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Entrepreneurship SucceSSfully launching new VentureS FiFth Edition Bruce R. Barringer Oklahoma State University R. Duane Ireland Texas A & M University Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo
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Dedication To my wife, Jan. Thanks for your never-ending encouragement and support. Without you, this book would have never been possible. Also, thanks to all the student entrepreneurs who contributed to the chap- ter opening features in the book. Your stories are both insightful and inspiring. —Bruce R. Barringer To my family: I am so proud of each of you and so blessed by your per- severance and never-ending love and support. I know that sometimes it seems as though “we lose ourselves in work to do and bills to pay and that it’s a ride, ride, ride without much cover.” But you are always in my heart, a gift for which I remain deeply grateful. —R. Duane Ireland
Brief Contents Preface xi Part 1 Decision to Become an Entrepreneur 1 ChaPter 1 Introduction to Entrepreneurship 3 Part 2 Developing Successful Business Ideas 39 ChaPter 2 Recognizing Opportunities and Generating Ideas 41 ChaPter 3 Feasibility Analysis 75 ChaPter 4 Developing an Effective Business Model 111 ChaPter 5 Industry and Competitor Analysis 149 ChaPter 6 Writing a Business Plan 181 Part 3 Moving from an Idea to an Entrepreneurial Firm 217 ChaPter 7 Preparing the Proper Ethical and Legal Foundation 219 ChaPter 8 Assessing a New Venture’s Financial Strength and Viability 259 ChaPter 9 Building a New-Venture Team 295 ChaPter 10 Getting Financing or Funding 327 Part 4 Managing and Growing an Entrepreneurial Firm 363 ChaPter 11 Unique Marketing Issues 365 ChaPter 12 The Importance of Intellectual Property 403 ChaPter 13 Preparing for and Evaluating the Challenges of Growth 441 ChaPter 14 Strategies for Firm Growth 473 ChaPter 15 Franchising 507 Glossary 548 Name Index 558 Company Index 560 Subject Index 564 iv
Contents Preface xi Economic Impact of Entrepreneurial Firms 22 Entrepreneurial Firms’ Impact on Society 24 Part 1 Decision to Become an Entrepreneurial Firms’ Impact on Larger Firms 24 the Entrepreneurial Process 25 Entrepreneur 1 Decision to Become an Entrepreneur (Chapter 1) 25 Developing Successful Business Ideas ChaPter 1 Introduction to (Chapters 2–6) 25 Entrepreneurship 3 Moving from an Idea to an Entrepreneurial Firm Opening Profile—Pure Fix CyCles: The Classic (Chapters 7–10) 26 entrepreneurial story 3 Managing and Growing an Entrepreneurial Firm introduction to Entrepreneurship 5 (Chapters 11–15) 26 What is Entrepreneurship and Why is it Chapter Summary 28 | Key Terms 29 important? 6 Review Questions 29 | Application Questions 30 Why do People Become Entrepreneurs? 7 You Be the VC 1.1 31 | You Be the VC 1.2 31 CASE 1.1 32 | CASE 1.2 35 Be Their Own Boss 7 Endnotes 37 Pursue Their Own Ideas 8 Pursue Financial Rewards 8 Part 2 Developing Successful Business Characteristics of Successful Entrepreneurs 9 Passion for the Business 9 Ideas 39 What WEnt Wrong? Prim: How a lack of Passion and resolve Can Kill a Business 11 ChaPter 2 Recognizing Opportunities Product/Customer Focus 12 and Generating Ideas 41 Tenacity Despite Failure 12 Opening Profile—iCrACKed: solving a Execution Intelligence 13 Problem and Building a Business in an exploding industry 41 Savvy EntrEPrEnEurial Firm: Pandora: What’s Possible When an entire Company Has the differences Between opportunities and “Tenacity” 14 ideas 43 Common myths about Entrepreneurs 14 three Ways to identify opportunities 44 Myth 1: Entrepreneurs Are Born, Not Made 15 Observing Trends 44 Myth 2: Entrepreneurs Are Gamblers 15 Savvy EntrEPrEnEurial Firm: How to learn About emerging Trends Through the effective use Myth 3: Entrepreneurs Are Motivated Primarily of social Media 50 by Money 16 Solving a Problem 50 Myth 4: Entrepreneurs Should Be Young and Energetic 17 Finding Gaps in the Marketplace 53 Myth 5: Entrepreneurs Love the Spotlight 17 Personal Characteristics of the Entrepreneur 54 types of Start-up Firms 18 What WEnt Wrong? Why a Company that solved a Problem With a Great Product Went Out PartnEring For SuCCESS: start-up incubators of Business 55 and Accelerators: A New Way of Gaining Access to Mentors, Partners, investors, and Other Critical Prior Experience 56 start-up resources 19 Cognitive Factors 56 Changing demographics of Entrepreneurs 20 Social Networks 57 Women Entrepreneurs 20 Creativity 57 Minority Entrepreneurs 21 techniques for generating ideas 59 Senior Entrepreneurs 21 Brainstorming 59 Young Entrepreneurs 21 Focus Groups 60 the Positive Effects of Entrepreneurship and Library and Internet Research 61 Entrepreneurial Firms 22 Other Techniques 62 v
