Deck 5: Entrepreneurship and New Venture Management

Question 1

Consider the four major reasons for new business failure. What actions can entrepreneurs take to minimize or avoid each cause of failure?

Answer 1

The main reasons why small businesses fail are listed below, with suggested remedies to avoid this failure.
1) Lack of managerial experience or competence. This normally found when the entrepreneur gets into an industry of which he has very little knowledge or prior experience. The remedy for this for him to hire the requisite talents in the areas where there are shortcomings.
2) Many times entrepreneurs try to run a business in their spare time. This is because they do not have that level of faith in the business to give it a full time commitment. Here the entrepreneur has no alternative to either find the time commitment or to sell the business to someone who has the time and the drive.
3) Lack of control is another big problem that leads to the failure of many small businesses. Here the entrepreneur has to identify the areas where control is critical and ensure that adequate authorization and reporting systems are in place so that the control is always in place. Regular checks would ensure that no deviations are made to these control systems.
4) Most small business fail because that they are not adequately financed. Changing business scenarios delay the firm's take-off in the market and can also prolong the business cycle. This means that the cash flows would not be as were anticipated in the beginning. The entrepreneur in addition to the initial financing must have a contingency plan for more funding if required.
Therefore, these are the various factors that contribute to the failure of small businesses and how entrepreneurs could avoid the same.

Question 2

What characteristics make an industry attractive to entrepreneurs? Based on these characteristics, which industries are most attractive to entrepreneurs?

Answer 2

Any industry that requires a low amount of resources is attractive to entrepreneurs. Hence many of the service industries as well as industries like computer software find entrepreneurs flocking to them. Therefore, one would rarely find an entrepreneur in manufacturing industry since the resource requirements are usually quite substantial in this industry.
Higher the financial requirement to start an industry higher is the risk that the entrepreneur has to take to enter into that industry. This is because these firms are usually suppliers to some large OEM and hence are more or less guaranteed their market. Also it means that their success or failure is very closely linked to that of the OEM.
Industries that would attract entrepreneurs are as follows:
1) Services.
2) Retailing.
3) Transport.
4) Consultancy services.
5) Insurance.
6) Finance.
7) Wholesale.
8) Small scale manufacturing.
All of the listed industries display the characteristics mentioned above.

Question 3

Negotiating a Franchise Agreement
Step 1: Assume that you are the owner of a rapidly growing restaurant chain. To continue your current level of growth, you are considering the option of selling franchises for new restaurants. Working alone, outline the major points of most concern to you that you would want to have in a franchising agreement. Also note the characteristics you would look for in potential franchisees.
Step 2: Assume that you are an individual investor looking to buy a franchise in a rapidly growing restaurant chain. Again working alone, outline the major factors that might determine which franchise you elect to buy. Also note the characteristics you would look for in a potential franchiser.
Step 3: Now form small groups of four. Randomly select one member of the group to play the role of the franchiser; the other three members will play the roles of potential franchisees. Role-play a negotiation meeting. The franchiser should stick as closely as possible to the major points developed in Step 1. Similarly, the potential franchisees should try to adhere to the points they developed in Step 2.
Follow-up Questions:
Can a franchising agreement be so one-sided as to damage the interests of both parties? How so?

Answer 3

A one-sided agreement can be damaging to any business entity. Franchisees approach a franchisor mainly because of that business' reputation and standing in the market. They see it as an opportunity to start a business with very little pain that is usually associated with any startup. Here one gets a business overnight along with a first class management expertise added on.
However, if the agreement is one-sided, one assumes that the party losing out would be the franchisee. In this case, in today's connected world, this word would spread and would only serve to damage the reputation and image of the franchisor. This damage in monetary terms could turn out to be much more than the financial damage suffered by the franchisee.
Hence, one-sided agreements could ultimately endup in hurting both the sides.

Question 4

Which niches does Bigfoot serve in established markets? What new markets does it target? Can you think of any other niches or new markets that it should consider in the future?

Question 5

Exercise Overview
Conceptual skills require you to think in the abstract. This exercise will help you apply your conceptual skills to an analysis of certain criteria for successful entrepreneurship.
Exercise Background
Now that you're about to graduate, you've decided to open a small business in the local community where you've been attending college. We won't ask where you got them, but we'll assume that you have enough funds to start a business without having to worry about finding investors.
Based solely on your personal interests, list five businesses that you might want to open and operate. For the moment, forget about technicalities such as market potential or profitability. If, for example, you like riding your bicycle, think about opening a shop that caters to cyclists.
Next, without regard for any personal interest you might have in them, list five businesses that you might want to open and operate. In this case, your only criteria are market opportunity and profitability. What types of businesses might be profitable in your chosen community? Use the Internet to gather information on factors such as population, local economic conditions, local competition, and franchising opportunities.
Finally, evaluate the prospects for success of each of the ten businesses that you've listed, and jot down some notes to summarize your conclusions.
Exercise Task
How important do you regard market potential as a factor in small-business success?

