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CONTENTS    ixImplement an Ethics Training ProgramSources of Competitive Intelligence 181Dealing Effectively with Legal IssuesCompleting a Competitive Analysis Grid 181Chapter Summary 183 Key Terms 184Review Questions 184 Application Questions 185You Be the VC 5.1 186 You Be the VC 5.2 186CASE 5.1 187 CASE 5.2 189Choosing an Attorney for a Firm 240EndnotesAvoiding Legal Disputes 243193Opening Profile—ATHLETIC PROPULSION LABS:How Athletic Propulsion Labs Benefited from Writing aBusiness Plan 195197Reasons for Writing a Business Plan198Who Reads the Business Plan—and What Are TheyLooking For? 199A Firm’s Employees199Guidelines for Writing a Business Plan200200Structure of the Business Plan 201204Exploring Each Section of the Plan 204SAVVY ENTREPRENEURIAL FIRM: Know When toHold Them, Know When to Fold Them 205WHAT WENT WRONG? What Move Loot Learned theHard Way about the Economics of a Business 211Presenting the Business Plan to Investors216PARTNERING FOR SUCCESS: Establishinga Community of True Believers and EarlyEvangelists 217The Oral Presentation of a Business Plan 218Questions and Feedback to Expect from Investors 220Chapter Summary 220 Key Terms 221Review Questions 221 Application Questions 222You Be the VC 6.1 224 You Be the VC 6.2 224CASE 6.1 225 CASE 6.2 228EndnotesDrafting a Founders’ Agreement243Obtaining Business Licenses and PermitsFederal Licenses and Permits231PART 3 Moving from an Idea to an Entrepreneurial Firm 233CHAPTER 7 Preparing the Proper Ethical and Legal Foundation 235Opening Profile—BILLY GOAT ICE CREAM: Proceedingon a Firm Legal Foundation 235Establishing a Strong Ethical Culture for aFirm 237247247State Licenses and Permits247Local Licenses and Permits249WHAT WENT WRONG? How Flytenow Got Groundedby Government Regulations 250Choosing a Form of Business mited Liability Company 257Content of the Business Plan 202Outline of the Business PlanSAVVY ENTREPRENEURIAL FIRM: Don’t Hesitate toSay “We’re Sorry” 241Sole ProprietorshipInvestors and Other External Stakeholders240PARTNERING FOR SUCCESS: Vesting Ownership in Company Stock: A Sound Strategy forStart-Ups 244CHAPTER 6 Writing a BusinessPlan 195The Business Plan239Chapter Summary 258 Key Terms 259Review Questions 260 Application Questions 260You Be the VC 7.1 262 You Be the VC 7.2 262CASE 7.1 263 CASE 7.2 266Appendix 7.1 270Endnotes272CHAPTER 8 Assessing a New V enture’sFinancial Strength and Viability 275Opening Profile—ESSENTIUM MATERIALS: ManagingFinances Prudently 275Introduction to Financial Management 277Financial Objectives of a Firm 277The Process of Financial Management 278PARTNERING FOR SUCCESS: OrganizingBuying Groups to Cut Costs and MaintainCompetitiveness 279Financial Statements 280Historical Financial Statements282SAVVY ENTREPRENEURIAL FIRM: Know the FactsBehind the Numbers 284Forecasts289Sales Forecast290Forecast of Costs of Sales and Other Items 291Pro Forma Financial Statements 293Pro Forma Income Statement294Lead by Example 238WHAT WENT WRONG? Be Careful what You Wishfor: How Growing too Quickly Overwhelmed OneCompany’s Cash Flow 295Establish a Code of Conduct 239Pro Forma Balance SheetA01 BARR9534 06 SE FM.indd 929511/16/17 2:39 PM

x    CONTENTSPro Forma Statement of Cash FlowsRatio Analysis297298308Opening Profile—WILD FRIENDS FOODS: Hitting theGround Running 311Liability of Newness as a Challenge 313Creating a New-Venture Team 313The Founder or Founders of a Venture314WHAT WENT WRONG? Devver: How Miscues inRegard to the Composition and Management of aNew-Venture Team Can Kill a Start-Up 316The Management Team and Key Employees 318SAVVY ENTREPRENEURIAL FIRM: Seek out “Lifehacks” to Increase Personal Productivity andEfficiency 319PARTNERING FOR SUCCESS: Collaborative Software: Helping New Venture Team Members AchieveTheir Goals 323The Roles of