vi CONTENTS Encouraging the development of new ideas 62 Savvy EntrEPrEnEurial Firm: Quirky: How One Establishing a Focal Point for Ideas 62 Company Creates, delivers, and Captures Value for Encouraging Creativity at the Firm Level 62 its stakeholders 114 PartnEring For SuCCESS: Want Help Fine-Tuning general Categories of Business models 115 a Business idea? Find a Mentor 63 Standard Business Models 115 Chapter Summary 64 | Key Terms 65 What WEnt Wrong? Peer-to-Peer Business Review Questions 65 | Application Questions 66 Models: Good for some, Not so Good for You Be the VC 2.1 67 | You Be the VC 2.2 67 Others 117 CASE 2.1 68 | CASE 2.2 70 Disruptive Business Models 118 Endnotes 72 the Barringer/ireland Business model template 119 ChaPter 3 Feasibility Analysis 75 Core Strategy 120 Opening Profile—luMiNAid: The Value of Validating Resources 124 a Business idea 75 Financials 126 Feasibility analysis 77 Operations 129 Product/Service Feasibility analysis 78 PartnEring For SuCCESS: Odesk, elance, and Product/Service Desirability 78 Guru: Platforms That Facilitate the Forming of Product/Service Demand 83 Partnerships with Freelancers 132 industry/target market Feasibility analysis 85 Chapter Summary 133 | Key Terms 134 Savvy EntrEPrEnEurial Firm: How learning Review Questions 134 | Application Questions 135 from Customers Caused a successful Firm to You Be the VC 4.1 136 | You Be the VC 4.2 136 CASE 4.1 137 | CASE 4.2 141 Make a 180-degree Turn on the Positioning of a Product 86 Appendix 1 145 Endnotes 146 Industry Attractiveness 87 Target Market Attractiveness 88 organizational Feasibility analysis 89 ChaPter 5 Industry and Competitor Management Prowess 89 Analysis 149 Resource Sufficiency 89 Opening Profile—GreeNVelOPe: Occupying a unique What WEnt Wrong? How Feasible Was standout Position in an evolving industry—and Thriving 149 Jobs from the Beginning? 90 industry analysis 151 PartnEring For SuCCESS: Finding the right Studying Industry Trends 152 Business Partner 91 PartnEring For SuCCESS: Three Ts That Are Financial Feasibility analysis 92 important for Becoming Active in an industry: Trade Total Start-Up Cash Needed 92 Associations, Trade shows, and Trade Journals 153 Financial Performance of Similar Businesses 93 the Five Forces model 154 Overall Financial Attractiveness of the Proposed Threat of Substitutes 155 Venture 94 Threat of New Entrants 156 a Feasibility analysis template 94 Rivalry Among Existing Firms 157 Chapter Summary 95 | Key Terms 96 Bargaining Power of Suppliers 158 Review Questions 97 | Application Questions 97 Bargaining Power of Buyers 159 You Be the VC 3.1 99 | You Be the VC 3.2 99 the value of the Five Forces model 160 CASE 3.1 100 | CASE 3.2 102 Appendix 3.1 105 industry types and the opportunities they Appendix 3.2 107 offer 162 Endnotes 109 Emerging Industries 163 Fragmented Industries 163 ChaPter 4 Developing an Effective Mature Industries 163 Business Model 111 Declining Industries 164 Opening Profile—Her CAMPus MediA: executing on Global Industries 165 an established Business Model and Preparing for the Competitor analysis 165 Future 111 Identifying Competitors 165 Business models and their importance 113 Sources of Competitive Intelligence 166
CONTENTS vii Savvy EntrEPrEnEurial Firm: Thriving in a Establish a Code of Conduct 223 Crowded industry by Creating Meaningful Value and Implement an Ethics Training Program 224 differentiation from Competitors 167 dealing Effectively with legal issues 225 Completing a Competitive Analysis Grid 168 Choosing an Attorney for a Firm 225 What WEnt Wrong? digg: A start-up That lost What WEnt Wrong? Fitbit Force recall: its Way and its Place in its industry 170 did Fitbit react Quickly enough? 226 Chapter Summary 171 | Key Terms 172 Drafting a Founders’ Agreement 228 Review Questions 172 | Application Questions 173 You Be the VC 5.1 174 | You Be the VC 5.2 174 Avoiding Legal Disputes 228 CASE 5.1 175 | CASE 5.2 177 Savvy EntrEPrEnEurial Firm: Vesting Endnotes 179 Ownership in Company stock: A sound strategy for start-ups 229 ChaPter 6 Writing a Business PartnEring For SuCCESS: Patagonia and Build-A- Plan 181 Bear Workshop: Picking Trustworthy Partners 232 Opening Profile—TeMPOruN: Proceeding on the obtaining Business licenses and Permits 233 strength of a Winning Business Plan 181 Federal Licenses and Permits 233 the Business Plan 183 State Licenses and Permits 233 Reasons for Writing a Business Plan 183 Local Licenses and Permits 234 Who reads the Business Plan—and What are they Choosing a Form of Business organization 235 looking for? 185 Sole Proprietorship 236 A Firm’s Employees 185 Partnerships 238 Investors and Other External Stakeholders 185 Corporations 239 guidelines for Writing a Business Plan 186 Limited Liability Company 242 Structure of the Business Plan 186 Chapter Summary 243 | Key Terms 244 Content of the Business Plan 187 Review Questions 244 | Application Questions 245 You Be the VC 7.1 247 | You Be the VC 7.2 247 outline of the Business Plan 189 CASE 7.1 248 | CASE 7.2 251 Exploring Each Section of the Plan 190 Appendix 7.1 254 Savvy EntrEPrEnEurial Firm: Know When to Endnotes 256 Hold Them, Know When to Fold Them 191 PartnEring For SuCCESS: Types of Partnerships That Are Common in Business Plans 195 ChaPter 8 Assessing a New Venture’s What WEnt Wrong? What eventVue learned the Financial Strength and Viability 259 Hard Way About Making Assumptions 202 Opening Profile—GyMFlOW: Managing Finances Presenting the Business Plan to investors 203 Prudently 259 The Oral Presentation of a Business Plan 203 introduction to Financial management 261 Questions and Feedback to Expect from Investors 205 Financial objectives of a Firm 262 Chapter Summary 205 | Key Terms 206 the Process of Financial management 262 Review Questions 206 | Application Questions 207 PartnEring For SuCCESS: Organizing You Be the VC 6.1 209 | You Be the VC 6.2 209 Buying Groups to Cut Costs and Maintain CASE 6.1 210 | CASE 6.2 213 Competitiveness 263 Endnotes 216 Financial Statements 265 Historical Financial Statements 265 Part 3 Moving from an Idea to an Savvy EntrEPrEnEurial Firm: Know the Facts Entrepreneurial Firm 217 Behind the Numbers 268 Forecasts 273 ChaPter 7 Preparing the Proper Sales Forecast 273 Ethical and Legal Foundation 219 Forecast of Costs of Sales and Other Items 275 Opening Profile—TeMPered MiNd: Proceeding on a Pro Forma Financial Statements 277 Firm legal Foundation 219 Pro Forma Income Statement 278 Establishing a Strong Ethical Culture for a What WEnt Wrong? Be Careful What you Wish Firm 221 For: How Growing Too Quickly Overwhelmed One Lead by Example 222 Company’s Cash Flow 279