Question 6

Exercise Overview
Conceptual skills require you to think in the abstract. This exercise will help you apply your conceptual skills to an analysis of certain criteria for successful entrepreneurship.
Exercise Background
Now that you're about to graduate, you've decided to open a small business in the local community where you've been attending college. We won't ask where you got them, but we'll assume that you have enough funds to start a business without having to worry about finding investors.
Based solely on your personal interests, list five businesses that you might want to open and operate. For the moment, forget about technicalities such as market potential or profitability. If, for example, you like riding your bicycle, think about opening a shop that caters to cyclists.
Next, without regard for any personal interest you might have in them, list five businesses that you might want to open and operate. In this case, your only criteria are market opportunity and profitability. What types of businesses might be profitable in your chosen community? Use the Internet to gather information on factors such as population, local economic conditions, local competition, and franchising opportunities.
Finally, evaluate the prospects for success of each of the ten businesses that you've listed, and jot down some notes to summarize your conclusions.
Exercise Task
Reviewing your lists, the information that you've gathered, and the conclusions that you've drawn, do the following:
Form a small group of four or five classmates, and discuss your respective lists. Look for instances in which the same type of business appears on either both of your lists or one of your lists and one of a classmate's lists. Also look for cases in which the same business appears on one or more than one list with either similar or dissimilar prospects for success.

