Entrepreneurship For Dummies®


by Dr. Kathleen Allen




About the Author

Kathleen R. Allen Ph.D.

Dr. Allen is an authority on entrepreneurship and small business technology and is the author of The Complete MBA For Dummies (with Peter Economy), eBusiness Technology Kit For Dummies (with Jon Weisner), Entrepreneurship and Small Business Management, Launching New Ventures, and Growing and Managing an Entrepreneurial Business, as well as several other books. She has also written for popular business magazines and newspapers (Inc., Los Angeles Times, Los Angeles Business Journal, and The New York Times) and is called upon by the Wall Street Journal, CNN, CNBC, and a variety of other media, for expert opinion in the field of entrepreneurship.

As a professor of entrepreneurship at the Lloyd Greif Center for Entrepreneurial Studies at the Marshall School of Business at the University of Southern California, she helps hundreds of young entrepreneurs start new ventures. Allen is actively involved in academic research, most recently in issues related to the unique environment of high tech start-up companies. She is also a founding member of the Entrepreneurship Research Consortium, a national research organization consisting of leading universities around the world, which is conducting groundbreaking research on nascent entrepreneurs.

At the University of Southern California, she is leading an initiative to form an alliance between the business and engineering schools to commercialize intellectual property developed at the university. She has developed a number of courses in the area of technology commercialization and serves on the university’s technology board.

As an entrepreneur, Allen has been involved in commercial real estate development for the past ten years, having cofounded a development firm specializing in apartment, office, and industrial space; and a brokerage — American Pacific Investments — which she sold. She is presently the cofounder and CFO of Gentech Corporation, a technology-based manufacturing company that recently launched a line of patented, intelligent, industrial power source machines. She is also consulting to a number of technology-based ventures, including three medical technology companies with patented products.

In the past three years, with the assistance of Microsoft Corporation, Allen has been working to educate small business owners and entrepreneurs on the value of technology as a competitive advantage, and to educate software manufacturers and resellers to the mindset and needs of small business owners.



To my students at the Greif Entrepreneurship Center at the University of Southern California, who never cease to amaze me with their entrepreneurial efforts.


Author’s Acknowledgments

I would like to give my sincere thanks and appreciation to the talented publishing team at Wiley, particularly Mark Butler, Norm Crampton, Neil Johnson, and Pam Mourouzis. I would also like to thank my family for their unconditional love and support during a time when I was doing two books at once.


Publisher’s Acknowledgments

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Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and Media Development

Project Editor: Norm Crampton

Acquisitions Editor: Mark Butler

Copy Editor: Neil Johnson

Acquisitions Coordinator: Tonia Morgan-Oden

Technical Editor: Robert L. Newhart II

Editorial Manager: Pam Mourouzis

Editorial Assistant: Carol Strickland


Project Coordinator: Maridee Ennis

Layout and Graphics: Beth Brooks, Tracy K. Oliver, LeAndra Johnson, Brian Torwelle, Jeremy Unger, Erin Zeltner

Proofreaders: Laura Albert, John Bitter, Laura L. Bowman, Susan Moritz, Carl Pierce, Charles Spencer

Indexer: Liz Cunningham

Publishing and Editorial for Consumer Dummies

Diane Graves Steele, Vice President and Publisher, Consumer Dummies

Joyce Pepple, Acquisitions Director, Consumer Dummies

Kristin A. Cocks, Product Development Director, Consumer Dummies

Michael Spring, Vice President and Publisher, Travel

Brice Gosnell, Publishing Director, Travel

Suzanne Jannetta, Editorial Director, Travel

Publishing for Technology Dummies

Richard Swadley, Vice President and Executive Group Publisher

Andy Cummings, Vice President and Publisher

Composition Services

Gerry Fahey, Vice President of Production Services

Debbie Stailey, Director of Composition Services




How Entrepreneurship Has Changed

How Entrepreneurs Define Success

About This Book

Foolish Assumptions

How This Book Is Organized

How to Use This Book

Part I : Getting Started in Entrepreneurship

Chapter 1: What’s an Entrepreneur, Anyway?

