Describe the opportunities small businesses provide the owner, the local community, and the economy

Small Business: Varieties and Impacts

C H A P T E R

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● Robin Rath of Pixel Press with kids drawing games to go into Pixel Press. How did he use his passion for video gaming to help him find his business idea? Pixel Press

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LO

When Robin Rath was a kid, he was an avid player of video games like Metroid and Super Mario Brothers, and when he wasn’t playing he was designing new levels of his favorite games in his head and on paper. But he realized that video gaming was part art and part programming, and that helped him set his course. Following an undergraduate degree from Saint Louis University (SLU) bridging communications technology with fine and studio arts, he was positioned to realize his dream.

But game producers were thin on the ground in St. Louis, so Robin’s strategy was to find jobs to hone his programming skills during the day and create his own firm, Roundthird, to develop games as his side gig on nights and weekends. His main work included stints at increasingly re- sponsible and demanding positions at six different companies in the programming and marketing industries in St. Louis. Meanwhile, he and his Roundthird partner, Jon Gettys, released Radial 50 for IOS, a circular takeoff on the classic Breakout brick-breaking video game. Robin’s day and side gigs helped him develop the in-depth knowledge of programming, project planning, marketing, and networking which convinced him that given the right idea, he would be ready to go full time as an entrepreneur.

The idea that led to full-time entrepreneurship was Pixel Press, a piece of software for iPhones and iPads that would let regular people with no programming skills create playable games reminis- cent of Super Mario on their Apple devices. While the idea was ambitious, it was possible, and as he got word out, Pixel Press got favorable press from NBC News, CNET, Fast Company, and others. Building on this, Robin created a Kickstarter campaign to crowdfund his dream. You can see the campaign and watch the original pitch at www.kickstarter.com/projects/robinrath/pixel-press- draw-your-own-video-game. The campaign was successful, topping $100,000. With that money and with what he had saved, Pixel Press made it to market. Within two years, Pixel Press announced a partnership with Cartoon Network (CN) resulting in the Adventure Time Game Wizard, which would let players create games with CN characters. From the success of that partnership, Pixel Press went on to release its next product that represented its first foray into toys and gaming, form- ing partnerships with Mattel and Disney to bring products to store shelves in the United States and internationally.

Focus on Small Business: Robin Rath, Pixel Press1

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After you complete this chapter, you will be able to:

LO 1-1 Understand the scope of small business in the United States.

LO 1-2 Differentiate between small businesses and high-growth ventures.

LO 1-3 Dispel key myths about small businesses.

LO 1-4 Identify actions key to becoming a small business owner.

LO 1-5 Recognize how small businesses are important to our economy and your community.

LO 1-6 Recognize the seven key strategies of the entrepreneurial way.

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4 PART 1 EntrEprEnEurs and IdEas: thE BasIs of small BusInEss

In speaking with Robin, he credits a constant presence of an entrepreneurial spirit around him from a young age and throughout his education: “Both of my parents were entrepreneurs and encour- aged me early on in things like ‘baseball card shops’ not just in our basement but online as well, when making a website was still very hard. At SLU, I spent all four years as an intern in the Entrepreneurial Studies department and helped coordinate one of the country’s first entrepreneurial awards hosted by SLU—the Global Student Entrepreneur Awards (GSEA). Seeing college students win $10,000 to help their business start was inspiring.” Robin adds, “This also has motivated me to stay active with the Entrepreneurship Club at SLU, including all the work they do over the summer with high school students. Ultimately we are learning every day, and staying engaged at all levels helps me stay fresh and grounded.”

DISCUSSION QUESTIONS 1. Do you think Robin was originally thinking about starting a business when he was working in pro-

gramming and marketing positions in other people’s companies?

2. What drove Robin to start a business of his own?

3. How important were contacts and connections to the growth of Robin’s business?

4. Do you think Robin would credit his step-by-step approach with the success of his business? What is your opinion?

Starting an Entrepreneurial Small Business: Four Key Ideas Robin’s story makes a simple point—you can start a small business, and there are ways to help you be a success at it. Consider the four key things that Robin did right:

1. Believe that you can do this: Robin’s belief in himself and what needed to be done to make Pixel Press’s app powered his efforts. That belief in yourself is called self-efficacy, and learning how to start a business in this class and from this book will help you build it for yourself.2 Those who believe in themselves and in the passion of their beliefs are more likely to keep at it until they succeed.

2. Planning + Action = Success: A plan without action is futile. Actions without plans are usually wasted. Success comes from having the right sort of plan to get you to the right actions as quickly as possible. Like Robin, those who plan and act are the ones who most often succeed.3

3. Help helps: Successful entrepreneurs learn—from other entrepreneurs, from experts in their chosen field, from potential customers, or even from their professors!4 Skill Module 1.1 will help you find some of the best sources of help on the web. Remember, those who get help succeed bigger and more often.

