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Eleventh EditionGlobal EditionEntrepreneurship andSmallBusinessEffectiveManagementNorman M. ScarboroughPresbyterian CollegeJeffrey R. CornwallBelmont UniversityPEARSONBoston Columbus Indianapolis New York San Francisco Upper Saddle RiverAmsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal TorontoDelhi Mexico City Säo Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

ContentsPreface 23Acknowledgments 26SECTION IChapter 1The Rewards and Challengesof Entrepreneurship 29Entrepreneurs: The Driving Force Behind SmallBusiness 29The Role of the Entrepreneur 30What Is an Entrepreneur? 33 ENTREPRENEURSHIP IN ACTION Space: The Next EntrepreneurialFrontier? 37How to Spot Entrepreneurial Opportunities 38Monitor Trends and ExploitThem Early On 38Travel—and Be Inspired 39Take a Different Approach to an Existing Market 39Put a New Twist on an Old Idea 39Look for Creative Ways to Use Existing Resources 40Realize That Others Have the Same Problem You Do 40Take Time to Play 40Notice What Is Missing 40The Benefits of Owning a Small Business 41Opportunity to Gain Control over Your Own Destiny 41Opportunity to Make a Difference 41Opportunity to Reach Your Füll Potential 42Opportunity to Reap Impressive Profits 42Opportunity to Contribute to Society and Be Recognized for Your Efferts 42Opportunity to Do What You Enjoy Döing 43The Potential Drawbacks of Entrepreneurship 43Uncertainty of Income 43Risk of Losing Your Entire Invested Capital 43Long Hours and Hard Work 44Lower Quality of Life Until the Business Gets Established 44High Levels of Stress 44Complete Responsibility 45Discouragement 45Why the Boom: The Fuel Feeding the Entrepreneurial Fire 45Entrepreneurs as Heroes 45Entrepreneurial Education 45Shift to a Service Economy 45Technology Advancements 45Outsourcing 46Independent Lifestyle 46E-Commerce, the Internet, and Mobile Computing 46International Opportunities 47 IN THE ENTREPRENEURIAL SPOTLIGHT Collegiate Entrepreneurs 47

6CONTENTSThe Cultural Diversity of Entrepreneurship 48Young Entrepreneurs 48Women Entrepreneurs 49Minority Enterprises 50Immigrant Entrepreneurs 51Part-Time Entrepreneurs 52Home-Based Business Owners 52Family Business Owners 52Copreneurs 54Corporate Castoffs 55Corporate "Dropouts" 55Retired Baby Boomers 56The Contributions of Small Businesses 56 LESSONS FROM THE STREET-SMART ENTREPRENEUR Bulletproofing YourStart-Up 58Putting Failure into Perspective 59How to Avoid the Pitfalls 60Know Your Business in Depth 60Prepare a Business Plan 61Manage Financial Resources 61Understand Financial Statements 61Learn to Manage People Effectively 62Set Your Business Apart from the Competition 62Maintain a Positive Attitüde 62Condusion—and a Look Ahead 62Chapter Review 63 Discussion Questions 64Chapter 2Ethics and Social Responsibility: Döing the RightThing 65An Ethical Perspective 67Three Levels of Ethical Standards 68Immoral, Amoral, and Moral Management 69The Benefits of Moral Management 70Establishing an Ethical Framework 71Why Ethical Lapses Occur 72An Unethical Employee 73An Unethical Organizational Culture 73Moral Blindness 73Competitive Pressures 73Opportunity Pressures 73Globalization of Business 73Establishing and Maintaining Ethical Standards 74Establishing Ethical Standards 74Maintaining Ethical Standards 74 ENTREPRENEURSHIP IN ACTION Don't Just Do It, Do It Right 77Social Entrepreneurship 77 IN THE ENTREPRENEURIAL SPOTLIGHT Making a Profit and Makinga Difference 78Social Responsibility 79Business's Responsibility to the Environment 80Business's Responsibility to Employees 81Cultural Diversity in the Workplace 82DrugTesting 85