Question 7

Do you facebook? Over 600 million people do-a particularly impressive number when you consider that Facebook began the year 2010 with a mere 350 million users. If you saw the movie The Social Network, you know that the immensely popular social-networking website was started by Harvard sophomore Mark Zuckerberg in February 2004. Today, Facebook.com is the second most visited site on the Internet, behind only Google. Worldwide, users spend more than 700 billion minutes a month on Facebook, uploading 3 billion photos and 2 billion videos and sharing 30 billion pieces of content (news stories, blog posts, photo albums, etc.) every month.
Its growth in value has been as spectacular as the growth of its user base. From $100 million in 2005, its valuation jumped to $15 billion in late 2007, to $33 billion in mid-2010, to $50 billion by the end of the year. In January 2011, when its valuation hit $82.9 billion, it surpassed Amazon as the number-two U.S. Internet company (again, behind only Google). In 2012 Zuckerberg announced that Facebook would issue a public offering of its stock. That announcement, of course, wasn't really a surprise. Facebook is, after all, a business, and money is an issue with any business- especially one that's growing at the rate of Facebook. Exactly how does Facebook make money? In 2010, according to Inside Facebook, an independent news source, about 98 percent of the company's total revenue came from advertising-$625 million out of $635 million (though both figures may be higher, the latter as high as $700 million). Facebook advertising for the year fell into three classes:
• Performance advertising: Branded ads that ask users to click through to an advertising message on a destination site ($350 million)
• Brand advertising: Advertising placed through agencies by large companies ($225 million)
• Microsoft advertising: Banner ads and sponsor links targeted mainly at college students ($50 million-the result of a revenue-sharing agreement in effect from 2007 to 2009)
About 2 percent ($10 million) of Facebook's 2010 revenue resulted from the sale of virtual goods and direct credits-from the sale of virtual gifts (those little icons that pop up in certain Facebook programs and which users can exchange for about $1) and from Facebook's percentage of the credits that many online developers who use the Facebook platform accept as payment from their customers.
Inside Facebook estimates that the company's revenues roughly doubled each year from 2007 to 2009- from $150 million in 2007, to $280-$300 million in 2008, to more than $600 million in 2009. Revenues for 2010 ballooned to $2 billion, and early projections for 2011 have gone as high as $4 billion. And what about profits? The business-news site Business Insider reports 2010 profits of $600 million, and projections for 2011 have ranged from $1 billion to $2 billion.
Obviously these are impressive numbers, but there are still some people-including a number of analysts-who remain skeptical about Facebook's prospects as a premier investment opportunity. Why? They're not sure that Facebook can ultimately increase profitability to a level that will justify its market valuation. And indeed, these concerns resulted in the IPO raising less money than was expected and share prices that have not increased in value.
Such skepticism often boils down to a comparison of Facebook with Google, the world's number-one Internet company. As we've seen, for example, Facebook's valuation skyrocketed in the past five years, but even at $82.9 billion, it's dwarfed by Google, whose value, as of January 2011, stood at a whopping $192 billion. Likewise, Facebook's $2 billion in 2010 revenues included $1.86 billion in ad revenue-a healthy figure, to say the least, but it pales in comparison with Google ad revenues of $2 billion a month. (Ironically, Google is Facebook's fifth-largest advertiser.) Finally, as Business Insider points out, although Facebook has enjoyed spectacular growth over its first seven years, it hasn't grown nearly as fast as Google did over its first seven years (indeed, over its first ten years).
Thus, in order to make his company's valuation look good to investors, Zuckerberg will need to show that it can emulate the epic growth of Google. It may seem like a daunting task, but on the upside, says Business Insider's Nicholas Carlson, Google is "a one-trick pony. It makes almost all of its money from one business-search." Facebook, on the other hand, already enjoys a diversified revenue base. Consider, for example, Zynga, a maker of online games that use the platforms of social networking sites, particularly Facebook. First of all, game makers like Zynga buy about one-third of all performance advertising on Facebook. Second, game makers like Zynga allow players to pay with "Facebook Credits"-a virtual currency with which users can pay for goods and services from Facebook apps. Facebook collects a 30 percent "tax" from all these credits, and combined with advertising revenues, Facebook's take from game makers in 2010 was about $400 million.
Zynga, says Carlson, is a good example of Facebook's revenue base, not only because it exemplifies a relatively new type of company-it's a maker of multiplayer browser-based games founded in 2007-but also because its own growth has been so explosive: Zynga is already worth $5 billion and its own 2010 revenues topped $500 million. For Carlson, the Facebook- Zynga synergy suggests that Facebook will continue to grow at an investment-worthy rate because its real business "is taxing other businesses that figure out ways to make money off of social networking." It's a formula for success that Zuckerberg is well aware of: "In gaming," he remarked in the fall of 2010, "we get some percentage of the value of those companies through ads and credits. But that's all because we're helping them…. Over the next five years," he added,
most industries are going to get rethought [as] social…. A social version of anything can almost always … outperform a nonsocial version. There are going to be some really good businesses built…. Our view is that we should play a role in helping to reform and rethink all those industries and … get value proportional to what we put in…. If we're helpful to other industries in building what would be a good solution, then there will be some way we get value from that.
Its click-through rate measures the number of visitors to a website who actually click on the ads. Industrywide, it's not good, and in 2010, Facebook's click-through rate was below the industry average. What about you-do you click through? What does it take for you to venture away-even temporarily-from a host site when you're online? What can a company like Facebook do to improve its click-through rate-and its advertising revenue?

Question 8

Exercise Overview
Diagnostic skills enable a manager to visualize the most appropriate response to a situation. This exercise is designed to develop your diagnostic skills by asking you to think about your chances of becoming an entrepreneur.
Exercise Background
Scholars of entrepreneurship are naturally interested in the reasons why some people choose to start new businesses while other people-indeed, most people- don't. Researchers have surveyed thousands of individuals, both entrepreneurs and non-entrepreneurs, in efforts to identify some of the factors that distinguish between individuals in the two groups. Out of these hundreds of studies, some consensus has emerged. The results tell us that the following types of individuals are most likely to become entrepreneurs:
• Parents, children, spouses, or siblings of entrepreneurs
• Immigrants to the United States or the children of immigrants
• Members of the Jewish or Protestant faiths
• Professional degree holders in fields such as medicine, law, or engineering
• People who've recently experienced life-changing events, such as getting married, having a child, moving to a new city, or losing a job
Exercise Task
Considering the information above, do the following:
Choose one of the above categories and explain why this particular factor might make an individual more likely to become a business owner.

Question 9

The U.S. automotive industry is well established, with several large and many small competitors. Describe the unexploited niches in the U.S. auto industry and tell how entrepreneurs could offer products that fill those niches.