viii CONTENTS Pro Forma Balance Sheet 279 Friends and Family 332 Pro Forma Statement of Cash Flows 280 Bootstrapping 333 Ratio Analysis 283 Preparing to raise debt or Equity Financing 334 Chapter Summary 284 | Key Terms 285 Sources of Equity Funding 337 Review Questions 285 | Application Questions 286 Business Angels 337 You Be the VC 8.1 287 | You Be the VC 8.2 287 CASE 8.1 288 | CASE 8.2 290 Venture Capital 338 Endnotes 292 Initial Public Offering 340 What WEnt Wrong? How One start-up Caught ChaPter 9 Building a New-Venture the Attention of VCs, Gained 25,000 daily users, Team 295 and still Failed 341 Sources of debt Financing 343 Opening Profile—NexT BiG sOuNd: Hitting the Ground running 295 Commercial Banks 343 liability of newness as a Challenge 297 SBA Guaranteed Loans 344 Creating a new-venture team 297 Other Sources of Debt Financing 345 Creative Sources of Financing and Funding 345 PartnEring For SuCCESS: To Overcome the liabilities of Newness, Consider Joining a start-up Crowdfunding 345 Accelerator 298 Leasing 346 The Founder or Founders 299 SBIR and STTR Grant Programs 347 What WEnt Wrong? devver: How Miscues in Other Grant Programs 348 regard to the Composition and Management of a Savvy EntrEPrEnEurial Firm: Working Together: New-Venture Team Can Kill a start-up 302 How Biotech Firms and large drug Companies The Management Team and Key Employees 303 Bring Pharmaceutical Products to Market 349 Savvy EntrEPrEnEurial Firm: Overcoming a Strategic Partners 349 lack of Business experience 304 Chapter Summary 350 | Key Terms 351 The Roles of the Board of Directors 307 Review Questions 351 | Application Questions 352 You Be the VC 10.1 354 | You Be the VC 10.2 354 rounding out the team: the role of Professional CASE 10.1 355 | CASE 10.2 358 advisers 310 Endnotes 361 Board of Advisors 310 Lenders and Investors 311 Part 4 Managing and Growing an other Professionals 313 Entrepreneurial Firm 363 Consultants 313 Chapter Summary 314 | Key Terms 315 Review Questions 315 | Application Questions 315 ChaPter 11 Unique Marketing You Be the VC 9.1 317 | You Be the VC 9.2 317 Issues 365 CASE 9.1 318 | CASE 9.2 321 Opening Profile—WiNK NATurAl COsMeTiCs: Endnotes 324 Creating a New Brand in the Cosmetics industry 365 Selecting a market and Establishing a ChaPter 10 Getting Financing or Position 367 Funding 327 Segmenting the Market 367 Opening Profile—rOOMiNATe: raising Money Selecting a Target Market 368 Carefully and deliberately 327 Crafting a Unique Market Position 369 the importance of getting Financing or Branding 370 Funding 329 the 4Ps of marketing for new ventures 373 Why most new ventures need Funding 329 Product 373 Cash Flow Challenges 329 PartnEring For SuCCESS: How Co-Branding is Capital Investments 330 Combining the strengths of Two Already successful Lengthy Product Development Cycles 330 Brands 374 PartnEring For SuCCESS: startup Weekend: A Price 376 Fertile Place to Meet Business Cofounders 331 Promotion 377 Sources of Personal Financing 332 What WEnt Wrong? What start-ups Can learn Personal Funds 332 About Marketing from Missteps at JCPenney 378
CONTENTS ix Savvy EntrEPrEnEurial Firm: How Airbnb used The Process of Conducting an Intellectual Property Blogs as a stepping-stone to Generate substantial Audit 429 Buzz About its service 383 Chapter Summary 430 | Key Terms 432 Place (or Distribution) 386 Review Questions 432 | Application Questions 433 Sales Process and related issues 387 You Be the VC 12.1 434 | You Be the VC 12.2 434 CASE 12.1 435 | CASE 12.2 437 Chapter Summary 390 | Key Terms 391 Review Questions 391 | Application Questions 392 Endnotes 438 You Be the VC 11.1 393 | You Be the VC 11.2 393 CASE 11.1 394 | CASE 11.2 397 ChaPter 13 Preparing for and Endnotes 400 Evaluating the Challenges of Growth 441 ChaPter 12 The Importance of Opening Profile—BiG FisH PreseNTATiONs: Growing Intellectual Property 403 in a Cautious, yet deliberate Manner 441 Preparing for growth 443 Opening Profile—driPCATCH: The Key role of intellectual Property early in a Firm’s life and its Appreciating the Nature of Business Growth 443 Ongoing success 403 Staying Committed to a Core Strategy 445 the importance of intellectual Property 405 PartnEring For SuCCESS: How Threadless Determining What Intellectual Property to Legally Averted Collapse by Bringing on a Partner with Protect 407 Back-end Operational expertise 446 The Four Key Forms of Intellectual Property 407 Planning for Growth 447 Patents 408 reasons for growth 448 Types of Patents 410 Capturing Economies of Scale 449 Who Can Apply for a Patent? 