entrepreneurship and small business management assignment pdf

Small Business Management in the 21st Century

(5 reviews)

David Cadden, Quinnipiac University

Sandra L. Lueder, Southern Connecticut State University

ISBN 13: 9781453345566

Publisher: Saylor Foundation

Language: English

Formats Available

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Reviewed by Michael Grimshaw, Lecturer/Non-Tenure Track Faculty, California State University, Dominguez Hills on 12/4/22

Comprehensiveness rating: 3 see less

Even though this text is now 10 years old (2012) many of the areas and ideas for small business are still relevant for some small medium enterprises. They are not for the current trend towards non-brick/mortar and on-line methods of doing small business although Chapter 4 is designed to address the areas of E-Business and E-Commerce that were relevant 10 years ago, This book does not contain an index or glossary but does have a table of contents.

Content Accuracy rating: 2

I have used this text for several years and the accuracy and error-free aspects are in need of repair due to age. Most of the links and references are no longer available on the internet but none the less students do learn from the discussions and basics illustrated in the writings.

Relevance/Longevity rating: 4

This text would be terrific if someone would take the time to update the references and links so the material presented would be better understood by the students and not be frustrating to them. The way were overcame this to some degree was by having the students do research and locate more current links and examples to replace the ones that did not work. My students were able to gain a good level of understanding on how small businesses are built and operated with the materials and use of supplemental information.

Clarity rating: 4

My students felt that there was a minimum of extraneous information and the text even though fairly basic was easy to navigate and complete assignments related to the text. The ability to search and locate information was helpful.

Consistency rating: 4

There were not any issues we could find with consistency and most of the terminology was still relevant with some exceptions due to changes in business over the past 10 years.

Modularity rating: 4

The modularity for students was through a easily navigable table of contents to drill down to the sections within the chapters by simply using the link/headings. Cut and paste was available to take out sections that might be used for focusing and student interactions.

Organization/Structure/Flow rating: 5

This headings and structure were very easily understood and quite logical in helping students go from a macro view to focusing on specific topics to gain a better understand and clarity of the subject.

Interface rating: 4

The text was easily navigated through the ever present return to table of contents and hot links for all chapters and sub headings. Images and charts were clear even though not very creative. The main distraction was the links in the chapters to videos, online references, etc. were for the most part not functional or available anymore due to age.

Grammatical Errors rating: 2

When I ran Grammarly over several sections of the text there were numerous basic issues - spelling, periods, spaces, verb forms and article usage. Nothing that made the text unreadable.

Cultural Relevance rating: 4

This was a business text and neither my students nor I detected any cultural issues.

This is more of plea than comment for an update to this text or additional small business management texts be listed OER...small business is the heartbeat of business in America (and around the world) so this subject is taught in many schools and it would be terrific to have the authors update the text!

Reviewed by Joe Messer, Professor of Entrepreneurship, Manchester University on 6/22/22

The book covered a lot of topics. However it was too overwhelming, too all encompassing. It was difficult to find a 'flow' read more

Comprehensiveness rating: 4 see less

The book covered a lot of topics. However it was too overwhelming, too all encompassing. It was difficult to find a 'flow'

Content Accuracy rating: 5

I had no problem with any of the information I read.

Relevance/Longevity rating: 3

I did not like that it started out with a lot of personal comments.

Clarity rating: 2

Needs more visuals

Consistency rating: 3

The language of the book was consistent all the way through.

Modularity rating: 3

Nothing special

Organization/Structure/Flow rating: 4

The book was organized well. The chapters made sense. There was just so much content too much of it was opinion based.

Interface rating: 2

There needed to be more visuals, graphs, etc.

Grammatical Errors rating: 4

I saw no errors

Cultural Relevance rating: 3

I did not notice any bias

I could not find instructor material like exams, lecture notes, etc. That would have been nice to see.

Reviewed by Chien-Chi Tseng, Collegiate Associate Professor, Virginia Tech on 12/29/21

This book provides comprehensive content on small business management. I especially like the chapter contents of marketing basics, strategy, and plan. The information provided in the book is not new ( 2011 and older). I suggest the authors update... read more

Content Accuracy rating: 4

The book has accurate content for small business management, however, some contents are for general businesses but not specifically for small management. For example, the chapter on Accounting and Cash Flow.

Relevance/Longevity rating: 5

Yes, the book provides relevant small business management and development content for sure.

Clarity rating: 3

Overall, the text written is lucid, however, many of the video and web links in the book do not work. I strongly suggest authors update the links in this book.

Consistency rating: 5

The text is internally consistent in terms of terminology and framework. I especially like the content of The Three Threads in each chapter. The three threads which summarize the implications of customer value, cash-flow, and digital technology and E-environment are very helpful for students to highlight their learning objectives.

The arrangement of the chapters and ideas covered does have a logical flow and the text can easily be divided into smaller sections at different times within the course. The chapters could be rearranged if necessary for a class. I would suggest adding some more figures and tables for better presentation.

The chapter organization and structure are clear and easy to follow.

Interface rating: 3

As I mentioned in the other comment sections, the authors should check and update the video and web clip linkages. More figures and charts added should be helpful for the readers.

Grammatical Errors rating: 5

I did not notice any grammatical errors in the text.

This book does not seem to be culturally insensitive or offensive, however, as mentioned earlier the videos and web links are somewhat dated and the points could benefit from more updated and relevant examples.

After reviewing Small Business Management in the 21st Century by David Cadden and Sandra Lueder, I think the text covered all the main points of traditional small business topics and the steps of a small business, which has to consider. The book makes a great starting point for discussing all the main concepts of small business management and development strategy. Still, the authors could improve the book with newer, more relevant examples/case studies and videos and other new technology management and innovation enhanced materials.

Reviewed by Shouhong Wang, Professor, University of Massachusetts Dartmouth on 5/22/21

The book has 15 chapters and covers all important aspects of small business management which small business owners and managers must understand. The materials are comprehensive and understandable. read more

Comprehensiveness rating: 5 see less

The book has 15 chapters and covers all important aspects of small business management which small business owners and managers must understand. The materials are comprehensive and understandable.

The contents are unbiased and correct.