Question 10

Do you facebook? Over 600 million people do-a particularly impressive number when you consider that Facebook began the year 2010 with a mere 350 million users. If you saw the movie The Social Network, you know that the immensely popular social-networking website was started by Harvard sophomore Mark Zuckerberg in February 2004. Today, Facebook.com is the second most visited site on the Internet, behind only Google. Worldwide, users spend more than 700 billion minutes a month on Facebook, uploading 3 billion photos and 2 billion videos and sharing 30 billion pieces of content (news stories, blog posts, photo albums, etc.) every month.
Its growth in value has been as spectacular as the growth of its user base. From $100 million in 2005, its valuation jumped to $15 billion in late 2007, to $33 billion in mid-2010, to $50 billion by the end of the year. In January 2011, when its valuation hit $82.9 billion, it surpassed Amazon as the number-two U.S. Internet company (again, behind only Google). In 2012 Zuckerberg announced that Facebook would issue a public offering of its stock. That announcement, of course, wasn't really a surprise. Facebook is, after all, a business, and money is an issue with any business- especially one that's growing at the rate of Facebook. Exactly how does Facebook make money? In 2010, according to Inside Facebook, an independent news source, about 98 percent of the company's total revenue came from advertising-$625 million out of $635 million (though both figures may be higher, the latter as high as $700 million). Facebook advertising for the year fell into three classes:
• Performance advertising: Branded ads that ask users to click through to an advertising message on a destination site ($350 million)
• Brand advertising: Advertising placed through agencies by large companies ($225 million)
• Microsoft advertising: Banner ads and sponsor links targeted mainly at college students ($50 million-the result of a revenue-sharing agreement in effect from 2007 to 2009)
About 2 percent ($10 million) of Facebook's 2010 revenue resulted from the sale of virtual goods and direct credits-from the sale of virtual gifts (those little icons that pop up in certain Facebook programs and which users can exchange for about $1) and from Facebook's percentage of the credits that many online developers who use the Facebook platform accept as payment from their customers.
Inside Facebook estimates that the company's revenues roughly doubled each year from 2007 to 2009- from $150 million in 2007, to $280-$300 million in 2008, to more than $600 million in 2009. Revenues for 2010 ballooned to $2 billion, and early projections for 2011 have gone as high as $4 billion. And what about profits? The business-news site Business Insider reports 2010 profits of $600 million, and projections for 2011 have ranged from $1 billion to $2 billion.
Obviously these are impressive numbers, but there are still some people-including a number of analysts-who remain skeptical about Facebook's prospects as a premier investment opportunity. Why? They're not sure that Facebook can ultimately increase profitability to a level that will justify its market valuation. And indeed, these concerns resulted in the IPO raising less money than was expected and share prices that have not increased in value.
Such skepticism often boils down to a comparison of Facebook with Google, the world's number-one Internet company. As we've seen, for example, Facebook's valuation skyrocketed in the past five years, but even at $82.9 billion, it's dwarfed by Google, whose value, as of January 2011, stood at a whopping $192 billion. Likewise, Facebook's $2 billion in 2010 revenues included $1.86 billion in ad revenue-a healthy figure, to say the least, but it pales in comparison with Google ad revenues of $2 billion a month. (Ironically, Google is Facebook's fifth-largest advertiser.) Finally, as Business Insider points out, although Facebook has enjoyed spectacular growth over its first seven years, it hasn't grown nearly as fast as Google did over its first seven years (indeed, over its first ten years).
Thus, in order to make his company's valuation look good to investors, Zuckerberg will need to show that it can emulate the epic growth of Google. It may seem like a daunting task, but on the upside, says Business Insider's Nicholas Carlson, Google is "a one-trick pony. It makes almost all of its money from one business-search." Facebook, on the other hand, already enjoys a diversified revenue base. Consider, for example, Zynga, a maker of online games that use the platforms of social networking sites, particularly Facebook. First of all, game makers like Zynga buy about one-third of all performance advertising on Facebook. Second, game makers like Zynga allow players to pay with "Facebook Credits"-a virtual currency with which users can pay for goods and services from Facebook apps. Facebook collects a 30 percent "tax" from all these credits, and combined with advertising revenues, Facebook's take from game makers in 2010 was about $400 million.
Zynga, says Carlson, is a good example of Facebook's revenue base, not only because it exemplifies a relatively new type of company-it's a maker of multiplayer browser-based games founded in 2007-but also because its own growth has been so explosive: Zynga is already worth $5 billion and its own 2010 revenues topped $500 million. For Carlson, the Facebook- Zynga synergy suggests that Facebook will continue to grow at an investment-worthy rate because its real business "is taxing other businesses that figure out ways to make money off of social networking." It's a formula for success that Zuckerberg is well aware of: "In gaming," he remarked in the fall of 2010, "we get some percentage of the value of those companies through ads and credits. But that's all because we're helping them…. Over the next five years," he added, most industries are going to get rethought [as] social…. A social version of anything can almost always … outperform a nonsocial version. There are going to be some really good businesses built…. Our view is that we should play a role in helping to reform and rethink all those industries and … get value proportional to what we put in…. If we're helpful to other industries in building what would be a good solution, then there will be some way we get value from that.
If you use Facebook (or any other social networking site), which of its features are most attractive to you? If you don't use any social networking site, what features are most likely to cause you to try one?