411 Capturing Economies of Scope 449 The Process of Obtaining a Patent 412 Market Leadership 449 Patent Infringement 414 Influence, Power, and Survivability 449 trademarks 414 Need to Accommodate the Growth of Key Customers 450 Savvy EntrEPrEnEurial Firm: Knowing the ins and Outs of Filing a Provisional Patent Ability to Attract and Retain Talented Employees 450 Application 415 managing growth 450 The Four Types of Trademarks 416 Knowing and Managing the Stages of Growth 451 PartnEring For SuCCESS: individual inventors Savvy EntrEPrEnEurial Firm: safesforce.com and large Firms: Partnering to Bring New Products Crosses the Chasm 454 to Market 417 Challenges of growth 455 What Is Protected Under Trademark Law? 418 Managerial Capacity 455 Exclusions from Trademark Protection 419 Day-to-Day Challenges of Growing a Firm 456 The Process of Obtaining a Trademark 419 What WEnt Wrong? How Trying to Build Out its Copyrights 421 Own Capabilities in a Key Area Contributed to the What Is Protected by a Copyright? 421 Failure of a Promising Firm 458 Exclusions from Copyright Protection 422 Chapter Summary 459 | Key Terms 460 Review Questions 461 | Application Questions 461 How to Obtain a Copyright 422 You Be the VC 13.1 463 | You Be the VC 13.2 463 Copyright Infringement 423 CASE 13.1 464 | CASE 13.2 467 Copyright and the Internet 424 Endnotes 470 What WEnt Wrong? GoldieBlox vs. Beastie Boys: The Type of Fight That No start-up Wants to Be a ChaPter 14 Strategies for Firm Part Of 425 Growth 473 trade Secrets 426 Opening Profile—sHAKe sMArT: Maintaining What Qualifies for Trade Secret Protection? 427 Consistent strategies for Growth 473 Trade Secret Disputes 427 internal growth Strategies 475 Trade Secret Protection Methods 428 New Product Development 475 Conducting an intellectual Property audit 429 Savvy EntrEPrEnEurial Firm: switchFlops: How Why Conduct an Intellectual Property Audit? 429 to Create Built-in Avenues for Future Growth 477
x CONTENTS additional internal Product-growth Savvy EntrEPrEnEurial Firm: Wahoo’s Fish Strategies 479 Taco: A Moderate-Growth yet Highly successful Improving an Existing Product or Service 479 Franchise Organization 515 Increasing the Market Penetration of an Existing Product Selecting and Developing Effective Franchisees 517 or Service 479 advantages and disadvantages of Establishing a Extending Product Lines 480 Franchise System 518 Geographic Expansion 480 Buying a Franchise 520 international Expansion 481 Is Franchising Right for You? 520 What WEnt Wrong? lessons for Growth-Minded What WEnt Wrong? Trouble at Curves start-ups from Crumbs Bake shop’s Failure 482 international 521 Assessing a Firm’s Suitability for Growth Through The Cost of a Franchise 523 International Markets 483 Finding a Franchise 524 Foreign Market Entry Strategies 484 PartnEring For SuCCESS: using Co-Branding to Selling Overseas 484 reduce Costs and Boost sales 525 External growth Strategies 485 Advantages and Disadvantages of Buying a Mergers and Acquisitions 485 Franchise 526 Licensing 489 Steps in Purchasing a Franchise 528 Strategic Alliances and Joint Ventures 490 Watch Out! Common Misconceptions About Franchising 529 PartnEring For SuCCESS: Three steps to Alliance success 492 legal aspects of the Franchise relationship 530 Chapter Summary 494 | Key Terms 495 Federal Rules and Regulations 530 Review Questions 495 | Application Questions 496 State Rules and Regulations 531 You Be the VC 14.1 498 | You Be the VC 14.2 498 more about Franchising 533 CASE 14.1 499 | CASE 14.2 502 Franchise Ethics 533 Endnotes 504 International Franchising 534 ChaPter 15 Franchising 507 The Future of Franchising 535 Opening Profile—uPTOWN CHeAPsKATe: Franchising Chapter Summary 536 | Key Terms 537 Review Questions 537 | Application Questions 538 as a Form of Business Ownership and Growth 507 You Be the VC 15.1 540 | You Be the VC 15.2 540 What is Franchising and how does CASE 15.1 541 | CASE 15.2 543 it Work? 510 Endnotes 546 What Is Franchising? 510 How Does Franchising Work? 510 Glossary 548 Establishing a Franchise System 513 Name Index 558 When to Franchise 514 Company Index 560 Steps to Franchising a Business 514 Subject Index 564
Preface What Is New to This Edition? This fifth edition is a thorough revision of our book. Each chapter was revised to reflect examples of current entrepreneurial firms and the latest thinking about entrepreneurship from academic journals and practitioner publications. Specifically, the following is new to the fifth edition. Opening Profile Each chapter begins with a profile of an entrepreneurial firm that was started while the founders were in college. All 15 Opening Profiles (one for each chapter) are new to this edition. Each profile is specific to the chapter’s topic. The profiles are based on personal interviews with the student entrepreneurs involved. Updated Boxed Features The majority of the “What Went Wrong?” “Savvy Entrepreneurial Firm,” and “Partnering for Success” features are new to this edition. These features not only alert students and readers to contem- porary issues facing entrepreneurial firms, but are meant to be helpful to them in a practical sense as well. Select features focus on topics such as how to find a mentor, how to select a business co-founder, and how to avoid the types of mistakes that typify unsuccessful entrepreneurial ventures. The two “You