4. Do well. Do good: In the long run, you will depend on partners, investors, employees, cus- tomers, and neighbors. If you always remember, as Robin has, to do good for others as you try to do well in your business, you’ll feel better about your business and life, and those around you will too.5

Entrepreneurial Small Business believes in the power of those four ideas, and we’ll help you un- derstand each of them and how to use them to make your entrepreneurial dreams come true. There are literally millions of those entrepreneurial dreams out there because there are so many ways to become an entrepreneur. Almost every year, while more than 400,000 new firms with employees are created, there can be 10 to 15 times that many new owner–only firms, so it is safe to say that there are 6 million new firms a year, and yours can be one of them.6

small business Involves 1–50 people and has its owner managing the business on a day-to-day basis.

self-efficacy A person’s belief in his or her ability to achieve a goal.

entrepreneur A person who owns or starts an organization, such as a business.

LO 1-1 Understand the scope of small business in the United States.

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small BusInEss: VarIEtIEs and Impacts CHAPTER 1 5

The vast majority of new firms go through similar start-up processes. The firms most likely to be successful follow a four-step process, shown in Figure 1.1.

• Feel: This is where the entrepreneur has a feeling—about maybe starting a business or maybe creating a particular product or service. This is what starts the founding process. We’ll talk about entrepreneurs and the feelings leading to their business in Chapter 2.

• Check: Smart entrepreneurs check the likelihood for success of their idea through feasibil- ity analyses (see Chapter 4) or customer development processes (see Chapter 9), repeating these until they have a winning and saleable idea.

• Plan: Getting from the idea to the business can be done by small-scale, part-time start-ups (see Chapter 5), lean business practices approaches (see Chapter 9), pilot testing (see Chapter 4), business modeling, or business plan creation (see Chapter 8).

• Do: Regardless of the type of planning approach you choose to implement your business activity, you will find that you need to refine your approach until you have a successful firm, including additional rounds of refinement and revising.

Entrepreneurs Are Everywhere In addition to Robin Rath of Pixel Press, the United States had 15.5 million other full-time en- trepreneurs working in 2015, according to the U.S. Census Bureau.7 If we include people pursu- ing their entrepreneurial dreams on a part-time basis, we need to add another 50 million people.8 What were they doing? Just about everything! Entrepreneurs could be found in almost every type of work there is, literally in hundreds of occupations. In fact, there are occupations

occupation The type of activity a person does regularly for pay.

SKILL MODULE 1.1

The Small Business Online Scavenger Hunt

It can be mind-boggling to discover how much material is on the web ready to help aspiring entrepre- neurs. To help you get a feel for what is out there, we have put together a web scavenger hunt focusing on key information. In a few cases you may have to register, but all registrations for websites listed here are free. Along the way you will get to peruse some of the “best of the best” entrepreneurship information on the web.

1. If you wanted to find stories about business in Albuquerque (or run the name of a business from there to see what it has done), which site would give you the biggest selection of local stories? www.bizjournals.com, www.usatoday.com/money/business, www.wsj.com.

2. Which of the following sites offers you a free online business plan maker? www.usa.gov/business, www.sba.gov, www.entrepreneur.com.

3. Which site can connect you to free local help for starting and growing your business? www.nfib.com, www.sba.gov, www.inc.com.

4. You can search for patents for free at www.google.com/patents or www.uspto.gov. Which will also let you search for trademarks?

5. If you want to find out what the profit margins are for businesses in the restaurant industry, which site would give you the answer? www.sba.gov, www.entrepreneur.com, www.bizstats.com.

By the time you have checked out these sites, you will be up to speed on some of the largest and most cred- ible sets of free, high-quality small business information available today.

Feel Check Plan Do FIGURE 1.1

The Entrepreneurial Process

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6 PART 1 EntrEprEnEurs and IdEas: thE BasIs of small BusInEss

composed mostly of entrepreneurs. Table 1.1 shows the 10 occupations with the largest num- bers of entrepreneurs as well as the 10 occupations with the highest percentages of entrepre- neurs. Note that “owner-managers” are an occupation in their own right, but can appear in any other industry.

Notice that while there are entrepreneur-rich occupations that require college and even gradu- ate school, there are also occupations popular with entrepreneurs with very basic entry require- ments. What is most important here is finding something you want to do. When you decide on what your business is going to be, you are choosing your occupation. As the entrepreneur, you may be the owner of the business, but your occupation will depend on what type of goods or services you and your firm are producing. So the owner of an online store is a retailer, while the owner of a construction firm will be a construction manager. Robin Rath is an app maker be- cause Pixel Press makes apps that he sells online. Whatever you want to do, there is probably a way to do it as an entrepreneur.