The book was published in 2012, but the concepts are still valid and relevant today. Although some materials and references could be undated, minor revisions could be done easily to make an updated version as a textbook for small business majors at four-year colleges or universities.

Clarity rating: 5

The 15 chapters provide excellent context of small business management in all major disciplines of business, including accounting, finance, human resources and organization, supply chain, information technology, and business laws.

The book uses consistent terminology and framework. Each chapter has clear learning objectives and 3-Thread summaries.

Modularity rating: 5

The 15 chapters have excellent modules and are easy to re-organized to meeting individual instructor's needs.

The organization of the book is fairly clear. A table of contents could be included at the beginning of the book. Sections, especially sub-sections could be numbered clearly to show the hierarchy of structure of the chapter.

The layout and fonts could be improved a bit.

The text is well written.

Cultural Relevance rating: 5

The book is small business friendly, and fits the small business culture.

1. The lists of references could be aggregated and are placed after each chapter with smaller fonts to reduce the volume of the book. 2. The two chapters for Marketing could be merged into one chapter. 3. The chapter of E-Commerce and E-Business could be expanded into a chapter about IT for small business which could include e-commerce/e-business, use of social media, business analytics, decision support systems for small business.

Reviewed by Wei Chen, Associate Professor, University of Mary Washington on 5/30/20

The book covers all traditional topics of entrepreneurship such as value creation, family business, business plan, marketing strategy, accounting, financing, and organization. I found it especially valuable today that the book also has chapters on E-business and international business, which are increasingly common venues for entrepreneurial small businesses. As a result, I think the book provides aspiring entrepreneurs with what they need to know in order to start, operate, expand, or close a business in today's world.

The content seems unbiased to me. The book includes necessary topics and wisdoms in entrepreneurship that have been in practice in real businesses.

The content is up-to-date and the ideas and knowledge will not quickly become obsolete. Every chapter begins with a case that is relatively recent. Necessary updates to the cases or replacement of them will be relatively easy to implement.

The text is written in clear language. Business and entrepreneurship terminologies are highlighted in the text and immediately defined for easy understanding.

I think the text is internally consistent in terms of terminology and theory framework. Concepts and methods such as breakeven analysis are repeated a few times in different chapters, which actually is good for understanding and for students to practice these methods with some repetition.

The text is divided into easy-to-read subsections. There are always subheadings and bold-typed emphases of key terms, which made the reading easy to follow. The text summarizes some of the comparisons of key concepts into tables, which makes the content clear and easy to understand at a glance.

The author organizes the topics in a logical manner that follows the natural steps when preparing for a business startup.

The text is smooth to navigate in general. The only problem I encountered was that video clips on the online version do not open after I click on the links. I'm not sure if this is a problem with my computer only.

I did not find grammatical errors in the text.

I did not find the text culturally insensitive or offensive. It objectively evaluates the benefits of outsourcing and international expansion for small businesses.

This is a very good cost-free open-source textbook to replace a traditional entrepreneurship textbook with for an undergraduate entrepreneurship class. It not only covers all the topics in entrepreneurship in a clear manner, but it also has great examples and exercises after each chapter. I'm going to adopt this textbook for my entrepreneurship class next semester.

Chapter 1: Foundations for Small Business
Chapter 2: Your Business Idea: The Quest for Value
Chapter 3: Family Businesses
Chapter 4: E-Business and E-Commerce
Chapter 5: The Business Plan
Chapter 6: Marketing Basics
Chapter 7: Marketing Strategy
Chapter 8: The Marketing Plan
Chapter 9: Accounting and Cash Flow
Chapter 10: Financial Management
Chapter 11: Supply Chain Management: You Better Get It Right
Chapter 12: People and Organization
Chapter 13: The Search for Efficiency and Effectiveness
Chapter 14: Icebergs and Escapes
Chapter 15: Going Global: Yes or No?
Chapter 16: Appendix: A Sample Business Plan

Ancillary Material

About the book.

Small Business Management in the 21st Century offers a unique perspective and set of capabilities for instructors. The authors designed this book with a “less can be more” approach, and by treating small business management as a practical human activity rather than as an abstract theoretical concept.

The text has a format and structure that will be familiar to you if you use other books on small business management. Yet it brings a fresh perspective by incorporating three distinctive and unique themes and an important new feature (Disaster Watch) which is embedded throughout the entire text. These themes assure that students see the material in an integrated context rather than a stream of separate and distinct topics.

First, the authors incorporate the use of technology and e-business as a way to gain competitive advantage over larger rivals. Technology is omnipresent in today's business world. Small business must use it to its advantage. We provide practical discussions and examples of how a small business can use these technologies without having extensive expertise or expenditures.

Second, they explicitly acknowledge the constant need to examine how decisions affect cash flow by incorporating cash flow impact content in several chapters. As the life blood of all organizations, cash flow implications must be a factor in all business decision-making.

Third, they recognize the need to clearly identify sources of customer value and bring that understanding to every decision. Decisions that do not add to customer value should be seriously reconsidered.

Small Business Management in 21st Century boasts a new feature called Disaster Watch scenarios. Few texts cover, in any detail, some of the major hazards that small business managers face. Disaster Watch scenarios, included in most chapters, cover topics that include financing, bankers, creditors, employees, customers who don't pay, economic downturns, and marketing mistakes.

About the Contributors

David Cadden, Professor Emeritus, Quinnipiac University. Dr. Cadden was born in New York and received his undergraduate degree in engineering from the Brooklyn Polytechnic Institute. He received an M.S. in Management from the same institution. He attended Baruch College, which is part of the City University of New York, where he received his MBA and earned his PhD in Management Planning Systems. Dr. Cadden is the author of many journal articles, book chapters, and proceedings’ publications. For several years he ran a program at Quinnipiac University where students traveled to Nicaragua to assist local small businesses improve their operations. He teaches in the areas of operations and strategy and places special emphasis in these courses on the unique demands of small businesses. Cadden has consulted with several firms including McDonald-Douglas Aircraft and Blue Cross/Blue Shield. Prior to coming to Quinnipiac, Dr. Cadden worked for Hazeltine Corporation, Baruch College, and Fairfield University.