Be the VC” features at the end of each chapter have been a staple of the book since its inception. A total of 29 of the 30 “You be the VC” features in the fifth edition are new. Barringer/Ireland Business Model Template One of the strongest additions to the fifth edition is the inclusion and thorough explanation of the Barringer/Ireland Business Model Template. We introduce this template to you in Chapter 4. It provides a nicely designed way for students to think through and articulate the business model for a proposed or existing firm. The template, which is similar in its intent and usefulness to the popular Business Model Canvas created by Alexander Osterwalder and Yves Pigneur, contains four sections and 11 parts. Chapter 4 fully explains each section and part. An enlarged version of the template is included in the Appendix to Chapter 4. It can be photocopied and used to assist students in completing business models for proposed or existing firms. New and Updated Cases The majority of end-of-chapter cases are new to this edition. Those that were retained have been completely updated. The cases were carefully selected to illustrate the principles introduced in their re- spective chapters. The questions included at the end of each case can be used to stimulate classroom discussion or for quizzes or tests. Updated References The amount of academic research examining en- trepreneurship-related topics continues to grow. To provide the most recent insights from academic journals, we draw upon recent research from jour- nals such as Strategic Entrepreneurship Journal, Entrepreneurship Theory and Practice, Journal of Business Venturing, and Academy of Management Journal. Similarly, we relied on the most current articles appearing in business publica- tions such as The Wall Street Journal and Entrepreneur among others, to pres- ent you with examples of the actions being taken by today’s entrepreneurs as they lead their ventures. xi
xii PREFACE Introduction to Entrepreneurship There is tremendous interest in entrepreneurship on college campuses and around the world. One indicator of this interest is the fact that of the approxi- mately 2,000 colleges and universities in the United States, about two-thirds of the total now offer a course in entrepreneurship. As a result, a growing number of students are forgoing traditional careers and starting their own businesses. Ordinary people across the world are equally interested in launching entrepre- neurial careers. According to the 2013 Global Entrepreneurship Monitor, in the United States a total of 12.7 percent of the adult population is starting a busi- ness or has started a business in the past three-and-a-half years. There are regions of the world where the percentage is even higher. In Brazil, for example, 17.3 percent of the adult population is starting or has started a business in the past three-and-a-half years. The percentage is 24.3 percent in Chile. The lure of entrepreneurship is the ability to create products and services that enhance people’s lives. You’ll see this through the many examples of entrepreneurial firms provided in the book. Particularly inspiring are the ex- amples of businesses started while the founders were still in college. We begin each chapter of this book with a profile of a business that was founded while the founders were still in college. Several of the end-of-chapter cases are fo- cused on student-founded businesses as well. The opening profile for Chapter 3, for example, focuses on LuminAid, a business started by Andrea Sreshta and Anna Stork, two students at Columbia University. The three children pictured on the front cover of the book are looking at what Sreshta and Stork created—solar powered pillows that provide light for people in disaster relief situations. What we hope to accomplish via the profiles and cases about busi- nesses that were started while their founders were still in college is to inspire the students who are using the book. Hopefully they’ll look at students like Sreshta and Stork and realize that they aren’t too different from them, and that they have the capacity to conceive a business idea and launch a success- ful company too. Many of the examples of student-inspired businesses provided in the book are both instructive and heartwarming. For example, Case 3.2 fo- cuses on a company named Embrace, which was started by four Stanford University students. Embrace makes a product, called the Embrace Baby Warmer, which literally saves the lives of premature babies born in remote villages in developing countries. It looks like a small sleeping bag and con- tains a warming element that when turned on emulates the heat provided by a more sophisticated incubator in a hospital. No one can read the case without being inspired and somewhat awed by what a motivated group of college students, surrounded by a supportive university and dedicated fac- ulty and mentors, were able to accomplish when they set their sights on becoming entrepreneurs. A photo of the Embrace Baby Warmer is provided in the case. We invite you to go to Case 3.2 now to glance at the Embrace Baby Warmer. There is one caveat to successful entrepreneurship, and it’s a big one. People, regardless of age, need a process to follow to successfully navigate the entrepreneurial journey. This is where our book offers unique value. The book describes entrepreneurship as a four step process, beginning with the deci- sion to become an entrepreneur and culminating with managing and growing a successful firm. There is a lot in between, as you’ll see. Entrepreneurship is not easy, which is a sentiment that we express throughout the book. But it is doable, as evidenced by the many success stories provided. The process, pictured nearby, provides a framework or roadmap of the entrepreneurial pro- cess that many professors, students, and others that have used the book have told us has been particularly helpful to them. In the book, we’re also careful to talk about failures as well as successes. Each chapter includes a boxed
