# Entrepreneurship

## Optimal Support for Entrepreneurship

1. How can government support entrepreneurship?
Governments generally want to support entrepreneurship because successful businesses create value among the population. This value permits companies to provide jobs, pay corporate taxes, and enable workers to pay taxes. Governments also get political credit for policies that increase commerce, wealth creation, and job creation. In general, government sets and changes the institutional conditions that encourage or discourage entrepreneurs from either innovating or seeking profit by other means. Government can support entrepreneurship by reducing negative incentives or by increasing positive ones. In particular, government can:
1. Reduce barriers to entrepreneurship erected by previous governments or in society.
2. Protect intellectual property and capital through the patent system and the rule of law.
3. Provide businesses with technology ready for commercialization.
4. Increase incentives for entrepreneurship, which comes at a cost to other priorities.
5. Provide special benefits to favored industries, businesses, or regions, although such cronyism can come at a political and economic cost by distorting markets and playing favorites.

### Less Discouragement: Reducing Barriers

Regulations, like laws, set rules that help entrepreneurs predict what will happen if they take certain risks. For this reason, regulations should be clear and should not change quickly or merely when a new political majority takes power. In general, a regulation is a restriction, and any restriction tends to reduce innovation by limiting options. For this reason, reducing regulations tends to unleash innovation. This is not always the case. For example, zoning restrictions might push similar businesses to be near one another, leading to increased cross-fertilization of ideas. Also, when government enforces property rights including intellectual property, preventing others from using that property, entrepreneurs feel more secure in employing their capital. Similarly, entrepreneurs feel more secure when their government refrains from appropriating property via eminent domain or socialist takeovers.
Laws and regulations often reflect the values of a particular political and economic moment, and they become outdated because of the speed of innovation. Technology changes faster than bureaucrats can keep up. For example, two different companies had similar revolutionary technology: Skype and Free World Dialup (FWD). Both were able to provide free “telephone calls” over the Internet worldwide. In the United States, FWD had to wait 18 months for regulators to determine that FWD was exempt from traditional U.S. telecommunication regulations. Meanwhile, abroad, free from this process, Skype had years to develop its user base. FWD could not compete and went out of business, leaving Skype the undisputed champion.
Regulations also tend to favor larger, established businesses that innovate less, and they tend to disfavor smaller, entrepreneurial ventures. International trade barriers such as tariffs often protect a country’s existing businesses and make it relatively difficult for new businesses from other countries to compete. Bureaucracy also can make it difficult, costly, and time consuming to start a business. In countries with high levels of corruption, proprietors may have to pay extra fees to bureaucrats to get their paperwork to the top of the pile.
Taxation also reduces the profit from an enterprise, so taxation reduces the likelihood that entrepreneurs will risk their capital. Progressive taxation, unlike a flat tax, penalizes businesses at higher rates for making more money, which also can discourage entrepreneurship. Reducing taxes and regulation can encourage entrepreneurship, although these changes also can increase the competitiveness of established businesses, which entrepreneurs will take into account. Also, providing tax exemption for nonprofit enterprises and social entrepreneurship encourages a wide variety of value-creating services in civil society.
In addition to government barriers to entrepreneurship, there often are cultural barriers. For example, in some countries, discrimination on the basis of sex, race, or religion prevents many would-be entrepreneurs from getting equal access to the resources they would need to thrive. Government can step in to outlaw such discrimination and protect equal rights. Government also can address culturally discriminatory attitudes that are not illegal by means of education campaigns. Government also can subsidize external constraints on growing a business, such as by subsidizing childcare so that entrepreneurs can spend more time on their work at lower cost.