Question 11

Describe recent trends in new business start-ups.

Question 12

Entrepreneurs and small businesses play a variety of important roles in society. If these roles are so important, do you think that the government should do more to encourage the development of small business? Why or why not?

Question 13

Does Bigfoot have any first-mover advantages? If so, what are these advantages, and how important do you think they are now and will be in the future?

Question 14

Describe the similarities and differences between entrepreneurial firms and large firms in terms of their job creation and innovation.

Question 15

Do you facebook? Over 600 million people do-a particularly impressive number when you consider that Facebook began the year 2010 with a mere 350 million users. If you saw the movie The Social Network, you know that the immensely popular social-networking website was started by Harvard sophomore Mark Zuckerberg in February 2004. Today, Facebook.com is the second most visited site on the Internet, behind only Google. Worldwide, users spend more than 700 billion minutes a month on Facebook, uploading 3 billion photos and 2 billion videos and sharing 30 billion pieces of content (news stories, blog posts, photo albums, etc.) every month.
Its growth in value has been as spectacular as the growth of its user base. From $100 million in 2005, its valuation jumped to $15 billion in late 2007, to $33 billion in mid-2010, to $50 billion by the end of the year. In January 2011, when its valuation hit $82.9 billion, it surpassed Amazon as the number-two U.S. Internet company (again, behind only Google). In 2012 Zuckerberg announced that Facebook would issue a public offering of its stock. That announcement, of course, wasn't really a surprise. Facebook is, after all, a business, and money is an issue with any business- especially one that's growing at the rate of Facebook. Exactly how does Facebook make money? In 2010, according to Inside Facebook, an independent news source, about 98 percent of the company's total revenue came from advertising-$625 million out of $635 million (though both figures may be higher, the latter as high as $700 million). Facebook advertising for the year fell into three classes:
• Performance advertising: Branded ads that ask users to click through to an advertising message on a destination site ($350 million)
• Brand advertising: Advertising placed through agencies by large companies ($225 million)
• Microsoft advertising: Banner ads and sponsor links targeted mainly at college students ($50 million-the result of a revenue-sharing agreement in effect from 2007 to 2009)
About 2 percent ($10 million) of Facebook's 2010 revenue resulted from the sale of virtual goods and direct credits-from the sale of virtual gifts (those little icons that pop up in certain Facebook programs and which users can exchange for about $1) and from Facebook's percentage of the credits that many online developers who use the Facebook platform accept as payment from their customers.
Inside Facebook estimates that the company's revenues roughly doubled each year from 2007 to 2009- from $150 million in 2007, to $280-$300 million in 2008, to more than $600 million in 2009. Revenues for 2010 ballooned to $2 billion, and early projections for 2011 have gone as high as $4 billion. And what about profits? The business-news site Business Insider reports 2010 profits of $600 million, and projections for 2011 have ranged from $1 billion to $2 billion.
Obviously these are impressive numbers, but there are still some people-including a number of analysts-who remain skeptical about Facebook's prospects as a premier investment opportunity. Why? They're not sure that Facebook can ultimately increase profitability to a level that will justify its market valuation. And indeed, these concerns resulted in the IPO raising less money than was expected and share prices that have not increased in value.
Such skepticism often boils down to a comparison of Facebook with Google, the world's number-one Internet company. As we've seen, for example, Facebook's valuation skyrocketed in the past five years, but even at $82.9 billion, it's dwarfed by Google, whose value, as of January 2011, stood at a whopping $192 billion. Likewise, Facebook's $2 billion in 2010 revenues included $1.86 billion in ad revenue-a healthy figure, to say the least, but it pales in comparison with Google ad revenues of $2 billion a month. (Ironically, Google is Facebook's fifth-largest advertiser.) Finally, as Business Insider points out, although Facebook has enjoyed spectacular growth over its first seven years, it hasn't grown nearly as fast as Google did over its first seven years (indeed, over its first ten years).
Thus, in order to make his company's valuation look good to investors, Zuckerberg will need to show that it can emulate the epic growth of Google. It may seem like a daunting task, but on the upside, says Business Insider's Nicholas Carlson, Google is "a one-trick pony. It makes almost all of its money from one business-search." Facebook, on the other hand, already enjoys a diversified revenue base. Consider, for example, Zynga, a maker of online games that use the platforms of social networking sites, particularly Facebook. First of all, game makers like Zynga buy about one-third of all performance advertising on Facebook. Second, game makers like Zynga allow players to pay with "Facebook Credits"-a virtual currency with which users can pay for goods and services from Facebook apps. Facebook collects a 30 percent "tax" from all these credits, and combined with advertising revenues, Facebook's take from game makers in 2010 was about $400 million.
Zynga, says Carlson, is a good example of Facebook's revenue base, not only because it exemplifies a relatively new type of company-it's a maker of multiplayer browser-based games founded in 2007-but also because its own growth has been so explosive: Zynga is already worth $5 billion and its own 2010 revenues topped $500 million. For Carlson, the Facebook- Zynga synergy suggests that Facebook will continue to grow at an investment-worthy rate because its real business "is taxing other businesses that figure out ways to make money off of social networking." It's a formula for success that Zuckerberg is well aware of: "In gaming," he remarked in the fall of 2010, "we get some percentage of the value of those companies through ads and credits. But that's all because we're helping them…. Over the next five years," he added,
most industries are going to get rethought [as] social…. A social version of anything can almost always … outperform a nonsocial version. There are going to be some really good businesses built…. Our view is that we should play a role in helping to reform and rethink all those industries and … get value proportional to what we put in…. If we're helpful to other industries in building what would be a good solution, then there will be some way we get value from that.
According to one popular technology blog, its current policy on users' privacy means that "your name, profile picture, gender, current city, networks, Friends List, and all the pages you subscribe to are now publicly available information on Facebook. This means everyone on the web can see it; it is searchable." Is this OK with you? Why or why not?