PREFACE xiii feature titled “What Went Wrong?” The feature contains a real-life example of something that went wrong with an entrepreneurial firm. Professors have commented to us that they appreciate having failure stories as well as suc- cess stories as teaching tools in their classrooms. At the other extreme, each chapter also includes a boxed feature called “Savvy Entrepreneurial Firm.” In these features, we describe actions entrepreneurial firms have taken that contributed to their success. Complementing these features is a third one that is presented in each chapter. Called “Partnering for Success,” these features discuss relationships entrepreneurial firms form with various parties (such as suppliers and distributors) in order to increase the likelihood of being successful. We sincerely hope that college and university students and their professors as well as others who choose to read this book will find it thoughtful, instruc- tive, helpful, and inspiring. Our goal is to place into your hands—our readers— a book with the ability to both inspire and lead you through the steps in the entrepreneurial process. How Is This Book Organized? As mentioned above, the book is organized around the entrepreneurial process. The four parts of the entrepreneurial process are as follows: Part 1: Decision to Become an Entrepreneur Part 2: Developing Successful Business Ideas Part 3: Moving from an Idea to an Entrepreneurial Firm Part 4: Managing and Growing an Entrepreneurial Firm The book mirrors this process. It is laid out in four parts and 15 chapters. The nearby figure depicts the parts of the process and the chapters that are included in each part. What Are the Unique Aspects of the Book? While using the book, we think you’ll find several unique features to be par- ticularly helpful. The following table lays out the most unique features of the book followed by an explanation.
xiv PREFACE UniqUe FeatUre oF the Book explanation Focus on opportunity The book opens with strong chapters on the front end recognition, feasibility analysis, of the entrepreneurial process, including opportunity and the developing of an effective recognition, feasibility analysis, and the development of business model. an effective business model. These are activities that must be completed early when investigating the merits of a business idea. First Screen (template for Chapter 3 (Appendix 3.1) provides a template for completing feasibility analysis). completing a feasibility analysis. The template can be copied and used to complete a feasibility analysis for a business idea. Internet Resource Table. Chapter 3 (Appendix 3.2) contains a table of Internet resources that can be used in completing a feasibility analysis and in other aspects of investigating the merits of a business idea. Barringer/Ireland Business The Barringer/Ireland Business Model Template is a nicely Model Template. designed template for helping students think through and articulate the business model for a proposed or existing firm. Each section of the template is fully explained in Chapter 4. The template can be easily copied and used by those wishing to develop a business model for an entrepre- neurial venture. Opening Profiles. Each chapter starts with a profile of an entrepreneurial firm started while the founder of founders were still in college. Photos of the entrepreneurs and a Q&A format that allows readers to get to know a little about each of the student en- trepreneurs personally are included. All 15 opening profiles are unique to the fifth edition. What Went Wrong? Each chapter contains a boxed feature titled “What Went Boxed Features. Wrong?” This feature has been a very popular aspect of the book. The features explain the missteps of seemingly promising entrepreneurial firms. The purpose is to pro- vide students a healthy dose of stories about firms that either failed or suffered setbacks rather than focus just on success stories. The features are followed by discussion questions that allows students to identify the causes of the setbacks or failures. Savvy Entrepreneurial Firm Each chapter contains a boxed feature titled “Savvy Boxed Features. Entrepreneurial Firm.” These features illustrate the types of business practices that facilitate the success of entrepre- neurial ventures. Partnering for Success Boxed Each chapter contains a boxed feature titled “Partnering for Features. Success.” We present this feature in each chapter to highlight the fact that the ability to partner effectively with other firms is becoming an increasingly important attribute for successful entrepreneurial ventures.