Sandra L. Lueder is an Associate Professor Emeritus, Southern Connecticut State University. She has a PhD in Marketing from the City University of New York (Baruch College), an MBA in Management and Marketing from the University of Connecticut, and a B.A. from the University of Wisconsin in Madison. She has also taught at Sacred Heart University in Fairfield, CT. Her non-education employment includes working in government, small business, and United Engineers and Constructors, a large corporation that is a division of Raytheon. Dr. Lueder has been passionate about small business for more than 25 years. As the proud daughter of a twice-entrepreneur, she has lived the life and has seen the ups and downs of small business ownership. She has taught small business management courses and has integrated the small business perspective into most of the marketing and leadership courses that she teaches. Dr. Lueder has published in the New England Journal of Entrepreneurship and The E-Business Review. She has also made many presentations at academic conferences.

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1.1: Chapter 1 – Introduction to Entrepreneurship

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Page ID 21253

Lee A. Swanson
University of Saskatchewan

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Whilst there is no universally accepted definition of entrepreneurship, it is fair to say that it is multi-dimensional. It involves analyzing people and their actions together with the ways in which they interact with their environments, be these social, economic, or political, and the institutional, policy, and legal frameworks that help define and legitimize human activities. – Blackburn (2011, p. xiii)

Entrepreneurship involves such a range of activities and levels of analysis that no single definition is definitive. – Lichtenstein (2011, p. 472)

It is complex, chaotic, and lacks any notion of linearity. As educators, we have the responsibility to develop our students’ discovery, reasoning, and implementation skills so they may excel in highly uncertain environments. – Neck and Greene (2011, p. 55)

Learning Objectives

Examine the challenges associated with defining the concepts of entrepreneur and entrepreneurship
Discuss how the evolution of entrepreneurship thought has influenced how we view the concept of entrepreneurship today
Discuss how the list of basic questions in entrepreneurship research can be expanded to include research inquiries that are important in today’s world
Discuss how the concepts of entrepreneurial uniqueness, entrepreneurial personality traits, and entrepreneurial cognitions can help society improve its support for entrepreneurship
Apply the general venturing script to the study of entrepreneurship

This chapter provides you with an overview of entrepreneurship and of the language of entrepreneurship. The challenges associated with defining entrepreneur and entrepreneurship are explored, as is an overview of how entrepreneurship can be studied.

The objective is to enable you to apply current concepts in entrepreneurship to the evaluation of entrepreneurs, their ventures, and the venturing environment. You will develop skills, including the capability to add value in the new venture sector of the economy. You will acquire and practice evaluation skills useful in consulting, advising, and making new venture decisions.

Entrepreneurs and Entrepreneurship

Considerations influencing definitions of entrepreneur and entrepreneurship.

It is necessary to be able to determine exactly who entrepreneurs are before we can, among other things, study them, count them, provide special loans for them, and calculate how and how much they contribute to our economy.

Does someone need to start a business from scratch to be called an entrepreneur?
Can we call someone an entrepreneur if they bought an ongoing business from someone else or took over the operations of a family business from their parents?
If someone starts a small business and never needs to hire employees, can they be called an entrepreneur?
If someone buys a business but hires professional managers to run it so they don’t have to be involved in the operations, are they an entrepreneur?
Is someone an entrepreneur if they buy into a franchise so they can follow a well-established formula for running the operation?
Is someone an entrepreneur because of what they do or because of how they think?
Can someone be an entrepreneur without owning their own business?
Can a person be an entrepreneur because of the nature of the work that they do within a large corporation?

It is also necessary to fully understand what we mean by entrepreneurship before we can study the concept.

Gartner (1990) identified 90 attributes that showed up in definitions of entrepreneurs and entrepreneurship provided by entrepreneurs and other experts in the field. The following are a few of these attributes:

Innovation – Does a person need to be innovative to be considered an entrepreneur? Can an activity be considered to be entrepreneurial if it is not innovative?
Activities – What activities does a person need to do to be considered an entrepreneur?
Creation of a new business – Does someone need to start a new business to be considered to be an entrepreneur, or can someone who buys a business, buys into a franchise, or takes over an existing family business be considered an entrepreneur?
Starts an innovative venture within an established organization – Can someone who works within an existing organization that they don’t own be considered an entrepreneur if they start an innovative venture for their organization?
Creation of a not-for-profit business – Can a venture be considered to be entrepreneurial if it is a not-for-profit, or should only for-profit businesses be considered entrepreneurial?

After identifying the 90 attributes, Gartner (1990) went back to the entrepreneurs and other experts for help in clustering the attributes into themes that would help summarize what people concerned with entrepreneurship thought about the concept. He ended up with the following eight entrepreneurship themes:

1. The Entrepreneur – The entrepreneur theme is the idea that entrepreneurship involves individuals with unique personality characteristics and abilities (e.g., risk-taking, locus of control, autonomy, perseverance, commitment, vision, creativity). Almost 50% of the respondents rated these characteristics as not important to a definition of entrepreneurship (Gartner, 1990, p. 21, 24).

“The question that needs to be addressed is: Does entrepreneurship involve entrepreneurs (individuals with unique characteristics)?” (Gartner, 1990, p. 25).

2. Innovation – The innovation theme is characterized as doing something new as an idea, product, service, market, or technology in a new or established organization. The innovation theme suggests that innovation is not limited to new ventures, but recognized as something which older and/or larger organizations may undertake as well (Gartner, 1990, p. 25). Some of the experts Gartner questioned believed that it was important to include innovation in definitions of entrepreneurship and others did not think it was as important.

“Does entrepreneurship involve innovation?” (Gartner, 1990, p. 25).

3. Organization Creation – The organization creation theme describes the behaviors involved in creating organizations. This theme described acquiring and integrating resource attributes (e.g., Brings resources to bear, integrates opportunities with resources, mobilizes resources, gathers resources) and attributes that described creating organizations (new venture development and the creation of a business that adds value). (Gartner, 1990, p. 25)

“Does entrepreneurship involve resource acquisition and integration (new venture creation activities)?” (Gartner, 1990, p. 25)

4. Creating Value – This theme articulated the idea that entrepreneurship creates value. The attributes in this factor indicated that value creation might be represented by transforming a business, creating a new business growing a business, creating wealth, or destroying the status quo.

“Does entrepreneurship involve creating value?” (Gartner, 1990, p. 25).