the Board of Directors 324Rounding Out the Team: The Role of ProfessionalAdvisers 326326Other Professionals329329Chapter Summary 330 Key Terms 331Review Questions 332 Application Questions 332You Be the VC 9.1 334 You Be the VC 9.2 334CASE 9.1 335 CASE 9.2 338Endnotes341CHAPTER 10 Getting Financing orFunding 345Opening Profile—KINVOLVED: Raising Money Carefullyand Deliberately 345The Importance of Getting Financing orFunding 347Why Most New Ventures Need Funding 347Cash Flow Challenges 347350351Preparing to Raise Debt or Equity FinancingSources of Equity Funding 355Business Angels352355357Initial Public Offering 358WHAT WENT WRONG? How One Start-Up Caughtthe Attention of VCs, Gained 25,000 Daily Users, andStill Failed 359Sources of Debt FinancingCommercial Banks361361SBA Guaranteed Loans362Other Sources of Debt Financing 363Creative Sources of Financing and Funding 364CrowdfundingLeasing364365SBIR and STTR Grant Programs365Other Grant Programs 367Strategic Partners367SAVVY ENTREPRENEURIAL FIRM: Working Together:How Biotech Firms and Large Drug CompaniesBring Pharmaceutical Products to Market 368Chapter Summary 368 Key Terms 370Review Questions 370 Application Questions 371You Be the VC 10.1 372 You Be the VC 10.2 372CASE 10.1 373 CASE 10.2 376EndnotesLenders and Investors 328ConsultantsBootstrappingVenture CapitalCHAPTER 9 Building a New-VentureTeam 311Board of Advisors350Friends and FamilyChapter Summary 299 Key Terms 300Review Questions 300 Application Questions 301You Be the VC 8.1 302 You Be the VC 8.2 302CASE 8.1 303 CASE 8.2 306EndnotesPersonal Funds380PART 4 Managing and Growing an Entrepreneurial Firm 383CHAPTER 11 Unique MarketingIssues 385Opening Profile—REAL TIME CASES: Creating aNew Brand in Business Cases via Guerilla MarketingTechniques 385Selecting a Market and Establishing aPosition 387Segmenting the Market 387Selecting a Target Market 388Crafting a Unique Market Position 389Branding390Lengthy Product Development Cycles 348SAVVY ENTREPRENEURIAL FIRM: How Retail Start-ups Compete Against Walmart and Other BigBox Retailers 391PARTNERING FOR SUCCESS: Startup Weekend: AFertile Place to Meet Business Cofounders 349PARTNERING FOR SUCCESS: Two Examples of Successful Co-Branding Partnerships 395Capital Investments348Sources of Personal FinancingA01 BARR9534 06 SE FM.indd 10350The 4Ps of Marketing for New Ventures39511/16/17 2:39 PM

CONTENTS    xiProductPrice396Trade Secret Protection MethodsConducting an Intellectual Property Audit397WHAT WENT WRONG? What Start-Ups Can Learnabout Marketing from Missteps at JCPenney 399Promotion400Place (or Distribution) 407Sales Process and Related Issues408Chapter Summary 411 Key Terms 412Review Questions 412 Application Questions 413You Be the VC 11.1 414 You Be the VC 11.2 414CASE 11.1 415 CASE 11.2 419EndnotesOpening Profile—3DERM SYSTEMS: The Key Roleof Intellectual Property Early in a Firm’s Life and ItsOngoing Success 425The Importance of Intellectual Property427Determining What Intellectual Property to LegallyProtect 429The Four Key Forms of Intellectual Property429430Types of PatentsWhy Conduct an Intellectual Property Audit?The Process of Conducting an Intellectual PropertyAudit 452Chapter Summary 453 Key Terms 454Review Questions 455 Application Questions 455You Be the VC 12.1 457 You Be the VC 12.2 457CASE 12.1 458 CASE 12.2 459Endnotes461Opening Profile—MATI ENERGY: Growing in a FastPaced, Yet C onscientious Manner 463Preparing for Growth465Appreciating the Nature of Business GrowthStaying Committed to a Core StrategyPlanning for GrowthReasons for Growth465467468469Capturing Economies of Scale 469WHAT WENT WRONG? Dishero: How Mediocre Success can Lead to Difficult Decisions 470431Who Can Apply for a Patent?433Capturing Economies of Scope 471The Process of Obtaining a Patent 433Market Leadership 471SAVVY ENTREPRENEURIAL FIRM: Knowingthe