that entrepreneurship ends when the creation stage of the organization ends. This is the point where the small business management process begins.
The rest of this book will concentrate on the process of managing a small business from growth through harvest.
The small business manager guides and nurtures the business through the desired level of growth.
The growth stage does not mean that every small business manager is attempting to get his or her business to Fortune 500 size.
A common goal for growth of small businesses is to reach a critical mass, a point at which an adequate living is provided for the owner and family, with enough growth remaining to keep the business going.
The maturity stage of the organization is reached when the business is considered well established.
The survival of the business seems fairly well assured, although the small business manager will still face many other problems and challenges. Many pure entrepreneurs do not stay with the business until this stage.
They have usually moved on to other new opportunities before this point is reached. Small business managers, by contrast, are more committed to the long haul.
entrepreneurship process
The stage of a business’s life that involves innovation, a triggering event, and implementation of the business.
triggering event
A specific event or occurrence that sparks the entrepreneur to proceed from thinking to doing.
implementation
The part of the entrepreneurial process that occurs when the organization is formed.
small business
management process The stage of a business’s life that involves growth, maturity, and harvest.
growth
Achievement of a critical mass in the business, a point at which an adequate living is provided for the owner and family, with enough development remaining to keep the business going.
maturity
The stage of the organization when the business is considered well established.
Start-Up Process
The stages of entrepreneurship and small business management are unique and follow this sequence with few exceptions.
This stage could be as short as a few months (in the case of a fad product) or as long as decades.
Maturity in organizations can be similar to maturity in people and in nature.
It is characterized
by more stability than that of the growth and implementation stages.
Of course, organizations
should not become too complacent or stop looking for new ways to evolve and grow, just
as people should continue learning and growing throughout their lives.
In the harvest stage, the owner removes him- or herself from the business. Harvesting a
business can be thought of as picking the fruit after years of labor.
In his book The 7 Habits of
Highly Effective People, Steven Covey says one of the keys to being effective in life is “beginning
with the end in mind.”۸ This advice applies to effectively harvesting a business also.
Therefore, it
is a time that should be planned for carefully.
The harvest can take many forms. For example, the business might be sold to another individual
who will step into the position of manager. Ownership of the business could be transferred
to its employees via an employee stock ownership plan (ESOP).
It could be sold to the
public through an initial public offering (IPO). The business could merge with another existing
business to form an entirely new business. Finally, the harvest could be prompted by failure, in
which case the doors are closed, the creditors paid, and the assets liquidated.
Although made in
a different context, George Bernard Shaw’s statement, “Any darned fool can start a love affair,
but it takes a real genius to end one successfully,” can also apply to harvesting a business.
Not every business reaches all of these stages. Maturity cannot occur unless the idea is implemented.
A business cannot be harvested unless it has grown.
Figure 2.2 adds environmental factors to our model to show what is going on outside the
business at each stage of development. Management guru Peter Drucker points out that innovation
occurs as a response to opportunities within several environments.
For example, other
entrepreneurs might serve as role models when we are in the innovation and triggering-event
stages. Businesses in the implementation and growth stages must respond to competitive forces,
consumer desires, capabilities of suppliers, legal regulations, and other forces. The environmental
factors that affect the way in which a business must operate change from one stage to the next.
The personal characteristics of the entrepreneur or the small business manager that are most
significant in running a business will vary from one stage to the next. As you will see in the next
section, personal characteristics or traits are not useful in predicting who will be a successful.
harvest
The stage when the owner removes him- or herself from the business. Harvesting a business can be thought of as picking the fruit after years of labor.
environmental factors
Forces that occur outside of the business that affect the business and its owner.
Environmental Factors Affecting the Start-Up Process
At each stage in the start-up-process, the small business owner must confront a new set of concerns. Here the arrows show what those concerns are and
how they overlap.
entrepreneur or small business manager, but they do affect the motivations, actions, and effectiveness
of those running a small business (Figure 2.3).
For example, in the innovation and
triggering-event stages, a strong need to achieve, a high tolerance for ambiguity, and a willingness
to accept risk are important for entrepreneurs.
In the growth and maturity stages, the personal
characteristics needed to be a successful small business manager are different from those
needed to be a successful entrepreneur. In these stages the small business manager needs to be
persevering, committed to the long run of the business, a motivator of others, and a leader.
The business also changes as it matures. In the growth stage, attention is placed on team
building, setting strategies, and creating the structure and culture of the business.
In the maturity
stage, more attention can be directed to specific functions of the business. The people within
the business gravitate toward, specialize in, and concentrate on what they do best, whether it’s
marketing, finance, or managing human resources.
A Model of the Entrepreneurship/Small Business Management Process
In each stage of the start-up process, different personal characteristics will be more important to the owner as the business takes on new attributes.
This
models shows how entrepreneurial skills are required early in the process, then give way to management skills once the business is established.
The purpose of the entrepreneurship and small business management model is to illustrate
the stages of both processes and factors that are significant in each.
The purpose of this book is to
assist you as you proceed from the innovation stage through the management of your successful
business to a satisfying harvest.
Concept Check Questions
1. Describe the signicance of triggering events in entrepreneurship. Give examples.
2. How is small business management different from entrepreneurship?
3. Why would an entrepreneur be concerned about harvesting a business that has not yet
been started?
Concept Module 2.3: Your Decision
for Self-Employment
• LO 2.3: Enumerate the advantages and
disadvantages of self-employment.
Readers of this text are probably considering the prospect of starting their own business now
or at some time in the future. To help you decide whether owning a small business is right for
you, we will consider some of the positive and negative aspects of self-employment.
Then we
will look at the reasons why other people have chosen this career path, what they have in common,
and what resources they had available. Finally, we will address the issue of how you can
prepare yourself for owning a small business.
Pros and Cons of Self-Employment
Owning your own business can be an excellent way to satisfy personal as well as professional
objectives. Before starting your own business, however, you should be aware of the drawbacks
involved as well as the payoffs.