5. Profit or Nonprofit

“Does entrepreneurship involve profit-making organizations only” (Gartner, 1990, p. 25)?
Should a focus on growth be a characteristic of entrepreneurship?

7. Uniqueness – This theme suggested that entrepreneurship must involve uniqueness. Uniqueness was characterized by attributes such as a special way of thinking, a vision of accomplishment, ability to see situations in terms of unmet needs, and creates a unique combination.

“Does entrepreneurship involve uniqueness?” (Gartner, 1990, p. 26).

8. The Owner-Manager – Some of the respondents questioned by Gartner (1990) did not believe that small mom-and-pop types of businesses should be considered to be entrepreneurial. Some respondents felt that an important element of a definition of entrepreneurship was that a venture be owner-managed.

To be entrepreneurial, does a venture need to be owner-managed?

Examples of Definitions of Entrepreneur

An entrepreneur can be described as “one who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying significant opportunities and assembling the necessary resources to capitalize on them” (Zimmerer & Scarborough, 2008, p. 5).

An entrepreneur is “one who organizes, manages, and assumes the risks of a business or enterprise” (Entrepreneur, n.d.).

Examples of Definitions of Entrepreneurship

Entrepreneurship can be defined as a field of business that

seeks to understand how opportunities to create something new (e.g., new products or services, new markets, new production processes or raw materials, new ways of organizing existing technologies) arise and are discovered or created by specific persons, who then use various means to exploit or develop them, thus producing a wide range of effects (Baron, Shane, & Reuber, 2008, p. 4)

A concise definition of entrepreneurship “is that it is the process of pursuing opportunities without limitation by resources currently in hand” (Brooks, 2009, p. 3) and “the process of doing something new and something different for the purpose of creating wealth for the individual and adding value to society” (Kao, 1993, p. 70)

The Evolution of Entrepreneurship Thought

This section includes an overview of how entrepreneurship has evolved to the present day.

The following timeline shows some of the most influential entrepreneurship scholars and the schools of thought (French, English, American, German, and Austrian) their perspectives helped influence and from which their ideas evolved. Schools of thought are essentially groups of people who might or might not have personally known each other, but who shared common beliefs or philosophies.

Figure 1 – Historical and Evolutionary Entrepreneurship Thought (Illustration by Lee A. Swanson)

The Earliest Entrepreneurship

The function, if not the name, of the entrepreneur is probably as old as the institutions of barter and exchange. But only after economic markets became an intrusive element of society did the concept take on pivotal importance. Many economists have recognized the pivotal role of the entrepreneur in a market economy. Yet despite his central importance in economic activity, the entrepreneur has been a shadowy and elusive figure in the history of economic theory (Hebert & Link, 2009, p. 1).

Historically those who acted similarly to the ways we associate with modern day entrepreneurs – namely those who strategically assume risks to seek economic (or other) gains – were military leaders, royalty, or merchants. Military leaders planned their campaigns and battles while assuming significant risks, but by doing so they also stood to gain economic benefits if their strategies were successful. Merchants, like Marco Polo who sailed out of Venice in the late 1200s to search for a trade route to the Orient, also assumed substantial risks in the hope of becoming wealthy (Hebert & Link, 2009).

The entrepreneur, who was also called adventurer , projector , and undertaker during the eighteenth century, was not always viewed in a positive light (Hebert & Link, 2009).

Development of Entrepreneurship as a Concept

Risk and uncertainty.

Richard Cantillon (1680-1734) was born in France and belonged to the French School of thought although he was an Irish economist. He appears to be the person who introduced the term entrepreneur to the world. “According to Cantillon, the entrepreneur is a specialist in taking on risk, ‘insuring’ workers by buying their output for resale before consumers have indicated how much they are willing to pay for it” (Casson & Godley, 2005p. 26). The workers’ incomes are mostly stable, but the entrepreneur risks a loss if market prices fluctuate.

Cantillon distinguished entrepreneurs from two other classes of economic agents; landowners, who were financially independent, and hirelings (employees) who did not partake in the decision-making in exchange for relatively stable incomes through employment contracts. He was the first writer to provide a relatively refined meaning for the term entrepreneurship . Cantillon described entrepreneurs as individuals who generated profits through exchanges. In the face of uncertainty, particularly over future prices, they exercise business judgment. They purchase resources at one price and sell their product at a price that is uncertain, with the difference representing their profit (Chell, 2008; Hebert & Link, 2009).

Farmers were the most prominent entrepreneurs during Cantillon’s lifetime, and they interacted with “arbitrageurs” – or middlemen between farmers and the end consumers – who also faced uncertain incomes, and who were also, therefore, entrepreneurs. These intermediaries facilitated the movement of products from the farms to the cities where more than half of the farm output was consumed. Cantillon observed that consumers were willing to pay a higher price per unit to be able to purchase products in the smaller quantities they wanted, which created the opportunities for the intermediaries to make profits. Profits were the rewards for assuming the risks arising from uncertain conditions. The markets in which profits were earned were characterized by incomplete information (Chell, 2008; Hebert & Link, 2009).

Adolph Reidel (1809-1872), form the German School of thought, picked up on Cantillon’s notion of uncertainty and extended it to theorize that entrepreneurs take on uncertainty so others, namely income earners, do not have to be subject to the same uncertainty. Entrepreneurs provide a service to risk-averse income earners by assuming risk on their behalf. In exchange, entrepreneurs are rewarded when they can foresee the impacts of the uncertainty and sell their products at a price that exceeds their input costs (including the fixed costs of the wages they commit to paying) (Hebert & Link, 2009).

Frank Knight (1885-1972) founded the Chicago School of Economics and belonged to the American School of thought. He refined Cantillon’s perspective on entrepreneurs and risk by distinguishing insurable risk as something that is separate from uncertainty, which is not insurable. Some risks can be insurable because they have occurred enough times in the past that the expected loss from such risks can be calculated. Uncertainty, on the other hand, is not subject to probability calculations. According to Knight, entrepreneurs can’t share the risk of loss by insuring themselves against uncertain events, so they bear these kinds of risks themselves, and profit is the reward that entrepreneurs get from assuming uninsurable risks (Casson & Godley, 2005).