Truly entrepreneurial businesses are characterized by novelty in their products, services, or business models. Small businesses, on the other hand, are imitative in nature, with most small firms doing what other firms do, with only slight variations. But when we think about the people who start firms, the situations they face are situations of novelty. So whether he or she starts the successor to Amazon.com or the pizzeria on the corner, the person who starts a business is living the life of the entrepreneur. We recognize this distinction and address the challenges facing entrepreneurs, while focusing on the small businesses they plan to cre- ate or enter.

In Entrepreneurial Small Business we use the popular broad definition of entrepreneur10— anyone who owns a business is an entrepreneur. This, of course, means anyone who is a small business owner is an entrepreneur.11 It also means that the self-employed, anyone who works for himself or herself instead of for others, is also an entrepreneur. As noted above, according to the Census Bureau, there were about 15.5 million full-time self-employed people in 2015. In- cluding entrepreneurs who worked part time in 2015 added over another 50 million people to the number. Within the population of entrepreneurs, it is sometimes useful to split out certain groups. One of these is founders, the people who start a business, whether it is one of their own devising or a franchise, which is a prepackaged business you buy or lease from a franchi- sor. Other groups consist of buyers, those who purchase an existing business, or of heirs, those who inherit or are given a stake in the family business. These roles deal with the entry stage of

The Top 10 Occupations for Entrepreneurs9TABLE 1.1

Top 10 Occupations with the Highest Number of Entrepreneurs

Top 10 Occupations with the Highest Percentage of Entrepreneurs

Owner-managers 1,694,434 Farmers and Ranchers 86.4%

Construction 1,043,176 Medical Practitioners 75.2

Farmers 1,019,727 Movie Projectionists 72.6

Retailers 683,623 Artists 70.2

Drivers 450,709 Entertainers and Athletes 66.8

Child Care Workers 402,267 Salespeople 56.9

Real Estate Agents 376,834 Landscape Managers 56.3

Wholesalers 373,099 Photographers 56.2

Maintenance Workers 342,689 Service Managers 53.6

Lawyers 310,390 Furniture Finishers 52.9

Source: U.S. Census Bureau, Current Population Survey, March 2015, custom computation using DataFerrett by Jerome Katz.

goods or services The tangible things (goods) or intangible commodities (services) created for sale.

firm An organization that sells to or trades with others.

novelty Characterized by being different or new.

imitative Characterized by being like or copying something that already exists.

self-employed Working for yourself.

founders People who create or start new businesses.

franchise A prepackaged business bought, rented, or leased from a company called a franchisor.

buyers People who purchase an existing business.

heir A person who becomes an owner through inheriting or being given a stake in a family business.

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small BusInEss: VarIEtIEs and Impacts CHAPTER 1 7

● Entrepreneurs can be found in nearly every line of work there is. Into what occupation would your business put you?

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the business from the perspective of the entrepreneur. After entry, another role emerges, that of the owner-manager, the role in which most entrepreneurs spend their working lives. Through- out this text the terms small business owner, entrepreneur, and self-employed are used interchange- ably. When founders or buyers or post-entry owner-managers are discussed, we specify which one is the focus.

CSI: Entrepreneurship Notice that our definition of entrepreneur doesn’t specify if the business is for-profit or non- profit. The fact is that starting either type of organization involves the entrepreneurial process of founding. Self-employed founders of firms are involved in what we call independent entrepreneurship.

Founders of nonprofit organizations or for-profit social ventures are pursuing social entrepreneurship. These efforts involve creating new charitable and civic organizations that are financially self-sufficient like Bangladesh’s Grameen Bank (which won the 2006 Nobel Peace Prize for making banking services designed to help the poor manage their money bet- ter), or for-profit companies that use much of their profit to fund charities such as Tom’s Shoes with its “One for One” philosophy where for every pair of shoes you buy it donates a pair to children in need. Many people also include the founders of charities. When the social entrepreneur’s focus is more specifically on the planet and ecological issues, we call it sustainable entrepreneurship or green entrepreneurship.

independent entrepreneurship The form of entrepreneurship in which a person or group owns a for-profit business.

social ventures Businesses that are organized as for-profit entities but are also solving or supporting solutions to social problems.

social entrepreneurship The form of entrepreneurship involving the creation of self- sustaining charitable and civic organizations, for-profit organiza- tions that invest significant profits in charitable activities, or the creators of nonprofit charitable or service organizations.

sustainable entrepreneurship An approach to operating a firm or a line of business that identi- fies, creates, and exploits oppor- tunities to make a profit in a way that can minimize the depletion of natural resources, maximize the use of a recycled material, or improve the environment.

green entrepreneurship Another term for sustainable en- trepreneurship taken from the popular belief that green is the color of a healthy environment, as in forests or fields.

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