We will discuss the advantages first, such as the opportunity for
independence, an outlet for creativity, a chance to build something important, and rewards in
the form of money and recognition (see Figure 2.4).
T FIGURE 2.4
Small Business Owners Are Driven by a Variety of Motives
• Control Your Destiny
• Achieve Work/Life Balance
• Choose Who You Work With
• Take on Risk While Reaping Rewards
• Challenge Yourself
• Follow Your Passion
• Achieve Things Faster
• Connect With Clients
• Give Back to Community
• Pride in Building Something You Own
Opportunity for Independence.
To many people, having their own business means having more control over their lives.
They feel that they cannot reach their full potential working for someone else.
Business ownership seems to offer a way to realize their talents, ambitions, or vision.
This search for independence has led many people to leave jobs with large corporations and strike out on their own.
Opportunity for a Better Lifestyle. The desire to use one’s skills fully is the most common motivation for self-employment.
The idea is to provide a good or service that other people need while enjoying what you do.
The lifestyle provided by owning your own business can make going to work fun.
Working becomes a creative outlet that gives you the opportunity to use a combination of your previously untapped talents.
Also attractive to most entrepreneurs is the challenge presented by running their own business.
Such people are often bored working for someone else. As a business owner, the only limitations you face arise from a challenge to your own perseverance and creativity, not from barriers placed before you by other people or the constraints of an organization.
About half of small business owners are motivated by familial concerns (refer again to Figure 2.4).
They may feel not only that self-employment is the best way to provide for their children now, but also that their business is a legacy for their children.
Children, in turn, may enter the family business out of self-interest or to help ease their parents’ burden.
Opportunity for Prot. Less than 20 percent of small business owners express a desire to earn lots of money. Most people do not start businesses to get rich, but rather to earn an honest living. Nonetheless, the direct correlation between effort and compensation is a powerful motivation to work hard.
The fact that you can keep all the money you earn is a strong incentive for many entrepreneurs.
Risks of Self-Employment.
Small business ownership offers ample opportunities to satisfy your material and psychological needs, but it also poses certain risks of which you should be aware.
Personal liability, uncertain income, long working hours, and frequently limited compensation while the business grows are some of the disadvantages of self-employment.
Moreover, not having anyone looking over your shoulder may leave you with fewer places to turn for advice when the going gets tough.
And even though you are your own boss, you are still answerable to many masters:
You must respond to customer demands and complaints, keep your employees happy, obey government regulations, and grapple with competitive pressures.
The uncertainty of your income is one of the most challenging aspects of starting a business.
There is no guaranteed paycheck at the end of the pay period, as exists when you are working for someone else.
Your young business will require you to pump any revenue generated back into it. As the owner, you will be the last person to be paid, and you will probably have to live on your savings for a while.
Going through the first year of business without collecting a salary is common for entrepreneurs.
ISSUES IN SMALL BUSINESS
THE BALANCE OF LIFE IN SMALL BUSINESS
Have you thought about, dreamed of, planned for work–life balance that you would create for your future small business? You’re not alone—that mythical balance is a hot button for aspiring entrepreneurs.
The problem is that it’s more “myth” than “balance
.” Fortunately, the topic of work–life balance is one of semantics and personal definitions
. People who define work–life balance as having the “perfect” business that transitions into the “perfect” life are setting themselves up for disappointment due to unrealistic definitions and expectations.
Owners of small businesses get pulled in many directions because they are responsible for every facet of the business.
Author Annie McKee states, “We tell ourselves that if we just ‘meet this deadline,’ get through the busy period or reach that next goal, then we will take care of ourselves.
Then, we will have balance.
” All areas of life are about choices and true 50–۵۰ balance seldom occurs because there are always new goals (both personal and professional), new deadlines, new passions.
What will likely work better for you is to work on optimizing work–life integration, rather than balance.
Finding how you can best blend your desires to engage with your business, your family, your friends, your health, and your community is more realistic than truly making such areas “balance.”
We have a lot of moving pieces that are not the same size or importance but are all necessary for life to work.
How can we do that?” Connect.
Small business owners are seldom “lone wolves.”
We operate best by having personal connections at our business, with our families, in our communities, so connect and be sure to listen to the people we are connected to.
They will provide feedback to us when one area of our life is taking over (even before we realize it ourselves).
Create multitiered support systems.
When you are living an integrated lifestyle, you need to be open to receive help from each area.
Get healthy.
Exercise and sleep are critical to staying healthy, and the health of a small business owner is closely tied to the health of his/her business.
Practice tactical imbalance.
As stated earlier, balance doesn’t have to mean exactly equal.
It’s OK to go out of balance in certain areas while still remaining committed to everything.
Just be aware of the imbalance and recover when you can.
Combine your commitments with prioritization.
Starting and running a small business takes a lot of time.
Period.
Few people have ever had the conscious thought that their family is not their highest priority, but there are always sacrifices to achieve commitments in every area.
The reliable, if dull, nine-to-five work schedule is another luxury that small business owners must do without.
To get your business off the ground during the critical start-up phase, you may find yourself being the company president during the day and its janitor at night. Owning and running a business requires a tremendous commitment of time and effort.
You must be willing to make sure everything that must be done actually gets done.
In a study conducted by the Families and Work Institute, among the 3,500 small business respondents, 43 percent worked more than 50 hours per week, while 38 percent worked between 35 and 50 hours per week.
(The same study also showed those same small business owners earned an average of $112,800 per year—so there is a payoff!)10 When you own a business, it becomes an extension of your personality.
Unfortunately, it can also take over your life, especially at the beginning.
Families, friends, and other commitments must sometimes take a backseat to the business.
This problem is complicated by the fact that people often start businesses in their child-rearing years.
Married couples going into business together face a volatile mix of business and marital pressures that do not always lead to happy endings.
