Chapter 5: Launching a Business Overview
As you read this chapter, look for answers to the following questions:
What are the challenges and rewards of entrepreneurship?
What is the role of small business in the American economy?
What are the advantages and disadvantages of sole proprietorships, partnerships, and corporations?
How are large corporations organized?
What are the responsibilities of owning and operating a business?
Successful Entrepreneurs
The earliest computers were highly technical machines, understandable only to scientists. Steven Jobs reasoned that if computers were made easier to use and less expensive, the public would buy them. He was right. With $1,300 (most of which came from the sale of second-hand Volkswagen van), Jobs produced what he called the Apple I computer. The success of the Apple I gave him the money to finance the design of new and improved personal computers.
In 1980 Apple sold its stock to the public for the first time, with a market value of $1.79 billion!
Bill Gates was intrigued by the success of the new personal computers entering the market in the 1970s. Gates realized that the success of personal computers would depend on the availability of “user-friendly” (easy to use) software. In 1975 he co-founded Microsoft Corporation, which designs the basic operating software for all IBM and IBM-compatible personal computers.
Today Microsoft Corporation is the world’s largest software company, and Bill Gates, by owning 40 percent of its stock, has the become the world’s youngest billionaire.
Steven Jobs and Bill Gates are good examples of successful entrepreneurs. The terms entrepreneur typically is used to refer to anyone who owns or operates a small business – the corner laundry, a video store, or a lawn-mowing business.
However, when the term was coined by French economist Jean Baptiste Say in 1800, he used it to describe a very important economic activity. An entrepreneur, Say explained, is a person who is able to make decisions that allow more efficient use of economic resources. Say’s definition emphasizes the importance of management decisions that produce new and better ways to operate a business. Say would not have considered the owner of a laundry or landscaping business to be an entrepreneur, unless he or she developed a new system or product.
Say would have considered Jobs and Gates entrepreneurs along with Ray Kroc. Before 1960, hamburger stands could be found throughout the United States, but few of their owners were true entrepreneurs. Kroc, the founder of McDonalds, developed a new way to organize hamburger production to guarantee fast, friendly service and uniform quality. Other entrepreneurs who have been an important part of America’s economic history are Henry Ford, who revolutionized automobile production; the Kellogg Brothers, who developed methods for producing crispy flakes of wheat and corn; and Clarence Birdseye, who made frozen foods available to consumers. Today, more than ever before, the imagination and energy of entrepreneurs continues to fuel the growth of the American economy.
Who Becomes an Entrepreneur? Many people have studied successful entrepreneurs to find out just what type of personality they have. The truth is that entrepreneurs come in all ages, shapes, sizes, and personalities. In fact, it is impossible to clearly define the characteristics of successful entrepreneurs, and this is what makes them so interesting. Here are a few examples.
Some entrepreneurs started at an early age. Naeemah Suluki combined baby-sitting with tutoring. With regular clients, she earned more than your average sitter! Daryl Berstein, organized about 50 businesses by age 15. He started enterprises for everything from walking dogs to taking trash cans in and out.
Some entrepreneurs develop and sell ordinary products. Michael and Irene Szyliowicz sold their own special blend of cocoa to individuals and other retailers. Ed Lowe discovered that the clay granules gas stations used to absorb grease and oil could be used as cat-box filler. Lowe packaged the granules as “Kitty Litter” and started a company that earns millions of dollars each year. And Ron Rice, a high school teach, developed the coconut oil-based Hawaiian Tropic Tanning Oil in his garage with a $500 investment. He did his own market research during the summer when he worked as a lifeguard.
Some entrepreneurs find new ways to sell. Lane Nemeth did not develop a new product, but she did find a unique way to promote and sell educational toys. She discovered that educational toys were not always available at typical toy stores. Since she couldn’t raise the money to open her own store, she decided to sell her toys at home “toy parties’ hosted by friends. Nemeth’s firm Discovery Toys, now has a national sales force that uses this marketing strategy.
Some entrepreneurs work to perfect ideas they have had for years. As a college students, Fred Smith believed that a successful air freight business could operate independently of the major airlines. He identified a need for overnight letter and small package delivery and used his energy and vision to organize Federal Express, a company that reached over $1 billion in sales just 10 years after it was launched.
The list of successful entrepreneurs goes on and on. Their stories are always interesting and different. Still, these entrepreneurs have much in common. They are people who own and operate their own businesses in hopes of earning a profit. The search for profits is the driving force behind production in a free enterprise system. In order to make a profit, entrepreneurs must create useful products or services, develop efficient methods or production, finance production, and market products or services at prices that exceed costs. Entrepreneurs enter business knowing that success is not guaranteed, an if plans fail, they could lose money.