Understanding Entrepreneurship

Tasting the Many Flavors of Entrepreneurship

Deciding to Become an Entrepreneur

Chapter 2: Moving at the Speed of E-Business

Everyone Runs an E-Business

The Internet Gives You an Edge

Breaking the Link between Information and Things

Sharing Information (And Everything Else)

Everyone’s Value Chain Is Shorter

Making Yourself Obsolete (Before Someone Else Does It for You)

Changing the Way You Buy Things

Deconstructing the Company

Technology Disrupts; That’s Good

Chapter 3: Preparing to Hear When Opportunity Knocks

Starting to “Cook” on an Idea

Spotting Obstacles in Your Path

Clearing Away the Obstacles

Growing Ideas with Outside Help

Finding Opportunity in Failure

Finding Opportunity in the Unconventional

Finding the Right Place for Innovation

Chapter 4: Testing an Opportunity Before You Leap

Starting with a Personal Assessment

Turning an Opportunity into a Business Concept

Quick-Testing Your Concept

Getting Serious: Doing Feasibility Analysis

Part II : Developing Your Business Concept

Chapter 5: Listening to What Your Industry Tells You

Understanding Your Industry

Researching an Industry

Benchmarking Against the Perfect Industry

Chapter 6: What Your Customers Can Tell You

Defining Your Niche

Researching Your Customers

Forecasting Demand: Tough but Crucial

Triangulating to Demand

Chapter 7: Designing Products and Services for a New Marketplace

Zeroing-in on a New Product

Thinking Realistically about Product Development

Moving Fast to Prototype Stage

The One-Minute Product Plan

Chapter 8: Protecting Your Products and Services

Patenting Your Better Mousetrap

Copyrighting Your Original Work of Authorship

Protecting Your Logo: A Trademark

Guarding Your Interests

Strategies for Protecting Your IP

Chapter 9: Getting Products and Services to Customers: Distribution

Outsourcing Logistics

Creating Your Distribution Strategy

Distributing through Market Channels

Using Intermediaries

Evaluating Your Channel

Chapter 10: Putting Together Your Start-up Team

Finding Your Start-up Partners

Forming a Board of Advisors

Forming a Board of Directors

Pulling Yourself Up by the Bootstraps

Chapter 11: Assessing Your Start-up Financial Needs

Estimating How Much You Will Sell

Calculating How Much You Will Spend

Preparing Financial Statements

Planning to Break Even

Figuring How Much Money You Need

Putting It All Together

Part III : Creating a Company

Chapter 12: Getting Ready to Do a Business Plan

Drawing a Conclusion about Feasibility

Looking at the Who, What, Where, and Why of Business Plans

Getting Started with a Vision

Finding the Big Mission

Looks Count: Preparing and Presenting the Plan

Chapter 13: Finding Money to Start and Grow Your Venture

Starting with a Plan

Tapping Friends, Family, and Lovers

Finding an Angel

Daring to Use Venture Capital

Selling Stock to the Public: An IPO

Finding Other Ways to Finance Growth

Chapter 14: Starting with the Right Legal Structure

Deciding on the Best Legal Form for Your Business

Going It Alone: The Sole Proprietorship

Choosing a Partner: The Partnership

Going for the Gold: The Corporation

Looking for Flexibility: The S Corporation, the LLC, and the Nonprofit Corporation

Benchmarking Your Best Choice

Chapter 15: Developing a Business Model for a Digital World

Producing Several Models from One Product or Service

Looking for Another Gillette

Improving on the Bricks-and-Mortar Model

Flying High and Fast with Internet Models

Part IV : Growing a Company

Chapter 16: Planning for Growth

Identifying Factors That Affect Growth

Starting with Some Basic Growth Strategies

Growing within Your Current Market

Growing within Your Industry

Diversifying Outside Your Industry

Going Global to Grow

Growing as a High Tech Company

Chapter 17: Organizing Your Business for Growth

Moving from Entrepreneurship to Professional Management

Organizing for Speed and Flexibility

Finding and Keeping Great People

Chapter 18: Reaching the Customer

Marketing to Customers, One at a Time

Creating a Marketing Plan

Keeping Your Best Customers

Chapter 19: Proving You Can Make Money: The Financial Plan

Identifying the Components of a Successful Financial Plan

Building the Financial Statements

Using Financial Ratios to Judge Performance

Cash Planning: Managing Your Working Capital

Chapter 20: Planning for Things That Go Bump in the Night

Preparing for the Unknown: When Bad Things Happen to Good Companies

Harvesting the Wealth with a Graceful Exit

When You Think You Can’t Exit Gracefully

Stepping Back from the Brink

Part V : The Part of Tens

Chapter 21: Ten Reasons Not to Start a Business

Because Everyone Is Doing It

Because You Want to Be a Millionaire

Because You’re Looking for a Secure Job

Because You Don’t Want to Work for Someone Else

Because You Just Came into Some Money

Because If the Kid Down the Street Did It, So Can You

Because You Want to Give Everyone in Your Family a Job

Because You’ve Got a Great Idea

Because It’s Too Risky

Start a Business Because It’s What You Most Want to Do

Chapter 22: Ten Ways to Spark Your Entrepreneurial Spirit

Start Reading about Great New Businesses

Join a Community Business Organization

Hang around a University Business School

Tell a Friend

Do a Feasibility Study

Leave Your Job (or Get Laid Off)