### More Discouragement: Increasing Positive Incentives

Government can reduce the cost of technological innovation by simply giving government-produced technology to the private sector so that the technology can be commercialized. Government also can change the rules of financing to reduce the transaction cost or the actual cost of acquiring funds. For instance, government can make it easier or less costly for businesses to receive government loans, can subsidize lending, or can subsidize borrowing. All of these efforts come at a cost either directly, at the cost of the subsidy, or indirectly, by providing cheaper funds to riskier ventures than the private loan market would otherwise provide.
Government also can provide venture capital to attract new ventures, especially in areas where the private sector cannot afford to take expensive risks or has little experience with this kind of funding. This capital, however, can prop up lower-quality businesses that ultimately will not succeed. The private sector, risking its own capital instead of taxpayers’ money, generally may not have supported such less-investible businesses. Furthermore, by focusing on potential high-growth firms, government can shortchange other kinds of firms. Finally, research suggests that high-quality projects are what attract dollars, rather than extra dollars attracting investible projects.
Government also can subsidize other elements of innovation and building businesses, such as direct subsidies for research and technology development or for building facilities. This kind of support easily slides into cronyism where, for a variety of reasons, particular industries or regions receive special treatment even when they are not the best-positioned options from an economic perspective. For example, government might limit its business contracts to only certain kinds of small businesses, even though a larger business might provide better service per dollar.
Government also can put resources into training programs, which can include formal entrepreneurship and business courses at institutions of higher education, “incubators” that provide business advice, or informal networking events in local communities.
Longer-term projects, closer to the beginning of the entrepreneur pipeline, include public financing of education in financial literacy, comfort with risk taking, historical exemplars of entrepreneurship, and leadership to develop a culture of entrepreneurial thinking that can start as early as elementary school.
The local government can market the value of social entrepreneurship and small businesses for the community, providing moral support for volunteerism, low-profit and nonprofit service ventures, and structures such as a local chamber of commerce. In thriving economies where many people have leisure to pursue low-profit and nonprofit ventures, there is room for more social entrepreneurship. Therefore, to maximize social entrepreneurship, pro-growth policies that support entrepreneurship in general may be the best policies in the long run.
Finally, the government can also support entrepreneurship by making technology developed in federal labs available for commercialization, as illustrated by The Right Stuff case.
1. How can government support entrepreneurship?
Government can support entrepreneurship by reducing negative incentives or by increasing positive ones. In particular, government can:
1. Reduce barriers to entrepreneurship erected by previous governments or in society.
2. Protect intellectual property and capital through the patent system and the rule of law.
3. Provide businesses with technology ready for commercialization.
4. Increase incentives for entrepreneurship, which comes at a cost to other priorities.
5. Provide special benefits to favored industries, businesses, or regions, although such cronyism can come at a political and economic cost by distorting markets and playing favorites.

### Chapter Review Questions

1. What are the differences between classic entrepreneurs, multipreneurs (entrepreneurs with many start ups), and intrapreneurs (Entrepreneurs in traditional businesses)?
2. What differentiates an entrepreneur from a small-business owner?
3. What are some major factors that motivate entrepreneurs to start businesses?
4. How can potential business owners find new business ideas?
5. Why is it important to develop a business plan? What should such a plan include?
6. What financing options do small-business owners have? What risks do they face?
7. How do the small-business owner’s and entrepreneur’s roles change over time?
8. What are the benefits to small firms of doing business internationally, and what steps can small businesses take to explore their options?
9. Describe the financial and management assistance programs offered by the SBA.
10. What significant trends are occurring in the small-business arena?
11. How is entrepreneurial diversity impacting small business and the economy?
12. How do ethics impact decision-making with small-business owners?

### Management Skills Application Exercises

1. After working in software development with a major food company for 12 years, you are becoming impatient with corporate “red tape” (regulations and routines). You have an idea for a new snack product for nutrition-conscious consumers and are thinking of starting your own company. What entrepreneurial characteristics do you need to succeed? What other factors should you consider before quitting your job? Working with a partner, choose one to be the entrepreneurial employee and one to play the role of his current boss. Develop notes for a script. The employee will focus on why this is a good idea—reasons he will succeed—and the employer will play devil’s advocate to convince him that staying on at the large company is a better idea. Then switch roles and repeat the discussion.
2. What does it really take to become an entrepreneur? Find out by interviewing a local entrepreneur or researching an entrepreneur you’ve read about in this chapter or in the business press. Get answers to the following questions, as well as any others you’d like to ask:


3. Your class decides to participate in a local business plan competition. Divide the class into small groups, and choose one of the following ideas:


Prepare a detailed outline for the business plan, including the objectives for the business and the types of information you would need to develop product, marketing, and financing strategies. Each group will then present its outline for the class to critique.

### Managerial Decision Exercises

1. A small catering business in your city is for sale for $250,000. The company specializes in business luncheons and small social events. The owner has been running the business for four years from her home but is expecting her first child and wants to sell. You will need outside investors to help you purchase the business. Develop questions to ask the owner about the business and its prospects, as well as a list of documents you want to see. What other types of information would you need before making a decision to buy this company? Summarize your findings in a memo to a potential investor that explains the appeal of the business for you and how you plan to investigate the feasibility of the purchase.
2. As the owner of a small factory that makes plastic sheeting, you are constantly seeking ways to increase profits. As the new year begins, one of your goals is to find additional funds to offer annual productivity and/or merit bonuses to your loyal, hardworking employees. Then a letter from a large national manufacturer of shower curtains seems to provide an answer. As part of a new “supplier diversity” program it is putting in place, the manufacturer is offering substantial purchase contracts to minority-owned suppliers. Even though the letter clearly states that the business must be minority owned to qualify for the program, you convince yourself to apply for it based on the fact that all your employees are Latino. You justify your decision by deciding they will benefit from the increased revenue a larger contract will bring, some of which you plan to pass on to them in the form of bonuses later in the year. Using a web search tool, locate articles about this topic, and then write responses to the following question. Be sure to support your arguments and cite your sources.