CONTENTSHIV/AIDS 86Sexual Harassment 87 LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Avoid SexualHarassment Charge; 90Privacy 92 ENTREPRENEURSHIP IN ACTION Think Before You Hit "Post"on Facebook 92Business'; Responsibility to Customers 93Right to Safety 93Right to Know 94Right to Be Heard 94Right to Education 94Right to Choice 95Business's Responsibility to Investors 95Business's Responsibility to the Community 95Condusion 96Chapter Review 96 Discussion Questions 97Chapter 3Creativity and Innovation: Keys to EntrepreneurialSuccess 99Creativity, Innovation, and Entrepreneurship 100Creativity—Essential to Survival 104Can Creativity Be Taught? 106Creative Thinking 106 IN THE ENTREPRENEURIAL SPOTLIGHT The Ingredients of Creativity 107Barriers to Creativity 109 LESSONS FROM THE STREET-SMART ENTREPRENEUR Questions to Spurthe Imagination 113How to Enhance Creativity 114Enhancing Organizational Creativity 114Enhancing Individual Creativity 119 IN THE ENTREPRENEURIAL SPOTLIGHT How to Create a Cultureof Creativity and Innovation 124The Creative Process 125Step 1. Preparation 125Step 2. Investigation 126Step 3. Transformation 126Step 4. Incubation 127Step 5. Illumination 129Step 6. Verification 129Step 7. Implementation 130Condusion 130Chapter Review 131 Discussion Questions 131Chapter 4Strategie Management and the Entrepreneur 133Building a Competitive Advantage 136The Strategie Management Process 138Step 1. Develop a Clear Vision and Translate It into a Meaningful Mission Statement 139 LESSONS FROM THE STREET-SMART ENTREPRENEUR Thrivingon Change 141Step 2. Assess the Company's Strengths and Weaknesses 142Step 3. Scan the Environment for Significant Opportunities andThreats Pacingthe Business 143Step 4. Identify the Key Factors for Success in the Business 1447

CONTENTSStep 5. Analyze the Competition 146Step 6. Create Company Goals and Objectives 150 ENTREPRENEURSHIP IN ACTION Vizio: Disrupting Another Market 152Step 7. Formulate Strategie Option: and Select the Appropriate Strategie: 153 IN THE ENTREPRENEURIAL SPOTLIGHT Strategie; for Success 158Step 8. Translate Strategie Plans into Action Plans 159Step 9. Establish Accurate Controls 160Condusion 162Chapter Review 163 Discussion Questions 164SECTION II Launching a Venture: Entry StrategiesChapter 5Chapter 6165Choosing a Form of Ownership 165The Sole Proprietorship 167Advantages of a Sole Proprietorship 168 LESSONS FROM THE STREET-SMART ENTREPRENEUR Get That NameRight! 169Disadvantages of the Sole Proprietorship 170 ENTREPRENEURSHIP IN ACTION The Pain of Partnership 171The Partnership 172The Uniform Partnership Act 174Advantages of the Partnership 174 LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Avoida Business Divorce 176Disadvantages of the Partnership 177Limited Partnerships 178Limited Liability Partnerships 179The Corporation 179Requirements for Incorporation 179Advantages of the Corporation 180Disadvantages of the Corporation 182Professional Corporations 183The S Corporation 183Advantages of an S Corporation 184Disadvantages of an S Corporation 185When Is an S Corporation a Wise Choice? 185The Limited Liability Company 185Sodal Enterprises 188 IN THE ENTREPRENEURIAL SPOTLIGHT From the Life on the Streetto Running a Business 188Nonprofit Organization 189Chapter Review 191 Discussion Questions 192Franchising and the Entrepreneur 193What Is a Franchise? 195Types of Franchising 196The Benefits of Buying a Franchise 196A Business System 197Management Training and Support 198Brand-Name Appeal 199Standardized Quality of Goods and Services 199National Advertising Programs 199Financial Assistance 200Proven Products and Business Formats 201