Traits of Successful Entrepreneurs Since the early 1960s, researchers have tried to identify the personal characteristics that will predict those people who will be successful entrepreneurs.
The conclusion of more than 30 years of research is that successful entrepreneurs cannot be predicted.
They come in every shape, size, and color, and from all backgrounds.
Still, in this section we will briefly examine some characteristics seen among individuals who tend to rise to the top of any profession.
The point to remember when you are considering starting a business is that no particular combination of characteristics guarantees success.
People possessing all the positive traits discussed here have experienced business failure.
However, certain qualities seem to be prerequisites of success.
First, you need to have a passion for what you are doing.
Caring very deeply about what you are trying to accomplish through your business is imperative.
If you go into business with a take-it-or-leave-it, it-will-go-or-it-won’t attitude, you are probably wasting your time and money.
Determination is also critical.
You must realize that you have choices and are not a victim of fate.
You need to believe that you can succeed if you work long enough and hard enough.
Trustworthiness is important to entrepreneurs because of their many interpersonal, institutional, or organizational relationships (often untested) under conditions of uncertainty.
11 Finally, you need a deep knowledge of the area in which you are working.
Your customers should see you as a reliable source in solving their wants and needs.
Virtually every successful entrepreneur possesses these four characteristics of passion, determination, trustworthiness, and knowledge.
12 In other words, perseverance, the technical skills to run a business, belief in yourself, and the ability to inspire others to trust you are all important for success.
A pioneer in entrepreneurial research, David McClelland identified entrepreneurs as people with a higher need to achieve than nonentrepreneurs.
13 People with a high need to achieve are attracted to jobs that challenge their skills and problem-solving abilities, yet offer a good chance of success.
They equally avoid goals that seem almost impossible to achieve and those that pose no challenge.
They prefer tasks in which the outcome depends on their individual effort.
Locus of control is a term used to explain how people view their ability to determine their own fate.
Entrepreneurs tend to have a stronger internal locus of control than people in the general population.
14 People with a high internal locus of control believe that the outcome of an event is determined by their own actions.
Luck, chance, fate, or the control of other people (external factors) are less important than one’s own efforts.
15 When faced with a problem or a difficult situation, internals look within themselves for solutions.
Internal locus of control is the force that compels many people to start their own businesses in an effort to gain independence, autonomy, and freedom.
Successful entrepreneurs and small business owners are innovative and creative.
Innovation results from the ability to conceive of and create new and unique products, processes, or services.
Entrepreneurs see opportunities in the marketplace and visualize creative new ways to take advantage of them.
How do entrepreneurs tend to view risk taking? A myth about entrepreneurs is that they are wild-eyed, risk-seeking, financial daredevils.
While acceptance of financial risk is necessary to start a business, the prototypical entrepreneur tends to accept moderate risk only after careful examination of what she is about to get into.
Consider the case of Scott Schmidt, the entrepreneurial athlete who started what has become known as “extreme skiing.
” Basically, he jumps from 60-foot cliffs on skis for a living.
“Virtually every successful entrepreneur possesses these four characteristics of passion, determination, trustworthiness, and knowledge.”
need to achieve The personal quality, inked to entrepreneurship, of being motivated to excel and choose situations in which success is likely.
locus of control A person’s belief concerning the degree to which internal or external forces control his or her future.
CREATING COMPETITIVE ADVANTAGE ARE YOU READY?
Becoming an entrepreneur is not for everyone. In business, there are no guarantees.
There is simply no way to eliminate all of the risks.
It takes a special person with a strong commitment and specific skills to be successful as an entrepreneur.
Are you ready to start your own business?
Use the following assessment questions to better understand how prepared you are. It is not a scientic assessment tool.
Rather, it is a tool that will prompt you with questions and assist you in evaluating your skills, characteristics, and experience as they relate to your readiness for starting a business.
General
۱. Do you think you are ready to start a business?
2. Do you have support for your business from family and friends?
3. Have you ever worked in a business similar to what you are starting?
4. Would people who know you say you are entrepreneurial?
5. Have you ever taken a small business course or seminar? Personal Characteristics
6. Are you a leader?
7. Do you like to make your own decisions?
8. Do others turn to you for help in making decisions?
9. Do you enjoy competition?
10. Do you have willpower and self-discipline?
11. Do you plan ahead?
12. Do you like people?
13. Do you get along well with others?
14. Would people who know you say you are outgoing? Personal Conditions
15. Are you aware that running your own business may require working more than 12 hours a day, 6 days a week, and maybe Sundays and holidays?
16. Do you have the physical stamina to handle a “selfemployed” workload and schedule?
17. Do you have the emotional strength to deal effectively with pressure?
18. Are you prepared, if needed, to temporarily lower your standard of living until your business is rmly established?
19. Are you prepared to lose a portion of your savings? Skills and Experience
20. Do you know what basic skills you will need in order to have a successful business?
21. Do you possess those skills?
22. Do you feel comfortable using a computer?
23. Have you ever worked in a managerial or supervisory capacity?
24. Do you think you can be comfortable hiring, disciplining, and delegating tasks to employees?
25. If you discover you do not have the basic skills needed for your business, will you be willing to delay your plans until you have acquired the necessary skills?
ski equipment companies sponsor him for endorsements and video production.
If you saw him from the ski lift, you would say, “That guy is a maniac for taking that risk.
” The same is often said of other entrepreneurs by people looking in from outside the situation.
Actually, Schmidt very carefully charts his takeoff and landing points, and he does not see himself as reckless.
An analogy can be drawn between Schmidt’s adventurous style of skiing and the risks of starting a new business.
Entrepreneurs carefully plan their next moves in their business plans.
Once they are in the air, entrepreneurs must trust their remarkable talent to help them react to what comes their way as they fall.
Entrepreneurs don’t risk life and limb because they look for ways to minimize their risks by careful observation and planning, just as Schmidt precisely plans his moves.