Distinction Between Entrepreneur and Manager

Jean-Baptiste Say (1767-1832), also from the French School, advanced Cantillon’s work, but added that entrepreneurship was essentially a form of management. Say “put the entrepreneur at the core of the entire process of production and distribution” (Hebert & Link, 2009, p. 17). Say’s work resulted in something similar to a general theory of entrepreneurship with three distinct functions; “scientific knowledge of the product; entrepreneurial industry – the application of knowledge to useful purpose; and productive industry – the manufacture of the item by manual labour” (Chell, 2008, p. 20).

Frank Knight made several contributions to entrepreneurship theory, but another of note is how he distinguished an entrepreneur from a manager. He suggested that a manager crosses the line to become an entrepreneur “when the exercise of his/her judgment is liable to error and s/he assumes the responsibility for its correctness” (Chell, 2008, p. 33). Knight said that entrepreneurs calculate the risks associated with uncertain business situations and make informed judgments and decisions with the expectation that – if they assessed the situation and made the correct decisions – they would be rewarded by earning a profit. Those who elect to avoid taking these risks choose the relative security of being employees (Chell, 2008).

Alfred Marshall (1842-1924), from the English School of thought, was one of the founders of neoclassical economics. His research involved distinguishing between the terms capitalist, entrepreneur, and manager. Marshall saw capitalists as individuals who “committed themselves to the capacity and honesty of others, when he by himself had incurred the risks for having contributed with the capital” (Zaratiegui & Rabade, 2005, p. 775). An entrepreneur took control of money provided by capitalists in an effort to leverage it to create more money; but would lose less if something went wrong then would the capitalists. An entrepreneur, however, risked his own reputation and the other gains he could have made by pursuing a different opportunity.

Let us suppose that two men are carrying on smaller businesses, the one working with his own, the other chiefly with borrowed capital. There is one set of risks which is common to both; which may be described as the trade risks of the particular business … But there is another set of risks, the burden of which has to be borne by the man working with borrowed capital, and not by the other; and we may call them personal risks (Marshall, 1961, p. 590; Zaratiegui & Rabade, 2005, p. 776).

Marshall recognized that the reward capitalists received for contributing capital was interest income and the reward entrepreneurs earned was profits. Managers received a salary and, according to Marshall, fulfilled a different function than either capitalists or entrepreneurs – although in some cases, particularly in smaller firms, one person might be both an entrepreneur and a manager. Managers “were more inclined to avoid challenges, innovations and what Schumpeter called the ‘perennial torment of creative destruction’ in favour of a more tranquil life” (Zaratiegui & Rabade, 2005, p. 781). The main risks they faced from firm failure were to their reputations or to their employment status. Managers had little incentive to strive to maximize profits (Zaratiegui & Rabade, 2005).

Amasa Walker (1799-1875) and his son Francis Walker (1840-1897) were from the American School of thought, and they helped shape an American perspective of entrepreneurship following the Civil War of 1861-1865. These scholars claimed that entrepreneurs created wealth, and thus played a different role than capitalists. They believed that entrepreneurs had the power of foresight and leadership qualities that enabled them to organize resources and inject energy into activities that create wealth (Chell, 2008).

Entrepreneurship versus Entrepreneur

Adam Smith (1723-1790), from the English School of thought, published An Inquiry into the Nature and Causes of the Wealth of Nations in 1776. In a departure from the previous thought into entrepreneurship and economics, Smith did not dwell on a particular class of individual. He was concerned with studying how all people fit into the economic system. Smith contended that the economy was driven by self-interest in the marketplace (Chell, 2008).

Also from the English School, David Ricardo (1772-1823) was influenced by Smith, Say, and others. His work focused on how the capitalist system worked. He explained how manufacturers must invest their capital in response to the demand for the products they produce. If demand decreases, manufacturers should borrow less and reduce their workforces. When demand is high, they should do the reverse (Chell, 2008).

Carl Menger (1840-1921), from the Austrian School of thought, ranked goods according to their causal connections to human satisfaction. Lower order goods include items like bread that directly satisfy a human want or need like hunger. Higher order goods are those more removed from satisfying a human need. A second order good is the flour that was used to make the bread. The grain used to make the flour is an even higher order good. Entrepreneurs coordinate these factors of production to turn higher order goods into lower order goods that more directly satisfy human wants and needs (Hebert & Link, 2009).

Menger (1950 [1871], p. 160) established that entrepreneurial activity includes: (a) obtaining information about the economic situation, (b) economic calculation – all the various computations that must be made if a production process is to be efficient, (c) the act of will by which goods of higher order are assigned to a particular production process, and (d) supervising the execution of the production plan so that it may be carried through as economically as possible (Hebert & Link, 2009, p. 43).

Entrepreneurship and Innovation

Jeremy Bentham (1748-1832), from the English School of thought, considered entrepreneurs to be innovators. They “depart from routine, discover new markets, find new sources of supply, improve existing products and lower the costs of production” (Chell, 2008).

Joseph Schumpeter’s (1883-1950) parents were Austrian, he studied at the University of Vienna, conducted research at the University of Graz, served as Austria’s Minister of Finance, and was the president of a bank in the country. Because of the rise of Hitler in Europe, he went to the United States and conducted research at Harvard until he retired in 1949. Because of this, he is sometimes associated with the American School of thought on entrepreneurship (Chell, 2008).

Whereas Menger saw entrepreneurship as occurring because of economic progress, Schumpeter took the opposite stance. Schumpeter saw economic activity as leading to economic development (Hebert & Link, 2009). Entrepreneurs play a central role in Schumpeter’s theory of economic development, and economic development can occur when the factors of production are assembled in new combinations .

Schumpeter (1934) viewed innovation as arising from new combinations of materials and forces. He provided the following five cases of new combinations.

The introduction of a new good – that is one with which consumers are not yet familiar – or of a new quality of good.
The introduction of a new method of production, that is one not yet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially.
The opening of a new market, that is a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before.
The conquest of a new source of supply of raw materials or half-manufactured goods, again irrespective of whether this source already exists or whether it has first to be created.
The carrying out of the new organisation of any industry, like the creation of a monopoly position … or the breaking up of a monopoly position (Schumpeter, 1934, p. 66).