Question 16

Negotiating a Franchise Agreement
Step 1: Assume that you are the owner of a rapidly growing restaurant chain. To continue your current level of growth, you are considering the option of selling franchises for new restaurants. Working alone, outline the major points of most concern to you that you would want to have in a franchising agreement. Also note the characteristics you would look for in potential franchisees.
Step 2: Assume that you are an individual investor looking to buy a franchise in a rapidly growing restaurant chain. Again working alone, outline the major factors that might determine which franchise you elect to buy. Also note the characteristics you would look for in a potential franchiser.
Step 3: Now form small groups of four. Randomly select one member of the group to play the role of the franchiser; the other three members will play the roles of potential franchisees. Role-play a negotiation meeting. The franchiser should stick as closely as possible to the major points developed in Step 1. Similarly, the potential franchisees should try to adhere to the points they developed in Step 2.
Follow-up Questions:
Did doing both Step 1 and Step 2 in advance help or hinder your negotiations?

Question 17

List five entrepreneur-owned businesses in your community. In which industry does each business compete? Based on the industry, how do you rate each business's long-term chances for success? Explain your answers.

Question 18

An Entrepreneurial Quiz
Introduction: Entrepreneurs are starting ventures all the time. These new businesses are vital to the economy. The following assessment is designed to help you understand your readiness to start your own business-to be an entrepreneur.
Instructions: Place a checkmark or an X in the box next to the response that best represents your self-evaluation.
1. Are you a self-starter?
a) I do things on my own. Nobody has to tell me to get going.
b) If someone gets me started, I keep going all right.
c) Easy does it. I don't push myself until I have to.
2. How do you feel about other people?
a) I like people. I can get along with just about anybody.
b) I have plenty of friends-I don't need anybody else.
c) Most people irritate me.
3. Can you lead others?
a) I can get most people to go along when I start something.
B) I can give orders if someone tells me what we should do.
C) I let someone else get things moving. Then I go along if I feel like it.
4. Can you take responsibility?
a) I like to take charge of things and see them through.
b) I'll take over if I have to, but I'd rather let someone else be responsible.
c) There are always eager beavers around wanting to show how smart they are. I let them.
5. How good an organizer are you?
a) I like to have a plan before I start. I'm usually the one to get things lined up when the group wants to do something.
b) I do all right unless things get too confused. Then I quit.
c) You get all set and then something comes along and presents too many problems. So I just take things as they come.
6. How good a worker are you?
a) I can keep going as long as I need to. I don't mind working hard for something I want.
b) I'll work hard for a while, but when I've had enough, that's it.
c) I can't see that hard work gets you anywhere.
7. Can you make decisions?
a) I can make up my mind in a hurry if I have to. It usually turns out OK, too.
c) I can if I have plenty of time. If I have to make up my mind fast, I think later I should have decided the other way.
c) I don't like to be the one who has to decide things.
8. Can people trust what you say?
a) You bet they can. I don't say things I don't mean.
b) I try to be on the level most of the time, but sometimes I just say what's easiest.
c) Why bother if the other person doesn't know the difference?
9. Can you stick with it?
a) If I make up my mind to do something, I don't let anything stop me.
b) I usually finish what I start-if it goes well.
c) If it doesn't go well right away, I quit. Why beat your brains out?
10. How good is your health?
a) I never run down!
b) I have enough energy for most things I want to do.
c) I run out of energy sooner than most of my friends.
Total the checks or Xs in each column here ___.