They commonly do not see unknown situations as risky, because they know their strengths and talents, are confident of success, and have analyzed the playing field.
In similar fashion, Scott Schmidt doesn’t consider himself reckless.
He considers himself very good at what he does.
That is a typical entrepreneurial attitude.
Other traits that are useful in owning your own business are a high level of energy, confidence, an orientation toward the future, optimism, a desire for feedback, a high tolerance for ambiguity, flexibility/adaptability, and commitment.
If one characteristic of successful entrepreneurs stands out above all others across all types of businesses, however, it would have to be their incredible tenacity.
Preparing Yourself for Business Ownership How do you prepare for an undertaking like owning your own business? Do you need experience?
Do you need education?
The answer to the latter two questions is always “yes.” But what kind? And how much?
These questions are tougher to answer because their answers depend on the type of business you plan to enter.
The experience you would need to open a franchised bookstore differs from that needed for an upscale restaurant.
Entrepreneurs and small business owners typically have higher education levels than the general public.
About 39.2 percent of new business owners have a bachelor’s degree compared to 29.2 percent for the general population.
Exceptions do exist, however—people have dropped out of school and gone on to start successful businesses—so it is difficult to generalize. Even so, in a majority of cases we can conclude that more education increases the chances of success.
Entrepreneurs and small business owners are almost without exception on perpetual journeys of self-education.
Systems scientist Peter Senge said, “people with a high level of personal mastery are acutely aware of their ignorance, their incompetence, their growth, and they are deeply self-confident.”۱۸ Entrepreneurship and small business management are the fastest-growing classes in business schools across the country.
In 1971, Karl Vesper of the University of Washington found that 16 U.S. schools offered a course in entrepreneurship. In his 1993 update of that study, that number had grown to 370. Now the number of colleges and universities offering entrepreneurship classes around the globe is in the thousands.
Some of the nation’s top business schools, such as Babson, Brigham Young University, University of Michigan, Northeastern University, and Baylor University (ranked as the top five Best Undergrad Programs for Entrepreneurs by Entrepreneur magazine in 2017), as well as many other four-year colleges and community colleges, are offering degrees in entrepreneurship and small business management.
Until very recently, the leaders of most business schools argued that entrepreneurship could not be taught.
Now, however, the increased academic attention is constructing a body of knowledge on the processes of starting and running small businesses, which proves that entrepreneurial processes can be and are being learned.
The Small Business Administration (SBA) and other nonacademic agencies offer start-yourown- business seminars to prospective entrepreneurs.
Executive education programs offered through college extension departments provide curricula specifically designed for entrepreneurs and small business owners.
These one-day to one-year programs provide valuable skills without a degree.
Obtaining practical experience in your type of business is an important part of your education. You can learn valuable skills from various jobs that will prepare you for owning your own business.
For example, working in a restaurant, in retail sales, or in a customer service department can hone your customer relations skills, which are crucial in running your own business but difficult to learn in a classroom.
The analytical and relational skills that you learn in formal educational settings are important, but remember that your future development depends on lifelong learning. (Commencement, after all, means “beginning”—the beginning of your business career!) Finally, don’t overlook hobbies and other interests in preparing for self-employment.
Participating in team sports and student organizations, for instance, can cultivate your team spirit and facility in working with
“If one characteristic of successful entrepreneurs stands out above all others across all types of businesses, however, it would have to be their incredible tenacity.”
TECH IN ACTION BIG DATA FOR SMALL BUSINESS
Small business owners need data they can rely on to make decisions about running their business.
Until fairly recently, small business had difficulty accessing what is known as big data—data from large databases.
Now, not only can they access it, they can use big data to create a sustainable competitive advantage.
Five reasons why data can give your small business a competitive advantage are
• Data is a source for insights. Business decisions that are not based on data analysis are called opinions.
Data analysis and data visualization make decisionmaking possible in the quest for hidden opportunities.
• You can leverage offline data.
While databases are full of search queries, clicks, and purchases all providing insights into what buyers do online, there is a wealth of data available from surveillance of in-store shoppers.
Such as, what types of packaging, colors, displays, and locations influence consumer preferences and behaviors?
• Data helps you manage your online reputation. If consumers are only making a few posts to your company’s social media, you can handle making direct comment responses.
But, if there are thousands of comments and reviews, what do you do?
NLP (natural language processing) techniques break down larger dynamics so you can create a Facebook application to retrieve and analyze public posts.
• Data is fuel for AI research. The search to perfect artificial intelligence is the current business Holy Grail being sought for business analytics.
Your small business can access public and commercial databases, crowdsourcing data, and information from other data-driven businesses to automate your analysis of posts, comments, and searches.
• Data is an instrument of personalization.
Since a fundamental advantage of small businesses is the closeness to their customers, data can now bring that advantage to the online world.
Insights from data can allow you to deliver content that your customers find relevant based on their searches and products they have viewed.
Personalization is a powerful tool in retaining customers.
By denition, big data is, well . . . huge. Small business owners need tools to gather, access, analyze, and display it.
Some of the best tools include
• Improvado.io. This company was created to solve a major small business pain point—making sense of monitoring and reporting on digital ad campaigns.
By connecting to the improvado.io platform, a small business owner can view social, search, and display marketing data via their widget-based dashboard.
• Mixpanel. This powerful tool allows you to follow the digital footprint of every user of your products across mobile and web devices.
It lets you see what potential customers are doing on your site. You can see patterns of web usage over time or instantaneously about how users are engaging with what you build.
• Jaspersoft. As if there were not enough big data to analyze (currently 2.7 zettabytes, or one sextillion bytes), the volume of business data doubles every 1.2 years! How does a small business owner keep up?
Jaspersoft provides a huge range of online analytical tools, available to manage piles of information.