Ins and Outs of Filing a Provisional PatentApplication 436Influence, Power, and SurvivabilityPatent Infringement 437Trademarks452452CHAPTER 13 Preparing for and Evaluating the Challenges ofGrowth 463422CHAPTER 12 The Importance of Intellectual Property 425Patents451471Need to Accommodate the Growth of KeyCustomers 472Ability to Attract and Retain Talented Employees437PARTNERING FOR SUCCESS: How the Maker Movement is Bringing Individual Inventors and LargeFirms Together 438The Four Types of Trademarks439What Is Protected Under Trademark Law? 440Exclusions from Trademark Protection441472Managing Growth 472Knowing and Managing the Stages of Growth 472SAVVY ENTREPRENEURIAL FIRM: Salesforce.comCrosses the Chasm 476Challenges of Growth477Managerial Capacity 477Day-to-Day Challenges of Growing a Firm 478The Process of Obtaining a Trademark 441What Is Protected by a Copyright? 445PARTNERING FOR SUCCESS: Three Choices forFulfilling Orders for an Online Company 479Chapter Summary 481 Key Terms 482Review Questions 482 Application Questions 482You Be the VC 13.1 484 You Be the VC 13.2 484CASE 13.1 485 CASE 13.2 488Exclusions from Copyright ProtectionEndnotesTrademark Infringement443WHAT WENT WRONG? David Conquers Goliath inThree Trademark Disputes 444Copyrights445446492How to Obtain a Copyright 446Copyright InfringementCHAPTER 14 Strategies for FirmGrowth 495447Copyright and the Internet 448Trade Secrets449What Qualifies for Trade Secret Protection?Trade Secret DisputesA01 BARR9534 06 SE FM.indd 11450450Opening Profile—FILTEREASY: Employing Both Internaland Extrenal Strategies for Growth 495Internal Growth Strategies49611/16/17 2:39 PM

xii    CONTENTSNew Product Development 497Steps to Franchising a Business 538Additional Internal Product-GrowthStrategies 500Improving an Existing Product or ServiceSAVVY ENTREPRENEURIAL FIRM: Wahoo’s FishTaco: A Moderate-Growth Yet Highly SuccessfulFranchise Organization 539500Increasing the Market Penetration of an Existing Productor Service 500Extending Product Lines 501Geographic Expansion 501International ExpansionSelecting and Developing Effective FranchiseesAdvantages and Disadvantages of Establishing aFranchise System 542Buying a Franchise 544Is Franchising Right for You?502WHAT WENT WRONG? Lessons for Growth-MindedStart-Ups from Crumbs Bake Shop’s Failure 503Assessing a Firm’s Suitability for Growth through International Markets 504544WHAT WENT WRONG? Down But Not Out:What Happened to Sbarro and Will It Make aComeback? 545The Cost of a Franchise 546Foreign Market Entry Strategies 505Finding a Franchise 548Selling Overseas 505Advantages and Disadvantages of Buying aFranchise 549External Growth Strategies506Steps in Purchasing a FranchiseMergers and Acquisitions 506Licensing511SAVVY ENTREPRENEURIAL FIRM: Paint Nite: Growing via an Innovative Form of Licensing 512PARTNERING FOR SUCCESS: Three Steps to AllianceSuccess 514Chapter Summary 516 Key Terms 517Review Questions 517 Application Questions 518You Be the VC 14.1 519 You Be the VC 14.2 520CASE 14.1 520 CASE 14.2 524Endnotes528CHAPTER 15Franchising531Opening Profile—UPTOWN CHEAPSKATE:Franchising as a Form of Business Ownershipand Growth 531What Is Franchising and How Does It Work?What Is Franchising?534How Does Franchising Work?Establishing a Franchise SystemWhen to Franchise 538A01 BARR9534 06 SE FM.indd 12534Legal Aspects of the Franchise Relationship537553Federal Rules and Regulations 553State Rules and Regulations 554More about FranchisingFranchise Ethics556556International Franchising 557The Future of Franchising 558PARTNERING FOR SUCCESS: Franchises Partnerwith Nonprofits to Give Back 559Chapter Summary 560 Key Terms 561Review Questions 561 Application Questions 562You Be the VC 15.1 563 You Be the VC 15.2 563CASE 15.1 564 CASE 15.2 567EndnotesGlossary569571Name Index534551Watch Out! Common Misconceptions aboutFranchising 552510Strategic Alliances and Joint Ventures541581Company Index 584Subject Index58711/16/17 2:39 PM

