Starting Your

Own IT Company

Group 9:

Jennifer Mertens

Marianne Doyle

Aaron Johnson

Willie McGarry

Executive Summary

This paper is developed to help individuals become successful entrepreneurs. First we define the term entrepreneur. Then we discussed the characteristics an entrepreneur should posses. It is important for individuals to realize what they are getting themselves into and for them to understand the statistics facing entrepreneurs. They also need to look at themselves and see what type of skills they have, and then determine which skills they need to refine and use when starting their business. Once they know they personally have what it takes to start a business, it is helpful to go through the checklist that we provided. They then need to form a corporation. We interviewed David Garthe and Harry Brumleve, whom are both from St. Louis, to give real life examples of entrepreneurs. We also did a case study on Red Hat to show a start up business on a much larger scale. We ended the paper with a comparison and conclusion.

An Entrepreneur is a person who organizes, operates, and assumes the risk for a business venture (2). This paper gives a various definitions of an entrepreneur along with definitions provided by entrepreneurs themselves.

Some people have the characteristics that make them a “good match” to be an entrepreneur. While other entrepreneurs’ characteristics make them “outside the norm”. A few “Good match” characteristics include a competitive personality, the desire to work for themselves, and are college graduates. A major deviation outside the normal characteristics is one in which the entrepreneur buys an existing business. Other characteristics are self-confidence, multi-skilled, innovative skills, results-oriented, risk taker, and committed (3).

The statistics that we provided are very important for entrepreneurs to understand. They need to be aware of how many entrepreneurs are successful and how many fail each year. They need to know what they need to have to be successful and the cities that are friendly to new businesses.

Entrepreneurs need to have various skills along with these characteristics. They need to be focused, have a vision, be leaders, be persistent and passionate, have technical skills, and be flexible (17). They also need to be organized, have a strong work ethic, have the ability to make good decisions, be trustworthy, determined, and healthy(11).

Once an individual knows that they have what it takes to start a business, they should go to http://app1.sba.gov/survey/checklist/index.cgi. This provides a checklist of everything they need to do to successfully start their business. Then they need to form a business strategy following the five elements that we provide. Once this has been accomplished they are ready to form a corporation. This is very simple. They can go to: https://www.sos.mo.gov/BusinessEntity/soskb/CSearch.asp?dtm=489884259259259. We then provided 31 tips to face your fears and start your own business. We also provided five things to do to avoid failure.

According to John Thompson “Entrepreneurs can be found inside large corporations in the private and public sectors, championing change and making a difference” (1). It is important for managers to recognize that entrepreneurs are “championing change and making a difference”. This is important because they can utilize such people with such characteristics to make a change in their business. They need to tap into these resources to help their own business thrive. We will explore this in the paper through our two interviews with David Garthe and Harry Brumleve and then in our case study of Red Hat.

ENTREPRENEUR, HARD TO DEFINE?

The word entrepreneur has many meanings, depending on whom you ask to define it. We thought the people with the best perspective would be entrepreneurs themselves. Bob Reiss is a successful entrepreneur and author of Low-Risk, High-Reward: Starting and Growing Your Small Business With Minimal Risk. As a small business expert Bob defines the word entrepreneur by saying,

“Entrepreneurship is the recognition and pursuit of opportunity without regard to the resources you currently control, with confidence that you can succeed, with the flexibility to change course as necessary, and with the will to rebound from setbacks” (5).

This definition encompasses how well rounded anyone with entrepreneurial status must be. The phrase ‘juggling act’ may even come to mind. Although all aspects of this definition are important, one key aspect is that entrepreneurs tackle challenges regardless of the resources that they currently control. How many times do you hear someone say that they would love to start their own business but they don’t have the money or the resources to make it happen? Many people have started their own businesses and been successful by starting from scratch. There are several success stories, such as Michael Dell who began his computer business from his own college dorm room (5). Those who have a strong enough drive to be successful at attempting a new business venture will find ways to gain access to resources they need by being creative. “Be creative in acquiring the resources you need to build and grow your business. Think outside the box and you’ll improve your chances of acquiring what you need to succeed” (5).

Linda Pinson is the author of a large amount of the SBA’s material on writing a business plan and creator of business plan software. As an expert on starting a business, Linda says,

“I have always thought of an entrepreneur as a person who starts a business to follow a vision, to make money, and to be the master of his/her own soul. Inherent in the venture is the risk of what the future may bring” (5).

The fact that there are several ways to define the word entrepreneur proves that it may not be hard to define. The word simply carries more than one meaning, depending on the person who supplies the definition.

ENTREPRENEURIAL CHARACTERISTICS

Several studies have been performed to determine whether or not certain characteristics and personal traits are dominant in entrepreneurs. Studies have found, “Entrepreneurs come in all shapes and sizes, and many who don’t conform to the standard have been wildly successful at being their own bosses” (8).

A GOOD MATCH

However, there are certain characteristics that have repeated themselves, making them common traits found in entrepreneurs. The following personal characteristics make someone a “good match” to be an entrepreneur: (8)

  1. Children or grandchildren of immigrants
  2. Relationship with key breadwinner in the family is competitive
  3. Complete a college degree
  4. Get fired from several jobs—dislike working for others
  5. Risk taker
  6. Innovative

In addition, some of the most often found qualities in successful entrepreneurs are, “tenacity, leadership skills and the ability to adapt to unexpected developments” (7). Although these personal traits are important, some argue that those who do not fall into the “norm” also succeed at owning their own businesses.