CONTENTSCentralized Buying Power 201Site Selection and Territorial Protection 201Increased Chance for Success 202Drawbacks of Buying a Franchise 203Franchise Pees and Ongoing Royalties 203Strict Adherence to Standardized Operations 204Restrictions on Purchasing 204Limited Product Line 205Market Saturation 205Limited Freedom 206No Guarantee of Success 206Franchising and the Law 206 ENTREPRENEURSHIP IN ACTION After the Cheering Stops 209The Right Way to Buy a Franchise 210Evaluate Yourself 211Research the Market 211Consider Your Franchise Options 212Get a Copy of the FDD and Study It 212Talk to Existing Franchisees 213Ask the Franchisor Some Tough Questions 213Make Your Choice 215 LESSONS FROM THE STREET-SMART ENTREPRENEUR Make Sure You Selectthe Right Franchise 215Franchise Contracts 216Termination 218Renewal 218Transfer and Buybacks 218 IN THE ENTREPRENEURIAL SPOTLIGHT The Allure of Franchising 218Trends in Franchising 219Changing Face of Franchisees 219Multiple-Unit Franchising 220International Opportunities 220 IN THE ENTREPRENEURIAL SPOTLIGHT The Middle East: A Hot Spotfor Franchising 221Smaller, Nontraditional Locations 223Conversion Franchising 223Refranchising 223Area Development and Master Franchising 223Cobranding 224Serving Dual-Career Couples and Aging Baby Boomers 225Franchising as a Growth Strategy 225Unique Concept 225Replicable 225Expansion Plan 226Due Diligence 226Legal Guidance 226Support for Franchisees 226Condusion 226Chapter Review 226 Discussion Questions 227Chapter 7Buying an Existing Business 229Buying an Existing Business 231Advantages of Buying an Existing Business 231Disadvantages of Buying an Existing Business 2339

10CONTENTSThe Search Stage 236Self-Inventory 236Develop a List of Criteria 237Potential Candidates 237Investigation 238 LESSONS FROM THE STREET-SMART ENTREPRENEUR Don't Get BurnedWhen You Buy a Business 240The Deal Stage 240Methods for Determining the Value of a Business 241 IN THE ENTREPRENEURIAL SPOTLIGHT Bond Coffee 250Negotiating the Deal 251Letter of Intent 254The Due Diligence Process 255 ENTREPRENEURSHIP IN ACTION What's the Deal? 259The Transition Stage 260Chapter Review 261 Discussion Questions 262Chapter 8New Business Flanning Process: Feasibility Analysis,Business Modeling, and Crafting a Winning BusinessPlan 263Conducting a Feasibility Analysis 265Industry and Market Feasibility Analysis 265Product or Service Feasibility Analysis: Is There a Market? 270Financial Feasibility Analysis: Is There Enough Margin? 271Entrepreneur Feasibility: Is This Idea Right for Me? 273Developing and Testing a Business Model 275Value Proposition 275Customer Segments 276Customer Relationships 276Channels 276Key Activities 276Key Resources 276Key Partners 276Revenue Streams 277Cost Structure 277 ENTREPRENEURSHIP IN ACTION The Evolution of CoolPeopleCare'sBusiness Model 278The Benefits of Creating a Business Plan 279Three Tests That Every Business Plan Must Pass 280Reality Test 280CompetitiveTest 280Value Test 280 IN THE ENTREPRENEURIAL SPOTLIGHT The Battie of the Plans 281The Elements of a Business Plan 282Title Page and Table of Contents 283The Executive Summary 283Mission and Vision Statement 283Company History 284 IN THE ENTREPRENEURIAL SPOTLIGHT A Business Plan: Don't LaunchWithout It 284Description of Firm's Product or Service 285Business and Industry Profile 286Goals and Objectives 286Business Strategy 286