Another concept popularized by Schumpeter – in addition to the notion of new combinations – was creative destruction . This was meant to indicate that the existing ways of doing things need to be dismantled – to be destroyed – to enable a transformation through innovation to a new way of doing things. Entrepreneurs use innovation to disrupt how things are done and to establish a better way of doing those things.

Basic Questions in Entrepreneurship Research

According to Baron (2004a), there are three basic questions of interest in the field of entrepreneurship:

Why do some persons but not others choose to become entrepreneurs?
Why do some persons but not others recognize opportunities for new products or services that can be profitably exploited?
Why are some entrepreneurs so much more successful than others (Baron, 2004a, p. 221)?

To understand where these foundational research questions came from and what their relevance is today, it is useful to study what entrepreneurship research has uncovered so far.

Entrepreneurial Uniqueness

Efforts to teach entrepreneurship have included descriptions of entrepreneurial uniqueness based on personality, behavioural, and cognitive traits (Chell, 2008; Duening, 2010).

Need for achievement
Internal locus of control (a belief by an individual that they are in control of their own destiny)
Risk-taking propensity
Behavioural traits
Cognitive skills of successful entrepreneurs

Past studies of personality characteristics and behavioural traits have not been overly successful at identifying entrepreneurial uniqueness.

As it turned out, years of painstaking research along this line has not borne significant fruit. It appears that there are simply not any personality characteristics that are either essential to, or defining of, entrepreneurs that differ systematically from non-entrepreneurs…. Again, investigators proposed a number of behavioural candidates as emblematic of entrepreneurs. Unfortunately, this line of research also resulted in a series of dead ends as examples of successful entrepreneurial behaviours had equal counterparts among samples of non-entrepreneurs. As with the personality characteristic school of thought before it, the behavioural trait school of thought became increasingly difficult to support (Duening, 2010, p. 4-5).

This shed doubt on the value of trying to change personality characteristics or implant new entrepreneurial behaviours through educational programs in an effort to promote entrepreneurship.

New research, however, has resurrected the idea that there might be some value in revisiting personality traits as a topic of study. Additionally, Duening (2010) and has suggested that an important approach to teaching and learning about entrepreneurship is to focus on the “cognitive skills that successful entrepreneurs seem uniquely to possess and deploy” (p. 2). In the next sections we consider the new research on entrepreneurial personality traits and on entrepreneurial cognitions.

Entrepreneurial Personality Traits

While acknowledging that research had yet to validate the value of considering personality and behaviour traits as ways to distinguish entrepreneurs from non-entrepreneurs or unsuccessful ones, Chell (2008) suggested that researchers turn their attention to new sets of traits including: “the proactive personality, entrepreneurial self-efficacy, perseverance and intuitive decision-making style. Other traits that require further work include social competence and the need for independence” (p. 140).

In more recent years scholars have considered how the Big Five personality traits – extraversion, agreeableness, conscientiousness, neuroticism (sometimes presented as emotional stability ), and openness to experience (sometimes referred to as intellect) – might be used to better understand entrepreneurs. It appears that the Big Five traits might be of some use in predicting entrepreneurial success. Research is ongoing in this area, but in one example, Caliendo, Fossen, and Kritikos (2014) studied whether personality constructs might “influence entrepreneurial decisions at different points in time” (p. 807), and found that “high values in three factors of the Big Five approach—openness to experience, extraversion, and emotional stability (the latter only when we do not control for further personality characteristics)—increase the probability of entry into self-employment” (p. 807). They also found “that some specific personality characteristics, namely risk tolerance, locus of control, and trust, have strong partial effects on the entry decision” (p. 807). They also found that people who scored higher on agreeableness were more likely to exit their businesses, possibly meaning that people with lower agreeableness scores might prevail longer as entrepreneurs. When it came to specific personality traits, their conclusions indicated that those with an external locus of control were more likely to stop being self-employed after they had run their businesses for a while. There are several implications for research like this, including the potential to better understand why some entrepreneurs behave as they do based upon their personality types and the chance to improve entrepreneurship education and support services.

Entrepreneurial Cognitions

It is only fairly recently that entrepreneurship scholars have focused on cognitive skills as a primary factor that differentiates successful entrepreneurs from non-entrepreneurs and less successful entrepreneurs. This approach deals with how entrepreneurs think differently than non-entrepreneurs (Duening, 2010; Mitchell et al., 2007).

Entrepreneurial cognitions are the knowledge structures that people use to make assessments, judgments or decisions involving opportunity evaluation and venture creation and growth. In other words, research in entrepreneurial cognition is about understanding how entrepreneurs use simplifying mental models to piece together previously unconnected information that helps them to identify and invent new products or services, and to assemble the necessary resources to start and grow businesses (Mitchell, Busenitz, et al., 2002, p. 97).

Mitchell, Smith, et al. (2002) provided the example of how the decision to create a new venture (dependent variable) was influenced by three sets of cognitions (independent variables). They described these cognitions as follows:

Arrangements cognitions are the mental maps about the contacts, relationships, resources, and assets necessary to engage in entrepreneurial activity; willingness cognitions are the mental maps that support commitment to venturing and receptivity to the idea of starting a venture; ability cognitions consist of the knowledge structures or scripts (Glaser, 1984) that individuals have to support the capabilities, skills, norms, and attitudes required to create a venture (Mitchell et al., 2000). These variables draw on the idea that cognitions are structured in the minds of individuals (Read, 1987), and that these knowledge structures act as “scripts” that are the antecedents of decision making (Leddo & Abelson, 1986, p. 121; Mitchell, Smith, et al., 2002, p. 10)

Cognitive Perspective to Understanding Entrepreneurship

According to Baron (2004a), by taking a cognitive perspective, we might better understand entrepreneurs and the role they play in the entrepreneurial process.

The cognitive perspective emphasizes the fact that everything we think, say, or do is influenced by mental processes—the cognitive mechanisms through which we acquire store, transform, and use information. It is suggested here that this perspective can be highly useful to the field of entrepreneurship. Specifically, it can assist the field in answering three basic questions it has long addressed: (1) Why do some persons but not others choose to become entrepreneurs? (2) Why do some persons but not others recognize opportunities for new products or services that can be profitably exploited? And (3) Why are some entrepreneurs so much more successful than others (Baron, 2004a, p. 221-222)?