Discover an Industry

Spend Time with an Entrepreneur

Find a Mentor

Do Something — Anything

Chapter 23: Ten Ways to Use the Internet to Grow Your Business

Get Started Quickly

Become a Virtual Business

Join a Network of Business Colleagues

Stay in Touch with Your Customers

Communicate with Your Strategic Partners

Gather Competitive Intelligence

Promote Your Company

Reach Global Customers

Create an Intelligent Company

Develop New Products and Services

Chapter 24: Ten Best Resources for Gathering Competitive Intelligence

Pounding the Pavement

Shopping Your Competitors’ Turf

Skimming the Industry Journals

Surfing the Web


E ntrepreneurship is a personal thing. It isn’t really about money or starting businesses — sure, entrepreneurs like to make money and start businesses, but that’s not the reason they are entrepreneurs. It’s much more than that. For entrepreneurs, it’s about having a passion for doing something you love; that’s the entrepreneurial spirit.

Entrepreneurs like to do things that excite the world, bend the rules a bit, and make us look at something in an entirely new way. They are opportunistic, finding new possibilities at every turn. So entrepreneurship is also about creativity, innovation, and change.

Although stereotyped as risk takers, the truth is that entrepreneurs take calculated risks — they are not the gamblers people make them out to be. In their businesses, they assess their options and choose their course based on their probability of success. They’re not afraid to fail because they tend to measure their real success by how many times they learn from their mistakes and go on to try again. Entrepreneurship involves challenge, persistence, and planning.

These days, finding any aspect of life that isn’t in a state of change is difficult. In the world of business, you discover companies going in and out of business, customer loyalty as ephemeral as the wind, jobs disappearing overnight and replaced by jobs that never existed before, and technology changing the way we do things in every aspect of our lives. Times are exciting if you enjoy change and know how to deal with it. Dealing with change is one of the important things entrepreneurs do best. They thrive on it because they know that with change comes opportunity. Those kinds of opportunities are among the many reasons to think about developing the entrepreneurial spirit and mindset.

How Entrepreneurship Has Changed

For the past two decades or longer, entrepreneurship has been viewed simply as a process for starting new businesses. Only recently have those of us who study this phenomenon concluded that entrepreneurship is more importantly about an opportunistic mindset and spirit. That’s a significant distinction, because it means that everyone has the potential to benefit from understanding the mind of the entrepreneur. Whether you work in a large corporation, own a business, run a nonprofit organization, or are at home raising children, you can find opportunities to improve your situation by applying this way of thinking to your life and work.

So, my approach to entrepreneurship starts with a mindset and spirit. Then it guides you in discovering the strategies, skills, and tools you must find and use to turn ideas into opportunities and opportunities into successful business concepts. You find out that being small and flexible has distinct advantages in the new digital economy, that you can have a global presence with the click of a mouse button, and that it’s customers who define what a business is, what products and services it produces, and how successful it becomes.

How Entrepreneurs Define Success

If I ask you to describe a successful entrepreneur, chances are you’ll point to the size of his or her business, how much money it makes, how much its investors earn. Those certainly are ways to describe a successful business, but entrepreneurs typically take a much more personal view when defining success. Ask Wally Amos of Uncle Noname Cookies, and he tells you that success is “turning lemons into lemonade.” Others say that being happy with what you’re doing and feeling like you’re accomplishing something is a measure of success. Every entrepreneur’s definition of success is different and personal, but in the listing below I categorize the more common responses so you can see that success is not always about money.

bullet Purpose: Entrepreneurs must feel a sense of purpose or direction in what they’re doing. Success is a journey not a destination, but knowing the direction you’re heading and why seems to be a common component of success.

bullet Failure — the other half of success: No one denies that life is full of ups and downs. Most entrepreneurs experience failure of one sort or another, but knowing that failure is a possibility doesn’t frighten them. If trying something doesn’t have the potential for failure, it isn’t worth doing because no risk is attached to it. Anyone can try something that is guaranteed to be a success. That’s why entrepreneurs find opportunity where no one else does; they’re not afraid to go where the risk is.

bullet Sense of satisfaction: Most successful entrepreneurs are doing what they love, so it doesn’t feel like work.

bullet No free lunch: Success comes from hard work. Even entrepreneurs you read about, you know, the ones who seem to have appeared out of nowhere to become hugely successful, have spent years you don’t hear about struggling to become that overnight success.

In Entrepreneurship For Dummies, you discover that entrepreneurship is an exciting, sometimes scary, roller-coaster ride — a way of life that you may decide to enjoy.

About This Book

Entrepreneurship For Dummies contains practical information, tips, and checklists that can be used by anyone who aspires to start a business, work as an entrepreneur inside a large corporation, or just become more opportunistic by acquiring an entrepreneurial attitude. It doesn’t matter whether you have ever owned a business or even have any business experience. You can use this book to think about the world of the entrepreneur and decide if it’s right for you.