PrefaceNew to this EditionThis sixth edition is a thorough revision of our book. Each chapter has beenrevised for the purpose of presenting you, our readers, with a foundational understanding of entrepreneurship as well as with current examples of actions beingtaken by entrepreneurs and by entrepreneurial firms. We use insights from theacademic literature and the experiences of practicing entrepreneurs to inform ourexplanation of entrepreneurship. To present you with specific examples of entrepreneurs’ actions and the actions taken by entrepreneurial firms, we again useinsights from entrepreneurs as well as from business people. These insights frompracticing entrepreneurs and their firms and from business people were drawnfrom many sources including podcasts, blogs, newspapers, companies’ websites,and popular business publications such as The Wall Street Journal and Fortunemagazine among many others. As we’ll explain later in greater detail, we alsodraw from the academic literature to make certain that we are presenting youwith accurate and current descriptions of what researchers have learned aboutsuccessful entrepreneurs and effective entrepreneurial firms.Opening Profile Each of the book’s 15 chaptersopens with a profile of an entrepreneurial firm that wasstarted while the founder or founders were in collegeor shortly after graduating. All “Opening Profiles,” witheach one being linked to an individual chapter’s topic,are new to this edition. Each “Opening Profile” is basedon a personal interview with the student entrepreneur orentrepreneurs who founded the company around whicheach profile is written.GettingPersonal FEASIBILITY ANALYSISATHLETIC PROPULSION LABSVUpdated Boxed Features The majority of the“Savvy Entrepreneurial Firm,” “Partnering for Success,”and “What Went Wrong?” boxed features are new tothis edition. The few features that are not new havebeen updated. These features alert readers to contemporary issues facing entrepreneurs and their firms. Inaddition, the content of the features suggest actionsCHAPTER 3withAthletic Propulsion Lab/Photo Credit: Ryan GoldstarCofoundersBEST ADVICE I’VE RECEIVEDRYAN GOLDSTONBetter to ask for forgiveness thanfor permissionBBA, Entrepreneurship, Finance &Marketing, University of SouthernCalifornia, 2009MY ADVICE FOR NEWENTREPRENEURSADAM GOLDSTONBS, Sociology, University of SouthernCalifornia, 2009Invest in yourselfBEST PART OF BEING ASTUDENTFree time and the environmentMY FAVORITE SMARTPHONEAPPInstagramMY BIGGEST WORRY AS ANENTREPRENEURNot maximizing every opportunity93SAVVY ENTREPRENEURIAL FIRMDialogue withAdam GoldstonPrototyping: How to Build What the Customer WantsFAVORITE BAND ON MYSMARTPHONE LISTYoung JeezyA prototype is an early sample, model, or release of aStep 1: A Drawing. A simple drawing of the device,CHAPTER 9BUILDING A NEW-VENTURE TEAM323product that is built to test a concept or a process.with a paragraph or two that describes how it willThe idea is to show the sample or model to potentialwork. Show the drawing to 20 people. Ask them forusers and then use their feedback to improve the PARTNERINGproduct.feedback.In somesituations it is helpful to have sevFORSUCCESSM06 BARR9534 06 SE C06.indd 19410/5/17 3:57 PMIf you are making a hardware product, like the Owlet Babyeral drawings of a product, reflecting different designMonitor, you may iterate on your prototype multiple timesideas, and ask people what they like and don’t bersbefore you have a final design. One common phraseabout each design. Ask the people to whom you showused to describe the process of iterative prototypingisthe Goalsdrawing if they would buy a toaster that toasts onlyAchieveTheir“fail early and often.” That phrase doesn’t refer to failone