• Apache Hadoop. Hadoop provides an open-source software framework with tools to store and access massive amounts of data.
others. Your marketing skills can be improved through knowledge of languages or fine art.
Sometimes an avocation can turn into a vocation. For example, more than one weekend gardener has become a successful greenhouse owner.
Of course, no amount of experience or education can completely prepare you for owning your own business.
Because every person, situation, and business is different, you are certainly going to encounter situations for which you could not have possibly prepared.
Get as much experience and education as you can, but at some point you must “take off and hang on.” You have to find a way to make your business go.
Concept Check Questions
1. If a friend told you that entrepreneurs are high-risk takers, how would you set the story straight?
2. Explain why people who own a small business may not enjoy pure independence.
3. If personal characteristics or personality traits do not predict who will be a successful entrepreneur, why are they signi cant to the study of entrepreneurship or small business management? Which characteristics do you think are most important?
4. Think of an activity that you love to do; it could be a personal interest or a hobby. How could you turn your passion for this activity into a business?
What questions would you have to answer for yourself before you took this step? What triggering events in your personal life would it take for you to start this business?
Concept Module 2.4: Creativity and Innovation in Small Business
• LO 2.4: Explain the role of innovation to small business.
Innovation—those new, more efficient and effective products, processes, services, technologies, or models—is the catalyst for business growth.
Small businesses make major contributions of innovation in the U.S. economy, largely due to the economic incentive that comes with successful commercialization.
Small innovative firms are 16 times more productive, in terms of patents per employee, than large innovative firms.
Small businesses generate a full third of all patents in both smart grids and solar energy, and 15 percent of patents in batteries and fuel cells.
They also account for 14 percent of all green technology patents.
The bottom line—small businesses are a big deal when it comes to innovation.
In a 2015 report titled Small Innovative Company Growth—Barriers, Best Practices and Big Ideas, Mark Harrison identified a six-stage model innovative company development process (Figure 2.5):
• Discovery/Identified Market Need:
A small business owner generates an idea for an innovation based upon research, building on previous development, opportunity recognition of a market need, or customer feedback.
• Technology Demonstration: The small business owner shows due diligence in analyzing the idea to make sure it is viable. This can take the form of experiments, building prototypes, or market assessment.
• Product Development:
The small business owner extends the testing from the previous stage (assuming positive results) in refining product design, pilot testing, and identifying production options and possible distribution channels.
• Commercialization/Market Entry: Once the small business owner has a viable product, it is time to begin the generation of revenue with heavy emphasis on marketing and selling.
Refinements to the manufacturing processes are normal.
• Early Stage Growth: Successful product launch leads to small business growth and investment in materials, human resources, and infrastructure.
• Economic Development Impact Growth: In this stage, the small business generates significant revenue, increases hiring, likely makes capital investments in land and buildings, and pays higher taxes that support and enhance local economies.
The same report identied barriers and challenges specic to small businesses that are attempting to commercialize innovative products or technology:
• The amount of student debt held by graduating students prevents them from pursuing entrepreneurial opportunities.
• The amount of funding and support of research and development in the United States needs to increase to ensure continued innovation.
• Entrepreneurs often lack information regarding market needs and product research and development efforts.
• There is a shortage of engineering and production job talent.
• Access to capital still remains a large barrier for small business growth.
• Small innovative companies have difficulty in commercializing products.
• Technology diffusion and adoption is harder for small businesses.
• The high costs of acquiring equipment and implementing a new technology [are] a barrier to entry for small businesses.
• Small companies need access to more business opportunities.
• Innovations often result in legal and/or regulatory challenges or uncertainty.
• Small companies continue to face challenges to exporting their products and services.23
Product Innovation
Innovation can be seen in every facet of business, but for this small business discussion we are primarily limiting the scope to products.
Remember that product means tangible goods, intangible services, or a combination of these (Figure 2.6).
Hiring someone to mow your lawn is an example of the service end of the goods-and-services spectrum.
In this case, you don’t receive a tangible good.
An example of a tangible good would be the purchase of a chair that is finished and assembled, but not delivered.
Thus, in this case, you don’t receive any services.
Many businesses offer a combination of goods and services.
Restaurants, for instance, provide both goods (food and drink) and services (preparation and delivery).
product A tangible good, an intangible service, or a combination of these.
T FIGURE 2.6 Spectrum of Goods and Services Most small businesses sell a combination of goods and services.
Product Satisfaction
When thinking about product innovation, it is useful to think about different levels of product satisfaction.
Products are the “bundle of satisfaction” that consumers receive in exchange for their money.
The most basic level of product satisfaction is its core benet, or the fundamental reason why people buy products (Figure 2.7).
For an automobile, the core benefit is transportation from point A to point B.
With a hotel room, the core benefit is a night’s sleep. To put this another way, people don’t buy drills—they really buy holes.
The next level of product satisfaction is the generic product.
For an automobile, the generic product is the steel, plastic, and glass. For the hotel, the building, the front desk, and the rooms represent the generic product.
The third level of product satisfaction is the expected product, which includes the set of attributes and conditions that consumers assume will be present. U.S. consumers expect comfortable seats, responsive handling, and easy starting from their cars. A hotel guest expects clean sheets, soap, towels, relative quiet, and indoor plumbing.
The augmented product, the fourth level of product satisfaction, is all the additional services and benefits that can distinguish your business.
For example, night vision built into windshields, satellite-linked navigational systems in autos, and express checkout and health club facilities in hotels are product augmentations.
Augmentations represent the sizzle that you sell along with the steak. The problem with product augmentations is that they soon become expected.
When you have raised your costs and prices by adding augmentations, you open the door for competitors to come in and offer more of a generic product at a lower price.
That’s how the Motel 6 franchises became so successful—by offering a plain room for a low price when competitors were adding amenities that raised their cost structure and prices.
Levels of Benefits Consumers Receive from Products The benefits that consumers receive from products are represented by different product levels.
product A tangible good, an intangible service, or a combination of these.