Question 19

What are the different sources of advice for entrepreneurs? What type of information would an entrepreneur be likely to get from each source? What are the drawbacks or limitations for each source?

Question 20

In what ways is Bigfoot innovative? In what ways does it deal with big business? In what industries does it operate?

Question 21

In what ways does Bigfoot rely on distinctive competencies? In what ways is experience in international management among these competencies? In what ways do you expect this particular competency to become even more important in the future?

Question 22

Exercise Overview
Conceptual skills require you to think in the abstract. This exercise will help you apply your conceptual skills to an analysis of certain criteria for successful entrepreneurship.
Exercise Background
Now that you're about to graduate, you've decided to open a small business in the local community where you've been attending college. We won't ask where you got them, but we'll assume that you have enough funds to start a business without having to worry about finding investors.
Based solely on your personal interests, list five businesses that you might want to open and operate. For the moment, forget about technicalities such as market potential or profitability. If, for example, you like riding your bicycle, think about opening a shop that caters to cyclists.
Next, without regard for any personal interest you might have in them, list five businesses that you might want to open and operate. In this case, your only criteria are market opportunity and profitability. What types of businesses might be profitable in your chosen community? Use the Internet to gather information on factors such as population, local economic conditions, local competition, and franchising opportunities.
Finally, evaluate the prospects for success of each of the ten businesses that you've listed, and jot down some notes to summarize your conclusions.
Exercise Task
At this point, how important do you regard personal interest as a factor in small-business success?

Question 23

Using the information about managing a small business presented in this chapter, analyze whether you would like to work in a small business-either as an employee or as a founder. Given your personality, background, and experience, does working in or starting a new business appeal to you? What are the reasons for your opinion?

Question 24

Exercise Overview
Diagnostic skills enable a manager to visualize the most appropriate response to a situation. This exercise is designed to develop your diagnostic skills by asking you to think about your chances of becoming an entrepreneur.
Exercise Background
Scholars of entrepreneurship are naturally interested in the reasons why some people choose to start new businesses while other people-indeed, most people- don't. Researchers have surveyed thousands of individuals, both entrepreneurs and non-entrepreneurs, in efforts to identify some of the factors that distinguish between individuals in the two groups. Out of these hundreds of studies, some consensus has emerged. The results tell us that the following types of individuals are most likely to become entrepreneurs:
• Parents, children, spouses, or siblings of entrepreneurs
• Immigrants to the United States or the children of immigrants
• Members of the Jewish or Protestant faiths
• Professional degree holders in fields such as medicine, law, or engineering
• People who've recently experienced life-changing events, such as getting married, having a child, moving to a new city, or losing a job
Exercise Task
Considering the information above, do the following:
Being sure to choose a category other than the one that you discussed for question 1, select one of these categories that applies to you. In your opinion, does that factor make it more likely that you'll become an entrepreneur? Why or why not? If none of the above categories applies to you, discuss whether that fact itself makes it less likely that you'll become an entrepreneur.

Question 25

What are the basic reasons why small businesses succeed and what are the basic reasons they fail?