PREFACE xv You Be the VC end of chapter Two features, titled “You be the VC,” are provided at the features end of each chapter. These features present a “pitch” for funding for an emerging entrepreneurial venture. The fea- tures are designed to stimulate classroom discussion by sparking debate on whether a particular venture should or shouldn’t receive funding. All of the firms featured are real-life entrepreneurial ventures. End of chapter cases Two medium-length cases, written by the authors of the book, are featured at the end of each chapter. The cases are designed to stimulate classroom discussion and illus- trate the issued discussed in the chapter. Instructor Resources At the Instructor Resource Center, www.pearsonhighered.com/irc, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that ac- company this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user support phone numbers. The following supplements are available with this text: ■ Instructor’s Resource Manual ■ Test Bank ■ TestGen® Computerized Test Bank ■ PowerPoint Presentation ■ Image Library Student Resources LivePlan—Through a partnership with Palo Alto Software, we’re able to pro- vide 6-month access to LivePlan at a reduced rate with the purchase of a textbook. LivePlan simplifies business planning, budgeting, forecasting, and performance tracking for small businesses and start-ups. Set business goals, compare performance to industry benchmarks, and see all your key numbers in an easy-to-use dashboard so you know exactly what’s going on in your busi- ness. To order LivePlan with the textbook, use package ISBN 0134113519. Feedback If you have questions related to this book about entrepreneurship, please con- tact our customer service department online at http://247.pearsoned.com.
Acknowledgments We are pleased to express our sincere appreciation to four groups of people for helping bring both editions of our book to life. Pearson Education Professionals A number of individuals at Pearson Education have worked with us conscientiously and have fully supported our efforts to create a book that will work for those both studying and teaching the entrepreneurial process. From Pearson Education, we want to extend our sin- cere appreciation to our Acquisitions Editor, Dan Tylman; our Senior Strategic Marketing Manager, Erin Gardner; and our Editorial Program Manager, Claudia Fernandes. Each individual provided us invaluable guidance and support, and we are grateful for their contribution. Student Entrepreneurs We want to extend a heartfelt “thank you” to the student entrepreneurs who contributed to the opening features in our book. Our conversations with these individuals were both informative and inspiring. We enjoyed getting to know these bright young entrepreneurs, and wish them nothing but total success as they continue to build their ventures. Academic Reviewers We want to thank our colleagues who participated in reviewing individual chapters of the book while they were being written. We gained keen insight from these individuals (each of whom teaches courses in entrepreneurship) and incorporated many of the suggestions of our reviewers into the final version of the book. Thank you to these professors who participated in reviews: Dr. Richard Bartlett, Columbus State Christina Roeder, James Madison Community College University Greg Berezewski, Robert Morris College Aron S. Spencer, New Jersey Institute of Jeff Brice, Jr., Texas Southern Technology University Vincent Weaver, Greenville Technical College Ralph Jagodka, Mt. San Antonio College Lisa Zidek, Florida Gulf Coast University Academic Colleagues We thank this large group of professors whose thoughts about entrepreneurial education have helped shape our book’s con- tents and presentation structure: David C. Adams, Manhattanville College James Bloodgood, Kansas State Sol Ahiarah, SUNY—Buffalo State College University Frederic Aiello, University of Southern Jenell Bramlage, University of Maine Northwestern Ohio James J. Alling Sr., Augusta Technical Michael Brizek, South Carolina State College University Jeffrey Alstete, Iona College Barb Brown, Southwestern Community College Jeffrey Alves, Wilkes University James Burke, Loyola University—Chicago Joe Aniello, Francis Marion University Lowell Busenitz, University of Oklahoma Mary Avery, Ripon College John Butler, University of Texas—Austin Jay Azriel, Illinois State University Jane Byrd, University of Mobile Richard Barker, Upper Iowa University Art Camburn, Buena Vista University Jim Bell, Texas State University Carol Carter, Louisiana State University Robert J. Berger, SUNY Potsdam Gaylen Chandler, Wichita State University xvi
ACKNOWLEDGMENTS xvii James Chrisman, Mississippi State Dennis Hoagland, LDS Business College University Kathie Holland, University of Central Florida Delena Clark, Plattsburgh State University Frank Hoy, Worcester Polytechnic Institute Dee Cole, Middle Tennessee State Jeffrey Jackson, Manhattanville College University Grant Jacobsen, Northern Virginia Roy Cook, Fort Lewis College Community College–Woodbridge Andrew Corbett, Babson College Susan Jensen, University of Simone Cummings, Washington Nebraska—Kearney University School of Medicine Alec Johnson, University of St. Thomas Suzanne D’Agnes, Queensborough James M. Jones, University of the Community College Incarnate Word, ERAU, Del Mar College Douglas Dayhoff, Indiana University Jane Jones, Mountain Empire Community Frank Demmler, Carnegie Mellon University College David Desplaces, University of Hartford/ Joy Jones, Ohio Valley College Barney Tom Kaplan, Fairleigh Dickinson Vern Disney, University of South University—Madison Carolina—Sumter Elizabeth Kisenwether, Penn State Dale Eesley, University of Toledo University Alan Eisner, Pace University James Klingler, Villanova University Susan Everett, Clark State Community Edward Kuljian, Saint Joseph’s University College James Lang, Virginia Tech University Henry Fernandez, North Carolina Central Allon Lefever, Eastern Mennonite University University Charles Fishel, San Jose State University Anita Leffel, University of Texas— Dana Fladhammer, Phoenix