“Always keep in mind which core benefits customers receive from your product, how the actual product satisfies those core needs, and how you can augment your products to make them more appealing.”
The fifth and final level is the potential product. It includes product evolutions to come. Not long ago, taking video with a cell phone or still camera was not possible.
It soon became a product augmentation and, very quickly, expected.
Thus the products that you develop and sell in your small business are more than just a combination of tangible features.
Always keep in mind which core benefits customers receive from your product, how the actual product satisfies those core needs, and how you can augment your products to make them more appealing.
Developing New Products Trends like increased global competition and quickly changing customer needs have shortened product life cycles and increased the need for new products.
As a company’s current products enter the stages of late maturity and decline, they need to be replaced with new ones in demand.
What is new? Good question
. Marketing consultant Booz Allen Hamilton groups new products into six categories:
۱. New-to-the-world products. These are products that have not been seen before, which result in entirely new markets.
Ken Fischer developed and patented a marine paint the U.S. Navy uses to keep its ships free of barnacles.
The paint is made from a mixture of epoxy and cayenne pepper.
Fischer came up with the idea for the paint after blistering his mouth on a Tabascocovered deviled egg.
He decided that animals would react the same way. He was right.
۲. New product lines. These are products that exist but are new to your type of business.
For example, the addition of a coffee bar to your bookstore would be taking on a new product line.
3. Extensions to existing product lines.
These are products that are extensions of what you already sell.
For example, a small business that adds a new line of innovative tablet cases to its existing cell phone cases would represent a product-line extension.
۴. Improvements in, revisions of, or new uses for existing products.
These are products that have had their value increased.
Take the example of WD-40 spray lubricant.
Although it was originally developed to prevent rust by displacing water, so many new uses have been found for it that the WD-40 Company holds an annual “Invent Your Own Use” contest.
Besides quieting squeaky hinges and freeing zippers, the product also removes gum stuck in hair or carpet, and sticky labels from glass, plastic, and metal.
The Denver Fire Department even used WD-40 to free a nude burglary suspect who got stuck while attempting to enter a restaurant through an exhaust vent.
5. Repositioning of existing products. Entrepreneurial jargon typically calls this procedure “pivoting” but the process is the same.
Many products and businesses are created with one purpose in mind but end up nding success in another arena—including Post-it Notes (originally created to mark pages in the inventor’s church choir songbook) and Viagra (originally formulated to treat angina—chest pain associated with poor circulation to the heart).
۶. Lower-cost versions of existing products.
These are products that provide value and performance similar to those of existing products but at a lower cost.
For example, food stands that sell hamburgers and hot dogs offer products similar to the big-name fast-food franchises but at a lower price, thereby enticing customers with their cost advantage.
Of course, increased risk is associated with the launch of new products.
How many new products can you remember seeing on the shelves at the grocery store in the last year? Ten? Fifty? One hundred? Now think of how many of those you chose to adopt.
However many you remember, it was surely far less than the 10,000 new food products and 5,000 nonfood items introduced in grocery stores each year.
Many of those new products did not survive. Nevertheless, despite the risk, innovation is the key to success. Innovation is part of being proactive in the marketplace.
Inventor’s Paradox Consider the following scenario. You have developed a new product that fits into one of the six categories cited above. What are your options?
The best alternative is to start and run your own business based on the new product—that option is the foundation of this whole book.
But what other options exist?
Unfortunately, many product innovators believe they simply need to generate an idea for a new product, service, or process, and Uber-Corporation X will pay them massive amounts of money for this idea. Sorry to disappoint you, but ideas are worth very little in the business world.
In fact, most companies strongly discourage inventors from approaching them with ideas.
Why? Because they have been approached by hundreds of people who want to cash in on undeveloped ideas.
Of course, some people have convinced members of a large corporation that they are serious inventors who have marketable ideas, but lightning has struck in the same place twice, too.
Just don’t count on it happening.
If you do gain an audience with a corporate representative to whom you can make a proposal and a presentation, you have a better chance of walking out with a licensing agreement than a check. Under a licensing agreement, the owner of intellectual property grants another person (or another company) permission to produce that product.
In exchange, the inventor receives royalties, which constitute a percentage (generally 5 percent to 6 percent) of sales. The inventor relinquishes control over what the licensee does with the product.
Your chances of getting a licensing agreement are greatly improved if you are already producing the product and have established a track record of sales.
Your chances of getting a licensing agreement dwindle if you are seeking a license because you don’t have enough money to develop the product yourself.
Another alternative for an inventor may be private-label manufacturing. For example, Sears does not own a factory in which it builds its Craftsman tools.
Instead, the company engages other companies to make the tools to its specifications and puts the Craftsman brand on them.
This is where you, the tool inventor, could enter the picture.
If you have designed a new tool that Sears does not currently have in its product line, you might be able to secure an agreement to produce that tool under the company’s brand name.
You will get only about one-half of the retail price, but at least you have a sales base from which to begin your operations.
A serious downside to this strategy is that you have just one major customer, so your company’s fortunes will hang on that firm’s willingness to maintain the agreement.
Recall the Chapter 1 discussion of the symbiotic relationship between large and small businesses.
Here is another possible connection where each party needs the other:
Similar to private- label manufacturing, you could become an OEM (original-equipment manufacturer), a company that makes component parts or accessories for larger items.
For example, your firm might produce circuit boards for computer manufacturers or custom knobs for cabinetmakers.
licensing agreement An agreement in which the owner of intellectual property grants another person (or another company) permission to produce that product.
private-label manufacturing Producing products under another company’s name.
Importance of Product Competitive Advantage
Few would argue that the length of time many products have before they become obsolete has decreased rapidly over the past few years.
Factors such as new technologies, increasing numbers of substitute products, quickly changing consumer tastes and preferences, and shifting consumption patterns all play large roles in this rapid phase-out of existing products.