Question 26

Do you facebook? Over 600 million people do-a particularly impressive number when you consider that Facebook began the year 2010 with a mere 350 million users. If you saw the movie The Social Network, you know that the immensely popular social-networking website was started by Harvard sophomore Mark Zuckerberg in February 2004. Today, Facebook.com is the second most visited site on the Internet, behind only Google. Worldwide, users spend more than 700 billion minutes a month on Facebook, uploading 3 billion photos and 2 billion videos and sharing 30 billion pieces of content (news stories, blog posts, photo albums, etc.) every month.
Its growth in value has been as spectacular as the growth of its user base. From $100 million in 2005, its valuation jumped to $15 billion in late 2007, to $33 billion in mid-2010, to $50 billion by the end of the year. In January 2011, when its valuation hit $82.9 billion, it surpassed Amazon as the number-two U.S. Internet company (again, behind only Google). In 2012 Zuckerberg announced that Facebook would issue a public offering of its stock. That announcement, of course, wasn't really a surprise. Facebook is, after all, a business, and money is an issue with any business- especially one that's growing at the rate of Facebook. Exactly how does Facebook make money? In 2010, according to Inside Facebook, an independent news source, about 98 percent of the company's total revenue came from advertising-$625 million out of $635 million (though both figures may be higher, the latter as high as $700 million). Facebook advertising for the year fell into three classes:
• Performance advertising: Branded ads that ask users to click through to an advertising message on a destination site ($350 million)
• Brand advertising: Advertising placed through agencies by large companies ($225 million)
• Microsoft advertising: Banner ads and sponsor links targeted mainly at college students ($50 million-the result of a revenue-sharing agreement in effect from 2007 to 2009)
About 2 percent ($10 million) of Facebook's 2010 revenue resulted from the sale of virtual goods and direct credits-from the sale of virtual gifts (those little icons that pop up in certain Facebook programs and which users can exchange for about $1) and from Facebook's percentage of the credits that many online developers who use the Facebook platform accept as payment from their customers.
Inside Facebook estimates that the company's revenues roughly doubled each year from 2007 to 2009- from $150 million in 2007, to $280-$300 million in 2008, to more than $600 million in 2009. Revenues for 2010 ballooned to $2 billion, and early projections for 2011 have gone as high as $4 billion. And what about profits? The business-news site Business Insider reports 2010 profits of $600 million, and projections for 2011 have ranged from $1 billion to $2 billion.
Obviously these are impressive numbers, but there are still some people-including a number of analysts-who remain skeptical about Facebook's prospects as a premier investment opportunity. Why? They're not sure that Facebook can ultimately increase profitability to a level that will justify its market valuation. And indeed, these concerns resulted in the IPO raising less money than was expected and share prices that have not increased in value.
Such skepticism often boils down to a comparison of Facebook with Google, the world's number-one Internet company. As we've seen, for example, Facebook's valuation skyrocketed in the past five years, but even at $82.9 billion, it's dwarfed by Google, whose value, as of January 2011, stood at a whopping $192 billion. Likewise, Facebook's $2 billion in 2010 revenues included $1.86 billion in ad revenue-a healthy figure, to say the least, but it pales in comparison with Google ad revenues of $2 billion a month. (Ironically, Google is Facebook's fifth-largest advertiser.) Finally, as Business Insider points out, although Facebook has enjoyed spectacular growth over its first seven years, it hasn't grown nearly as fast as Google did over its first seven years (indeed, over its first ten years).
Thus, in order to make his company's valuation look good to investors, Zuckerberg will need to show that it can emulate the epic growth of Google. It may seem like a daunting task, but on the upside, says Business Insider's Nicholas Carlson, Google is "a one-trick pony. It makes almost all of its money from one business-search." Facebook, on the other hand, already enjoys a diversified revenue base. Consider, for example, Zynga, a maker of online games that use the platforms of social networking sites, particularly Facebook. First of all, game makers like Zynga buy about one-third of all performance advertising on Facebook. Second, game makers like Zynga allow players to pay with "Facebook Credits"-a virtual currency with which users can pay for goods and services from Facebook apps. Facebook collects a 30 percent "tax" from all these credits, and combined with advertising revenues, Facebook's take from game makers in 2010 was about $400 million.
Zynga, says Carlson, is a good example of Facebook's revenue base, not only because it exemplifies a relatively new type of company-it's a maker of multiplayer browser-based games founded in 2007-but also because its own growth has been so explosive: Zynga is already worth $5 billion and its own 2010 revenues topped $500 million. For Carlson, the Facebook- Zynga synergy suggests that Facebook will continue to grow at an investment-worthy rate because its real business "is taxing other businesses that figure out ways to make money off of social networking." It's a formula for success that Zuckerberg is well aware of: "In gaming," he remarked in the fall of 2010, "we get some percentage of the value of those companies through ads and credits. But that's all because we're helping them…. Over the next five years," he added,
most industries are going to get rethought [as] social…. A social version of anything can almost always … outperform a nonsocial version. There are going to be some really good businesses built…. Our view is that we should play a role in helping to reform and rethink all those industries and … get value proportional to what we put in…. If we're helpful to other industries in building what would be a good solution, then there will be some way we get value from that.
Explain Facebook's distinctive competencies in as much detail as you can. If you use Facebook, you can obviously draw on your own experience. If you don't use the site, talk to a few people who do.