This book is definitely grounded in the real world. It is based on research I have conducted in the field of entrepreneurship, the work I have done with hundreds of entrepreneurs starting new ventures, and my own experiences as an entrepreneur, so there are no hypothetical situations here. I have pulled together the best information, the best tips, and the best examples of how to make entrepreneurship work for you.

Entrepreneurship For Dummies is a guide to everything you ever wanted to know about the entrepreneur and the entrepreneurial process. Don’t know where to get started? I’ll help you. Don’t know how to find an opportunity and test it? I’ll give you the information you need to put yourself in a position to find that great business idea and then test it in the marketplace before you commit to starting a business to turn that idea into reality.

This book is organized so that whatever you’re looking for is easy to find.

bullet Suppose you want to figure out how much money you need to start your business. Just go to that chapter and the specific section you need, and you’ll find exactly what you’re looking for.

bullet Or, if you really want to get serious about becoming an entrepreneur, you can start on page one and work your way to the end.

Whichever route you choose, I’m certain that this book and its real-world examples are going to inspire you to think about entrepreneurship as a way of life.

Foolish Assumptions

Before I began this book, I made some assumptions about you — the reader. (I know that’s not always wise, but I’m an entrepreneur — I’m not afraid to take a risk!) I assumed that you want to understand what entrepreneurs do to create those exciting e-businesses you read about and see on TV. And I also assumed that you’re ready to make an investment in your future. Finally, I assumed that you want to know how to use entrepreneurial skills and attitudes in whatever endeavor you decide to undertake.

Icons Used in This Book

I use little pictures, called icons, next to blocks of text throughout the book. They’re designed to draw your attention to things I want you to remember.


A good idea, trick, or shortcut that can save you time and money.


A piece of information you shouldn’t forget.


A tip that can help you avoid disasters.


An example from the real world to illustrate my point.

How This Book Is Organized

Entrepreneurship For Dummies is organized into five parts, and each chapter within a part goes into detail on a specific topic. This organization makes it easier for you to find what you’re looking for. I think I’ve covered everything you need to know to put together a winning entrepreneurial strategy.

Part I: Getting Started in Entrepreneurship

In this part, you get an introduction to the world of the entrepreneur and the new environment in which businesses are being started. You also consider how entrepreneurs discover those great opportunities and find out how to increase your creative abilities so you can become more opportunistic yourself. Finally, this part deals with how to turn an opportunity into a great business concept that you can test in the marketplace.

Part II: Developing Your Business Concept

This part gets you started in the nuts and bolts of feasibility analysis, which is a way to test your business opportunity in the real world before you spend time and money starting a business to make it happen. In this part are lots of strategies and tactics for researching your industry and target market, and for testing your customer, product or service, and distribution channel. You also find out how to put together an effective start-up team and figure out how much money it will take to start your venture.

Part III: Creating a Company

Once you’ve determined that you have a business concept that is feasible, you need to create a company to execute the plan for your business. In this part, you find out everything you want to know about business plans and how to develop them. You also discover the best legal form for your business and the best business model to make money. And speaking of money, you also find out a variety of different ways to tap into financial resources, so that you can start and grow your business.

Part IV: Growing a Company

One of the byproducts of a successful start-up is growth. This part focuses on how to take your business beyond start-up to successfully grow it to a new level. You discover how to plan for growth, organize your business so that it can handle growth, develop a marketing plan that gets your message to customers, create a financial plan that tracks your business’s health, and plan for those unexpected events that happen to every business.

Part V: The Part of Tens

In this part, I give you some of my best tips for reasoning why you maybe shouldn’t start a business, motivating yourself to get started with a business idea if you should start a business, and using technology to grow your business. I finish this part with the best industry resources on the Web to help you gather competitive intelligence.

How to Use This Book

If you want the most from this book, I suggest you start at the beginning and work your way to the end. This book contains a wealth of information for you to explore, and I don’t want you to miss any of it.

But, if you already have some business experience and not much time (like so many of us), you can skip from topic to topic depending on what interests you. The Table of Contents is organized to help you find what you need easily and quickly.

No matter how you approach this book, I’m sure you’ll enjoy it. If you have any questions or comments, I’d like to hear from you. Please contact me at kallen@marshall.usc.edu.

Part I

Getting Started in Entrepreneurship

In this part . . .

T he best way to understand the world of the entrepreneur is to jump right in and swim with it. This part gives you a quick introduction to that world and starts you on the road to changing your mindset — your attitudes and way of looking at the world — to a more entrepreneurial, opportunistic one. You also get your first taste of how entrepreneurs come up with those great business ideas and test them in the market before they take the leap and start a business.