Small businesses are more vulnerable to product obsolescence because they typically depend on fewer key products and have fewer resources with which to develop new ones.
In addition, the niche markets that small businesses serve can dry up or be lured away by a larger, low-cost competitor.
The optimal scenario for these businesses features a steady streamof new products being developed to replace existing ones as they pass through the product life cycle.
Unfortunately, no one actually runs a business that operates within the optimal scenario.
Instead, the best you can do is learn from other successful small businesses.
A recent study illustrated some fundamental practices of small businesses that succeed in creating and retaining a competitive advantage.
Notably, they maintain their focus on specialized products serving niche markets and rely on their existing core competitive advantage to enter new markets.
A sustainable competitive advantage is based on something that firm does better than others—a core competency.
To be classified as a core competency, a factor should satisfy three criteria:
1. Be applicable across a range of products.
2. Be difcult for competitors to duplicate.
3. Provide a fundamental and valuable benet to customers.
Assuming their core competencies are intact, successful companies share some common characteristics that can be termed best practices.
They
• Leverage existing capabilities—meaning they understand what they do well, and they use those skills to enter new markets.
• Set team expectations—getting your entire team together regularly (for example twice a month) to discuss each department’s accomplishments and challenges.
• Enter growth markets—and thereby avoid cutthroat price competition and zero-sum games.
• Manage without ego—small businesses run on margins that are too thin for owners to believe that his/her ideas and processes are the best and only ways.
Get feedback from your team.
• Target niche markets—by definition, niche markets are less crowded with competitors than mass markets, and customers in niche markets are willing to pay premiums for specialized products.
• Diversify—so as to spread risk, or, as the cliché goes, they don’t put all their eggs in one basket.
• Add new capabilities—by building a set of skills, such as technology, marketing, or distribution.
• Have clear and documented processes—documentation leaves little room for miscommunications.
• Keep the 3 P’s in mind—Marcus Lemonis builds solid operations with them in his show The Prot.
So should you—process, people, and product.
• Have low overhead—because they have a lean management structure, and they avoid major new investments in buildings and equipment by adding extra shifts and overtime.
“A sustainable competitive advantage is based on something that firm does better than others—a core competency.
CHAPTER REVIEW SUMMARY
LO 2.1 Articulate the differences between the small business manager and the entrepreneur.
An entrepreneur is a person who takes advantage of an opportunity and assumes the risk involved in creating a business for the purpose of making a profit.
A small business manager is involved in the day-to-day operation of an established business.
Each faces significant challenges, but they are at different stages of development in the entrepreneurship/small business management model.
LO 2.2 Discuss the steps in preparing for small business ownership.
The entrepreneurship process involves an innovative idea for a new product, process, or service.
A triggering event is something that happens to the entrepreneur that causes him to begin bringing the idea to reality.
Implementation is the stage at which the entrepreneur forms a business based on her idea.
The rst stage of the small business management process is growth, which usually means the business is becoming large enough to generate enough prot to support itself and its owner. The maturity stage is reached when the business is stable and well established.
The harvest stage occurs when the small business manager leaves the business because of its sale, merger, or failure.
LO 2.3 Enumerate the advantages and disadvantages of self-employment.
The advantages of self-employment include the opportunity for independence, the chance for a better lifestyle, and the potential for signicant prot.
The disadvantages include the personal liability you would face should the business fail, the uncertainty of an income, and the long working hours.
LO 2.4 Explain the role of innovation to small business.
Product innovation is the catalyst for all business growth and small businesses make major contributions of innovation in the U.S. economy because they have more economic incentive to create truly innovative products than do large businesses.
Innovation includes those new, more efcient and effective products, processes, services, technologies, or models.
EXPERIENTIAL LEARNING ACTIVITY
۲.۱: Stages of Preparing for Small Business Ownership
LO 2.2: Discuss the steps in preparing for small business ownership.
Using the information found in Chapter 2, which step in preparing for small business ownership is represented by each of the following scenarios?
1. Sally has a great idea for improving the efciency of moving her product from Point A to Point B.
2. Kathy’s business has now reached a critical mass, providing a living for herself and her family.
3. Robert’s company has been in the community for over 20 years and is well established with several of his children now working in the family business.
4. Greg was just laid off from his company and now has time to pursue his business idea he has been thinking about for years.
5. John has spent the last two years developing, testing, and determining a production process for his amazing new carpentry tool.
He is now ready to begin the production process, open the doors of his store, and sell his product.
6. After years of successfully owning her ower shop, Jenna has sold her business to a newly graduated college student.
Jenna plans to pursue her painting passion.
7. Jamie has had a great idea for a new phone app for the last two years.
She has shared her idea with her family and friends and everyone agrees it will be an awesome app.
8. Katie’s restaurant has operated successfully for the last 15 years and is a community favorite.
Her weekend crowd has many regular customers who enjoy Katie’s well-known sh and chips.
9. After several years of hard work and dedication, Joe’s automotive service has reached the point where Joe can quit his part-time job and devote all of his time to his automotive business. Joe now has a sufcient group of regular customers and can support himself and his family solely from the automotive business.
۱۰. Kurt’s boss has just offered him a promotion to regional manager, which should be a wonderful offer.
However, if Kurt takes the promotion, he will no longer have time to implement his coaching clinics, which he has been planning for the last several months.
2.۲: Innovation
LO 2.4: Explain the role of innovation to small business.
Invention is the creation of a new product or service.
Innovation is making a current product or service better to fulfill a consumer need or want.
۱. For the products listed to the right, list whether each product is an invention or an innovation.
2. After you have categorized each product, break into groups and brainstorm ideas for three products to develop further innovations.
Explain the six stages of innovation used to make your product a success.