College San Antonio Brenda Flannery, Minnesota State Gary Levanti, Polytechnic University— University LI Campus John Friar, Northeastern University Benyamin Lichtenstein, University of Barbara Fuller, Winthrop University Massachusetts, Boston Barry Gilmore, University of Memphis Bruce Lynskey, Vanderbilt University Caroline Glackin, Delaware State Janice Mabry, Mississippi Gulf Coast University Community College Cheryl Gracie, Washtenaw Community Jeffrey Martin, University of Alabama College Greg McCann, Stetson University Frederick Greene, Manhattan College Elizabeth McCrea, Pennsylvania State— Lee Grubb, East Carolina University Great Valley Brad Handy, Springfield Technical Brian McKenzie, California State Community College University—Hayward Carnella Hardin, Glendale College Chris McKinney, Vanderbilt University Ashley Harmon, Southeastern Technical Dale Meyer, University of Colorado College Steven C. Michael, University of Illinois Steve Harper, University of North Carolina Urbana—Champaign at Wilmington Angela Mitchell, Wilmington College Alan Hauff, University of Missouri— Bryant Mitchell, University of Maryland— St. Louis Eastern Shore Gordon Haym, Lyndon State College Rob Mitchell, Western University—Canada Andrea Hershatter, Emory University Patrick Murphy, DePaul University Richard Hilliard, Nichols College Charlie Nagelschmidt, Champlain College Jo Hinton, Copiah Lincoln Community William Naumes, University of New College Hampshire
xviii ACKNOWLEDGMENTS Connie Nichols, Odessa College William Scheela, Bemidji State University Gary Nothnagle, Nazareth College Gerry Scheffelmaier, Middle Tennessee Edward O’Brien, Scottsdale Community State University College Gerald Segal, Florida Gulf Coast University David Orozco, Florida State University Cynthia Sheridan, St. Edward’s University Haesun Park, Louisiana State University Donald Shifter, Fontbonne University John Pfaff, University of the Pacific C. L. J. Spencer, Kapi’olani Community Joseph Picken, University of Texas at College Dallas Joseph Stasio, Merrimack College Emmeline de Pillis, University of Deborah Streeter, Cornell University Hawaii—Hilo Dara Szyliowicz, University of Denver Carol Reeves, University of Arkansas Clint B. Tankersley, Syracuse University John Richards, Brigham Young University Craig Tunwall, Empire State College Christo Roberts, University of Minnesota— Barry Van Hook, Arizona State University Twin Cities George Vozikis, California State George Roorbach, Lyndon State College University—Fresno Michael Rubach, University of Central David Wilemon, Syracuse University Arkansas Charlene Williams, Brewton Parker College Janice Rustia, University of Nebraska Medical Center Doug Wilson, University of Oregon James Saya, The College of Santa Fe Diana Wong, Eastern Michigan University Finally, we want to express our appreciation to our home institutions (Oklahoma State University and Texas A&M University) for creating environ- ments in which ideas are encouraged and supported. We wish each of you—our readers—all the best in your study of the entre- preneurial process. And, of course, we hope that each of you will be highly suc- cessful entrepreneurs as you pursue the ideas you’ll develop at different points in your careers.
About the Authors Bruce R. Barringer Bruce R. Barringer holds the Johnny D. Pope Entrepreneurship Chair in the Department of Entrepreneurship at Oklahoma State University. He earned his PhD from the University of Missouri and his MBA from Iowa State University. His research interests include feasibility analysis, firm growth, corporate entrepreneurship, and the impact of inter- organizational relationships on business organizations. Over the years, he has worked with a number of technology-based incubators and student-led entrepreneurship activities and clubs. He serves on the editorial review board of Entrepreneurship Theory and Practice and Journal of Small Business Management. His work has been published in Strategic Management Journal, Journal of Management, Journal of Business Venturing, Journal of Small Business Management, Journal of Developmental Entrepreneurship, and Quality Management Journal. Bruce’s outside interests include running, trail biking, and swimming. R. Duane Ireland R. Duane Ireland is a University Distinguished Professor and holds the Conn Chair in New Ventures Leadership in the Mays Business School, Texas A&M University. Previously, he served on the faculties at University of Richmond, Baylor University, and Oklahoma State University. His research interests include strategic entrepreneurship, corporate entrepreneur- ship, strategic alliances, and effectively managing organizational resources. Duane’s research has been published in journals such as Academy of Management Journal, Academy of Management Review, Academy of Management Executive, Strategic Management Journal, Administrative Science Quarterly, Journal of Management, Journal of Business Venturing, Entrepreneurship Theory and Practice, and Strategic Entrepreneurship Journal among others. He is a co- author of both scholarly books and textbooks, including best-selling strategic management texts. Along with Dr. Mike Morris (University of Florida), Duane serves as a co-editor for the Prentice Hall Entrepreneurship Series. These books offer in-depth treatments of specific entrepreneurship topics, such as Business Plans for Entrepreneurs (authored by Bruce Barringer). Duane has served or is serving on the editorial review boards for a number of journals, including AMJ, AMR, AME, JOM, JBV, and ETP. He just completed a term as Editor for AMJ. He has completed terms as an associate editor for AME and as a consulting editor for ETP and has served as a guest co-editor for special issues of a number of journals including AMR, AME, and SMJ. He is a Fellow of the Academy of Management and a Fellow of the Strategic Management Society. He recently completed a term as the President of the Academy of Management. Duane’s outside interests include running, reading, listening to a variety of music, and playing with his grandson. xix
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