piece of toast at a time.ure in the broad sense. It’s more about the little things.StepPhysical Mock-Up. Next, build an inexpenMost collaborative software systems are judged byIs Collaborative2:Software?It’s a philosophy that suggests that developing aWhatproductsive mock-up of the device based on thetheirfeedbackCHAPTER8ASSESSING295usefulness and ease of use.The ultimatetest of a A NEW VENTURE’S FINANCIAL STRENGTH AND VIABILITYinvolves running a lot of tests with potential customers.Collaborative softwareis a computerdesignedyou receivedfrom programthe drawing.The mock-upcouldsystemis whether it allows its members to effectivelyEach test will allow you to discard the part of theprod-people involved in a common task achieve theirto helpbe made from cardboard, clay, foam, or wood.The their work. Back to the basketball example—coordinateuct the potential customers didn’t like and buildupongoals.Think of a -up should depict what you think thethe devicemembers of a basketball team have to execute thethe parts of the product they did. You’ll also learnthings.fivemembers of a willteamarelikeindividuals,must coorlookin terms theyof height,width, weight,right color,play at the right time, without running into eachFor example, Owlet learned by watching customersthatdinatetheir effortsandto otherachievethe bestresults.Similarqualities.Testyour hypothesisthat peopleas wellas adjustplay asthe Howgame unfolds.after they put their baby to sleep, they liked to movetheir occur in business organizations. A group of Be other,CarefulwhatYoutheirWishfor:Growing too Quickly Overwhelmedsituationswith small kitchens would be attracted to thedevice.That’sexactly what the members of a group at workOwlet Baby Monitor Base Station from room to softwareroom as engineers may be working on the same project.Identify people with limited counter Onespacein theirmustdo. Collaborativesoftwareis meant to facilitateCompany’sCashFlowthey moved about the house, so they could monitortheirCollaborative software helps them coordinate their effortkitchens and ask if you can come into theirthehomes.process.baby. This told Owlet that the Base Station couldn’trely the best possible outcome.to achieveAsk them to pretend the mock-up is their toaster.on being plugged into the wall to work.Observe where they put it in their kitchen Examplesor henpantry.Jim Picariellostarted WiseAcre FrozenTreats,to potential investors, Wise Acre Frozen Treats found itselfof CollaborativeSoftwareProgramsAs the tests continue—which involves allowingpotenToolsThat Are NormallyIncludedObserve wheretheir current toaster is and if itnois othertak- company was making organic popsiclesin somewhat of a no-man’s-land. Although its future wastial customers to touch and experiment with your evolvThereareunrefineda number sweeteners.of good collaborativeing up too much space. Ask the participantstokeepfromWorkingsoftwareout of proabright, the entrepreneurial venture wasn’t big enough yetTheing prototype—the product gets better and better.Aswayyoucollaborative software programs work is that theygramsavailable.followingare developedexamples ofhisthreecol- for investors to take notice. As time went on, serious cashthe mock-upin theirkitchenwhofor area week.Observemakeshiftkitchenin The2006,Picariellorecioffera common sharedenvironmentfor peopleprogress through the process, your prototype her they move it around. Ask your participantsmaplesyrup and honey.He programs,worked alonefor a a flow difficulties kicked in. According to a blog post thatfrom a paper prototype, to a plast

Business Model 121 Opening Profile—INDIEU: Executing on an Established Business Model and Preparing for the Future Competitor Analysis121 Business Models and Their Importance 123 SAVVY ENTREPRENEURIAL FIRM: CoachUp: How One Company Creates, Delivers, and Captures Value for Its Stakeholders 124 G