A telephone in 1875 A pizza place that now sells chocolate chip dessert pizzas The cell phone in 1973 A machine linked to a computer that expertly cuts material into any design chosen An electronic textbook A metal key to your hotel room A curling iron Frisbee golf Christmas lights for outside your house Fitbit to track your steps taken.
CHAPTER CLOSING CASE
The Organic Nonprofit: Feet First
Aiden Roberts and Mason Fielder have been best friends since kindergarten.
Raised in an upper-middle-class community, the boys enjoyed a rather idyllic boyhood.
Every afternoon after school and most weekends were filled with some sort of sporting activity, usually soccer or baseball.
Their families enthusiastically supported their efforts and enjoyed cheering them on from the stands.
In their freshman year of high school, both Aiden and Mason were selected to play on the junior varsity soccer team.
Later that same year, they worked together with a local Rotary Club where Mason’s father was a member, on a service learning project to help raise money to build clean water drinking wells in rural African villages.
They enjoyed their work on the project and became interested in visiting Africa.
The opportunity came in their junior year when they were offered the chance to participate in a 2-week-long Rotary International–sponsored exchange program with one of the villages.
In a letter home to his parents, Aiden described how incredibly friendly the people were and how it felt really good to help them.
“The kids loved the school supplies we delivered.
You should have seen their faces.
When we had some free time we played soccer with them.
They don’t have nets or really any sports equipment here, but we made it work,” he wrote.
The trip not only raised their awareness about the needs of the villagers in rural Africa; both boys were also struck by “how good we have it,” as Mason put it. Discussing it on the long trip back to the United States, they both agreed that they wanted to do more to help the kids they had come to know.
“We can really do something to help those kids.
We know so many people who would be willing to give them something,” Aiden said.
Before the plane landed, they had come up with an idea to collect used sports equipment and donations of new shoes and to send them back to the villages they had visited.
“I think this is something people can really get behind, plus it connects all the things we love to do,” Aiden commented.
“It won’t look bad on a college application either,” Mason kidded.
True to their word, the boys launched their program within days of getting home.
They called it Feet Forward.
They started with friends and family, collecting donations of used sports equipment and asking for money to buy some new pairs of shoes.
They hosted a couple of small fund-raisers to raise the cash needed to purchase some new items and to cover the cost of shipments.
Through Rotary, they connected with a missionary group that agreed to receive and disperse the equipment.
Overall, getting the first shipment delivered took quite a bit more effort than either of the boys originally thought, but when they received some photos of the kids playing with the new balls and wearing the new shoes, they were both deeply satisfied.
“We need to keep going with this,” Mason said.
By the end of their senior year, the boys had coordinated two more shipments of donations.
Although they did not have the time or money to return to Africa in person, they had received heartwarming letters back from people working on the ground, letting them know their goods were being dispersed to kids in need.
The boys used their knowledge of social media to promote the work of the organization through Facebook pages, and one of their friends produced a YouTube video to share their story.
The local paper ran a story about their work, and they were presented with a leadership award by a local news station.
As their reach broadened and they found themselves getting larger donations from people they didn’t know personally, Aiden’s mom, Jeanne, suggested they set up a nonprofit so people could get a tax deduction for their donations to Feet Forward.
Jeanne was a bookkeeper for a local insurance company and was growing concerned about the boys keeping accurate records of their donations.
Using a template from the internet, Jeanne helped them get the paperwork together.
They wrote a mission statement: The mission of Feet Forward is to take a team approach to provide, through charitable contributions, used and new sports equipment and supplies to children with limited resources.
Aiden was listed as president and CEO, and Mason was named chairman of the board.
“Who knew I would be a CEO at 18?” Aiden ribbed Mason.
They listed Jeanne as the treasurer, and they also named Mason’s girlfriend, Brianna, and Aiden’s brother, Jack, as members of the board of directors.
In the fall, Aiden and Mason went their separate ways with Aiden attending a small Jesuit school in the Northwest and Mason enrolling in an engineering program at a large southern university.
They left the work of Feet Forward in the hands of Jack and some of his friends for the time being; however, they vowed to figure out a way to continue their work.
Aiden, a business major, was particularly interested in learning more about how he could combine his passion for Feet Forward with his interest in business ownership and corporate social responsibility.
He was excited to be admitted to an incubator program for social entrepreneurs, and he enrolled in a course called Leadership and Social Enterprise.
On the first day of the class, he was quick to share the story of Feet Forward with the group.
A student named Sydney raised her hand to ask a question.
“How do you know you are helping these people?” she asked.
This kind of project seems like a handout not a hand-up.
” Aiden was taken aback by the question.
“Well, we were there, we saw that they needed these things, and so we sent them, simple as that.
People really want to help, and we get good reports back from people on the ground,” he answered.
“Yes, I’m sure you do, but how do you know they don’t need other things more? You say it is simple, but I think you underestimate the complexity of the underlying issues.
I’ve lived in Africa and seen how those kinds of donations just pile up because what people really need is a way to make a living so they can buy stuff for themselves.
Do you have anyone from the villages on your board or advising you?” Sydney challenged Aiden.
“Well, logistically, that is sort of hard,” Aiden began.
Sydney interrupted him.
“In a way, what you are doing is really insulting,” she proclaimed.
“Projects like this don’t help communities to develop; they just make people like you and your friends feel less guilty for having so much when others have so little.
” Aiden couldn’t help but feel defensive, but before he could respond, their professor intervened and suggested they use Aiden’s group as a case study throughout the semester.
Discussion Questions
1. In your opinion, what are some things that motivate people to form nonprots? Are some motivations better or nobler than others? Are good intentions enough? 2. How would you have approached launching Feet Forward? What kinds of information would you have gathered before engaging in such an endeavor? How would you plan it?
3. Do you think it was necessary for Aiden and Mason to form a nonprot, or were there other organizational structures or strategies they could have considered?
4. Are there any things about the way the nonprot was formed in the case that concern you? What, if anything, would you have done differently?
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