Baron (2004a), illustrated how cognitive differences between people might explain why some people end up pursuing entrepreneurial pursuits and others do not. For example, prospect theory (Kahneman & Tversky, 1977) and other decision-making or behavioural theories might be useful in this regard. Research into cognitive biases might also help explain why some people become entrepreneurs.

Baron (2004a) also revealed ways in which cognitive concepts like signal detection theory, regulation theory, and entrepreneurial might help explain why some people are better at entrepreneurial opportunity recognition. He also illustrated how some cognitive models and theories – like risk perception, counterfactual thinking, processing style, and susceptibility to cognitive errors – might help explain why some entrepreneurs are more successful than others.

Cognitive Perspective and the Three Questions

Prospect Theory
Cognitive Biases
Signal Detection Theory
Regulation Theory
Entrepreneurial Alertness
Risk Perception
Counterfactual Thinking
Processing Style
Susceptibility to Cognitive Errors

Entrepreneurial Scripts

“Cognition has emerged as an important theoretical perspective for understanding and explaining human behavior and action” (Dutta & Thornhill, 2008, p. 309).
Cognitions are all processes by which sensory input is transformed, reduced, elaborated, stored, recovered, and used (Neisser, 1976).
Cognitions lead to the acquisition of knowledge, and involve human information processing.
Is a mental model, or information processing short-cut that can give information form and meaning, and enable subsequent interpretation and action.
The subsequent interpretation and actions can result in expert performance … they can also result in thinking errors.
the processes that transfer expertise, and
the actual expertise itself.
Scripts are generally framed as a linear sequence of steps, usually with feedback loops, that can explain how to achieve a particular task – perhaps like developing a business plan.
Sometimes scripts can be embedded within other scripts. For example, within a general venturing script that outlines the sequences of activities that can lead to a successful business launch, there will probably be sub-scripts describing how entrepreneurs can search for ideas, screen those ideas until one is selected, plan how to launch a sustainable business based upon that idea and including securing the needed financial resources, setting up the business, starting it, effectively managing its ongoing operations, and managing the venture such that that entrepreneur can extract the value that they desire from the enterprise at the times and in the ways they want it.
The most effective scripts include an indication of the norms that outline performance standards and indicate how to determine when any step in the sequence has been properly completed.

General Venturing Script

Generally, entrepreneurship is considered to consist of the following elements, or subscripts (Brooks, 2009; Mitchell, 2000).

Idea Screening
Planning and Financing
Ongoing Operations

Searching (also called idea formulation or opportunity recognition)

This script begins when a person decides they might be a potential entrepreneur (or when an existing entrepreneur decides they need more ideas in their idea pool ).
This script ends when there are a sufficient number of ideas in the idea pool.
overcome mental blockages to creativity which might hinder this person’s ability to identify viable ideas;
implement steps to identify a sufficient number of ideas (most likely 5 or more) which the person is interested in investigating to determine whether they might be viable given general criteria such as this person’s personal interests and capabilities;

Idea Screening (also called concept development)

This script begins when the person with the idea pool is no longer focusing on adding new ideas to it; but is instead taking steps to choose the best idea for them given a full range of specific criteria .
This script ends when one idea is chosen from among those in the idea pool.
Evaluate the political, economic, social, technological, environmental, and legal climates
Evaluate the degree of competitiveness in the industry, the threat of substitutes emerging, the threat of new entrants to the industry, the degree of bargaining power of buyers, and the degree of bargaining power of suppliers.
Do a market profile analysis to assess the attractiveness of the position within the industry that the potential venture will occupy.
Formulate and evaluate potential strategies to leverage organizational strengths, overcome/minimize weaknesses, take advantage of opportunities, and overcome/minimize threats;
Complete financial projections and analyze them to evaluate financial attractiveness;
Assess the founder fit with the ideas;
Evaluate the core competencies of the organization relative to the idea;
Assess advice solicited from trusted advisers

Planning and Financing (also called resource determination and acquisition)

This script begins when the idea screening script ends and when the person begins making the plans to implement the single idea chosen from the idea pool, which is done in concert with securing financing to implement the venture idea.
This script ends when sufficient business planning has been done and when adequate financing has been arranged.
The scripting process involves a logical flow of steps to develop a business plan and secure adequate financing to start the business.

Set-Up (also called launch)

This script begins when the planning and financing script ends and when the person begins implementing the plans needed to start the business.
This script ends when the business is ready to start-up.
The scripting process involves a logical flow of steps, including purchasing and installing equipment, securing the venture location and finishing all the needed renovations, recruiting and hiring any staff needed for start-up, and the many other steps needed to prepare for start-up.
Start-Up (also called launch)
This script begins when the set-up script ends and when the business opens and begins making sales.
This script ends when the business has moved beyond the point where the entrepreneur must continually fight for the business’s survival and persistence. It ends when the entrepreneur can instead shift emphasis toward business growth or maintaining the venture’s stability.
The scripting process involves a logical flow of steps needed to establish a new venture.

Ongoing Operations (also called venture growth)

This script begins when the start-up script ends and when the business has established persistence and is implementing growth (or maintenance) strategies.
This script ends when the entrepreneur chooses to harvest the value they generated with the venture.
The scripting process involves a logical flow of steps needed to grow (or maintain) a venture.

Studying Entrepreneurship

The following quotations from two preeminent entrepreneurship and entrepreneurship education researchers indicate the growing interest in studies in this field.

Entrepreneurship has emerged over the last two decades as arguably the most potent economic force the world has ever experienced. With that expansion has come a similar increase in the field of entrepreneurship education. The recent growth and development in the curricula and programs devoted to entrepreneurship and new-venture creation have been remarkable. The number of colleges and universities that offer courses related to entrepreneurship has grown from a handful in the 1970s to over 1,600 in 2005 (Kuratko, 2005, p. 577).

Interest in entrepreneurship has heightened in recent years, especially in business schools. Much of this interest is driven by student demand for courses in entrepreneurship, either because of genuine interest in the subject, or because students see entrepreneurship education as a useful hedge given uncertain corporate careers (Venkataraman, 1997, p. 119).