OUTSIDE THE NORM

One of the myths about being an entrepreneur is that a person actually has to start their own company. One example that dispels this myth is buying a company. Simply because a person did not start a business from scratch does not mean that they do not deserve the title ‘entrepreneur.’ Owning a company is a very difficult job that takes the same entrepreneurial characteristics and skills as starting it from scratch. Keeping a company continuously successful can sometimes prove to be tougher than getting if off the ground. This notion also applies to inheriting companies or taking over for a founder, which is the second example. A person can even work within a large corporation, starting new ventures that spin off and be considered entrepreneurial (8).

LESSONS LEARNED

Even if you have what it takes to start your own company, it is very difficult not to fail. “An extraordinary high percentage of entrepreneurs fail in the first, second and even third ventures” (8). What makes the difference is whether or not a person has what it takes to get right back up off the ground and try again. Eric Krell, the author of Mastering the Entrepreneurial Life Cycle wrote, “Most entrepreneurs are highly familiar with failure. Can’t miss ideas flame out, investors bail out and, sometimes the money runs out before the revenue rolls in. Successful entrepreneurs treat painful setbacks as ‘lessons’” (7). This refers back to Bob Reiss’ definition of an entrepreneur in that an entrepreneur must be able to accept change and meet failure head on by reversing setbacks and turning them into successes.

STATISTICS

Many studies have been conducted to provide statistical information in order to put numbers and figures to what is actually going on in the real world today. We decided to use statistical information to answer three of the most common questions people currently have about entrepreneurs and start-up businesses.

How many businesses open and close each year?

The following table is provided by the SBA and shows both the starts and closures of Employer Firms from the year 2000-2004 (10).

CATEGORY / 2000 / 2001 / 2002 / 2003 / 2004
New Firms / 574,300 / 585,140 / 569,750 / 553,500e / 580,900e
Firm Closures / 542,831 / 553,291 / 586,890 / 572,300e / 576,200e
Bankruptcies / 35,472 / 40,099 / 38,540 / 35,037 / 34,317

Sources: U.S. Bureau of the Census; Administrative Office of the U.S. Courts; U.S. Department of Labor, Employment and Training

Administration.

e = estimate

From the table you can see that there was a rise in new firms in 2001 followed by a decline in 2002 and 2003. However, an increase is estimated for the year 2004. The number of firm closures also rose in the year 2001. In spite of new firms declining, firm closures rose tremendously in 2002. Even though the numbers dropped back downward in 2003, there were still more closures than openings. In 2004, the number of firm closures is expected to stay roughly the same as 2003. Besides a small rise in 2001, firm bankruptcies have stayed relatively the same over the five-year period.

What is the survival rate for new firms?

According to a new study, “two-thirds of new employer establishments survive at least two years, and 44 percent survive at least four years” (10a). These results were found to correlate to firms in a variety of industries. With a rate of survival less than fifty percent over a couple of years, there is much risk involved in not only starting a business, but also keeping it up and running as well. There are several factors that lead to a successful business’ survival rate. Many reasons a firm stays open include, “ample supply of capital, the fact that a firm is large enough to have employees, the owner’s education level, and the owner’s reason for starting the firm in the first place, such as freedom for family life or wanting to be one’s own boss” (10a). The survival and longevity of a business is highly dependent on the owner.

What roles do women and minority entrepreneurs play?

While doing research on this question, one article I uncovered forced me to research this question even further. The article listed a set of six characteristics of successful entrepreneurs, with number six being male. The author states,

“…there is evidence that women struggle to set up successful businesses. Women report significantly more difficulty getting funding than men trying to start up their own businesses, so it seems to be to do with barriers to entry rather than lack of ability” (9).

As soon as I discovered this I wondered, “What role do women and minorities actually play?”

This struggle for equality between women and men in the workplace has been around for decades. Women are constantly fighting for equal opportunity, equal pay, and equal respect, being stuck under the so-called ‘glass ceiling.’ Major progress has been made over the years but studies have shown that the reason more and more women are starting businesses is to get away from all of this hardship at the office. Studies have found, “66% of all home based businesses are owned by women. Today, 4.7 million women are self-employed in the United States. This represents a 77% increase since 1983” (6). This is remarkable evidence that is starting the belief that female entrepreneurship is the latest women’s movement.

Minorities also play a role in owning their own businesses. Studies show, “Of the 23 million firms in 2002, 6.9% were owned by Hispanic Americans, 5.2% by African Americans, 4.8% by Asian Americans, 0.9% by American Indians and Alaskan Natives, and 0.14% by Native Hawaiian and other Pacific Islanders. In 2002, minorities owned 4.1 million firms that generated 694.1 billion in revenues and employed 4.8 million workers” (10b). This data tells us that 17.94% of firms in 2002 were owned and operated by minorities. From all of the previous data, it is obvious that the role women and minorities play in owning businesses is far from small.

Top Ten Cities

Thousands of businesses are being started everyday all over the world. This brings up the question, “Where is all of this taking place?” Well, it is taking place everywhere, but through research, ten cities have been identified as hot spots to start a business. These ten cities are: (4)

·  Minneapolis

·  Norfolk/Virginia Beach/Newport News, Va.

·  Washington D.C

·  Atlanta

·  Miami

·  Fort Lauderdale, Fla.

·  Charlotte/Gastonia/Rocky Hill, N.C.

·  Salt Lake City