### Critical Thinking Case


### Fostering Entrepreneurship in "Innovation Deserts"

You may have heard of food deserts or Internet deserts -- those places where groceries or online access are difficult to come by. But certain communities fall into similar “innovation deserts,” where the population is cut off from educational, technical, and other resources connected to small business and entrepreneurial success. Often coinciding with economically distressed locations, innovation deserts force residents to look elsewhere for opportunities and support, causing both a talent and economic drain that exacerbates the problem.
Felecia Hatcher has committed herself to ridding communities of these deserts. A self-described C-student in high school, she found creative ways to achieve and finance her education and early career. As a freshman at Lynn University, she launched a company focused on mentoring high school students. Upon graduating, she went on to lead social media campaigns for major brands such as Nintendo, Sony, Microsoft, and Little Debbie. Soon after, she landed a major position with the Minnesota Lynx of the WNBA. She left it to start an ice cream company.
That company, Feverish Ice Cream, went from a small food truck and cart operation to a venture capital-backed promotional partner to some of the biggest brands in the world. Her success -- and the financial resources it provided -- enabled Felecia to pivot once again.
In 2012, Hatcher started Code Fever, an organization focused on teaching Miami residents how to integrate technical knowledge into their skillset. Soon after, Hatcher and her partners brought Black Girls Code to Miami, and hosted numerous camps and events for local youth. In 2015, they started Black Tech Week to further the cause of creating inclusive innovation communities. The conference hosted several thousand attendees and some of the nation’s top entrepreneurs, venture capitalists, educators, and tech professionals.
The following year, Hatcher’s organizations further expanded their entrepreneurship programs. They began a VC-in-residence program to connect Black innovators with potential mentors and investors. They also partnered with PowerMoves to launch bootcamps and pitch competitions. Black Tech Week soon expanded from Miami to eight other cities.
Like many communities in South Florida, the Overton section of Miami was an innovation desert. Social mobility was relatively low, and potential entrepreneurs had few support networks or access to resources. Even though Miami was the nation’s densest city for co-working spaces (seen as particularly helpful for start-ups), Overton didn’t have one. Hatcher sought to directly fill the gap by opening a co-working space named a Space Called Tribe. The two-story hub offers individuals or small companies low-cost access to WiFi, office space, conference rooms, collaboration opportunities, and a wide array of workshops and guest speaker events. Even though members are from different companies serving different industries and customers, their shared experience can create networking and support relationships.
Felecia Hatcher and her group recently rebranded to The Center for Black Innovation; beyond the services and events described above, they work as a think tank and advocacy organization to further promote investment and innovation in the Black community, and better help all marginalized communities. During the COVID-19 pandemic, they launched a number of educational programs to help those affected launch “side hustles” to supplement their income. The Center also continues to serve as an incubator and capital investment networker to help people develop and scale their start-ups. And after helping thousands of business people, the Center frequently collaborates with past participants to mentor new ones and continue the cycle of innovation.
2. What qualities or characteristics might lead to the emergence of an innovation desert? Is it always a geographical definition, or could it be defined in other ways?
3. In her efforts to help marginalized people gain technical and business experience, how was Felecia Hatcher’s progression similar to business growth and grand expansion?
4. How might a Space Called Tribe and the larger efforts of the Center for Black Innovation lead to opportunity for local entrepreneurs?
Sources: Center for Black Innovation website, https://www.centerforblackinnovation.org/#what-we-do ; Felecia Hatcher-Pearson, “Ridding Communities of Innovation Deserts,” Impakter, September 5, 2019, https://impakter.com/ridding-communities-of-innovation-deserts-how-corporations-and-governments-can-support-black-communities-innovation-potential/ ; Blair Levin and Larry Downes, “Cities, Not Rural Areas, Are The Real Internet Deserts,” Washington Post, September 13, 2019, https://www.washingtonpost.com/technology/2019/09/13/cities-not-rural-areas-are-real-internet-deserts/ ; Rob Wile, “In a long-neglected Miami neighborhood, a new co-working space stirs to life,” Miami Herald, May 30, 2018, https://www.miamiherald.com/news/business/technology/article212112389.html;