Approaches to Studying Entrepreneurship

Entrepreneurship is a discipline, which means an individual can learn about it, and about how to be an effective entrepreneur. It is a myth that people are born entrepreneurs and that others cannot learn to become entrepreneurs (Drucker, 1985). Kuratko (2005) asserted that the belief previously held by some that entrepreneurship cannot be taught has been debunked, and the focus has shifted to what topics should be taught and how they should be covered.

Solomon (2007) summarized some of the research on what should be covered in entrepreneurship courses, and how it should be taught. While the initial focus was on actions like developing business plans and being exposed to real entrepreneurs, more recently this approach has been supplemented by an emphasis on technical, industry, and personal experience. “It requires critical thinking and ethical assessment and is based on the premise that successful entrepreneurial activities are a function of human, venture and environmental conditions” (p. 172). Another approach “calls for courses to be structured around a series of strategic development challenges including opportunity identification and feasibility analysis; new venture planning, financing and operating; new market development and expansion strategies; and institutionalizing innovation” (p. 172). This involves having students interact with entrepreneurs by interviewing them, having them act as mentors, and learning about their experiences and approaches through class discussions.

Sources of Information for Studying Entrepreneurship

According to Kuratko (2005), “three major sources of information supply the data related to the entrepreneurial process or perspective” (p. 579).

Academic journals like Entrepreneurship Theory and Practice , Journal of Business Venturing , and Journal of Small Business Management
Proceedings of conferences like Proceedings of the Academy of Management and Proceedings of the Administrative Sciences Association of Canada
Textbooks on entrepreneurship
Books about entrepreneurship
Biographies or autobiographies of entrepreneurs
News periodicals like Canadian Business and Profit
Trade periodicals like Entrepreneur and Family Business
Government publications available through sources like the Enterprise Saskatchewan and Canada-Saskatchewan Business Service Centre (CSBSC) websites and through various government resource centers
Data might be collected from entrepreneurs and about entrepreneurs through surveys, interviews, or other methods applied by researchers.
Speeches and presentations by practicing entrepreneurs

11.4 The Business Plan

Learning objectives.

By the end of this section, you will be able to:

Describe the different purposes of a business plan
Describe and develop the components of a brief business plan
Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas , which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 48 His version is basically an extension of a napkin sketch without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections ( Figure 11.16 ). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap , that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew . “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse , and took much of the editorial team of Pretty Young Professional with her. 49 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 50 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

Link to Learning

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA) . The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan or Executive Summary

As the name implies, the brief business plan or executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions (see Telling Your Entrepreneurial Story and Pitching the Idea ), requires an executive summary of up to five pages to apply. 51 , 52 Its suggested sections are shown in Table 11.2 .

Are You Ready?

Create a brief business plan.

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs , one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 11.3 shows a sample executive summary for the fictional company La Vida Lola.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and insure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 11.4 shows a sample business description for La Vida Lola.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM . (Both these terms are discussed in Conducting a Feasibility Analysis .) This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 11.5 shows an example industry analysis and market strategy for La Vida Lola.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 11.17 and Figure 11.18 . A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 11.6 shows a sample operations and management plan for La Vida Lola.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 11.7 shows a sample marketing plan for La Vida Lola.

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture (see Entrepreneurial Finance and Accounting for detailed discussions about conducting these projections). Include sales forecasts and income projections, pro forma financial statements ( Building the Entrepreneurial Dream Team , a breakeven analysis, and a capital budget. Identify your possible sources of financing (discussed in Conducting a Feasibility Analysis ). Figure 11.19 shows a template of cash-flow needs for La Vida Lola.

Entrepreneur In Action

Laughing man coffee.

Hugh Jackman ( Figure 11.20 ) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 55 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
Would you have started the Laughing Man Foundation?
What else can Jackman do to aid fair-trade practices for coffee growers?

What Can You Do?

Textbooks for change.

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

Work It Out

Franchisee set out.

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

What steps should the new restaurant take to create a new business plan?
Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.

48 Chris Guillebeau. The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future . New York: Crown Business/Random House, 2012.
49 Jonathan Chan. “What These 4 Startup Case Studies Can Teach You about Failure.” Foundr.com . July 12, 2015. https://foundr.com/4-startup-case-studies-failure/
50 Amy Feldman. “Inventor of the Cut Buddy Paid YouTubers to Spark Sales. He Wasn’t Ready for a Video to Go Viral.” Forbes. February 15, 2017. https://www.forbes.com/sites/forbestreptalks/2017/02/15/inventor-of-the-cut-buddy-paid-youtubers-to-spark-sales-he-wasnt-ready-for-a-video-to-go-viral/#3eb540ce798a
51 Jennifer Post. “National Business Plan Competitions for Entrepreneurs.” Business News Daily . August 30, 2018. https://www.businessnewsdaily.com/6902-business-plan-competitions-entrepreneurs.html
52 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition . March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf
53 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition. March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf; Based on 2019 RBPC Competition Rules and Format April 4–6, 2019. https://rbpc.rice.edu/sites/g/files/bxs806/f/2019-RBPC-Competition-Rules%20-Format.pdf
54 Foodstart. http://foodstart.com
55 “Hugh Jackman Journey to Starting a Social Enterprise Coffee Company.” Giving Compass. April 8, 2018. https://givingcompass.org/article/hugh-jackman-journey-to-starting-a-social-enterprise-coffee-company/

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Authors: Michael Laverty, Chris Littel
Publisher/website: OpenStax
Book title: Entrepreneurship
Publication date: Jan 16, 2020
Location: Houston, Texas
Book URL: https://openstax.org/books/entrepreneurship/pages/1-introduction
Section URL: https://openstax.org/books/entrepreneurship/pages/11-4-the-business-plan

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Course info, instructors.

William Aulet
Howard Anderson
Prof. Matt Marx

Departments

Sloan School of Management

As Taught In

Entrepreneurship

Learning Resource Types

New enterprises, lecture 1: what is entrepreneurship.

Descriptions: In this video, two dramatically different types of entrepreneurship, Small and Medium Enterprise Entrepreneurship (SME) and Innovation Driven Enterprise Entrepreneurship (IDE) are discussed as well as what this distinction means for aspiring entrepreneurs.

Instructor: Bill Aulet

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