Mathematical Models with Applications Entrepreneurship: Keeping Score with Mathematics

Unit I: Introduction to Entrepreneurship

Teacher Notes, Student Activities, and Transparencies A publication of the Charles A. Dana Center at The University of Texas at Austin and IC2 Institute at The University of Texas at Austin
About the Charles A. Dana Centers Work in Mathematics and Science
The Charles A. Dana Center at The University of Texas at Austin works to support education leaders and policymakers in strengthening Texas education. As a research unit of UT Austins College of Natural Sciences, the Dana Center maintains a special emphasis on mathematics and science education. We offer professional development institutes and produce research-based mathematics and science resources for educators to use in helping all students achieve academic success. For more information, visit the Dana Center website at www.utdanacenter.org. This work was produced by the Charles A. Dana Center at The University of Texas at Austin in conjunction with IC2 Institute at The University of Texas at Austin. The development of this work is supported in part by the Texas Education Agency, the National Science Foundation under cooperative agreement #ESR-9712001, and the Charles A. Dana Center at The University of Texas at Austin. Any opinions, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the Texas Education Agency, the National Science Foundation, or The University of Texas at Austin. Permission is given to any person, group, or organization to copy and distribute this publication, Entrepreneurship: Keeping Score with Mathematics, for noncommercial educational purposes only, so long as the appropriate credit is given. This permission is granted by the Charles A. Dana Center, a unit of the College of Natural Sciences at The University of Texas at Austin. 2002. The University of Texas at Austin and Texas Education Agency. All rights reserved.

Entrepreneurship: Keeping Score with Mathematics Advisory Team

Cindi Beenken, Austin ISD, James Bowie High School Anita Bernard, Pharr San Juan Alamo District, PSJA North High School Tony Garza, San Antonio ISD, Thomas Edison High School Lori Hamff, Texas Education Agency Robert Hisrich, Weatherhead School of Management Susan Hudson Hull, Charles A. Dana Center Norman Kaderlan, The University of Texas at Austin Rebecca Lord Ronstadt, Lord Publishing, Inc. Susan May, Independent Consultant Diane McGowan, Charles A. Dana Center Barbara Montalto, Texas Education Agency Ralph Ross, Fort Bend ISD, Clements High School

Donna Scarborough, Lubbock ISD Donald L. Sexton, Independent Consultant Cindy Schneider, Charles A. Dana Center Martha Terry, The University of Texas at Austin Beverly Weldon, Region X Education Service Center Victoria Williams, Independent Consultant

Authors
Cindi Beenken, Austin ISD, James Bowie High School Robert Hisrich, Weatherhead School of Management Rebecca Lord Ronstadt, Lord Publishing, Inc. Susan May, Independent Consultant Donald L. Sexton, Independent Consultant

Editor
Karen K. Hoffman, Charles A. Dana Center

Special Thanks
Steve Corley, Estacado High School, Lubbock ISD Rolf Forseth, Ronald Reagan High School, Northeast ISD Crisella Gonzales, McCallum High School, Austin ISD Lady Hamilton, Lanier High School, Austin ISD Thomas Reed, Poteet High School, Poteet ISD Karen Saylor, Bowie High School, Austin ISD

Table of Contents
Unit I: Introduction to Entrepreneurship
Section 1: Firms and Their Development in the American Economy Teacher Notes...1 Student Activity: Reading Focus Questions.....4 Section 2: Demographic Profile of U.S. Businesses Teacher Notes...9 Student Activity 1: What Is a Business?.19 Student Activity 2: Keeping Score..22 Transparency 128 Transparency 229 Transparency 330 Section 3: Case Studies Teacher Notes..31 Student Activity 1: Dell Computer Case..37 Student Activity 2: Justin Boots Case..42 Student Activity 3: Taco Cabana Case.....49

Unit II: Grape Expectations

Section 1: Sources of New Ideas Teacher Notes...54 Student Activity: Got an Idea?.........58 Section 2: Data Collection and Analysis Teacher Notes...60 Student Activity 1: Sample Questionnaire Activity.....73 Handout A: Sample Questionnaire Questions Handout B: Sample Questionnaire for Grape Expectations CD Sales Handout C: Sample Questionnaire Response Grid

Handout D: Sample Questionnaire Results Student Activity 2: Determining the Market Size.. . . . . ..80

Unit III: Finance

Section 1: Assumptions Teacher Notes..81 Case Study: Grape Expectations: An Entrepreneur Is Born85 Student Activity: Assumption Statements...89 Section 2: Projections Teacher Notes...91 Student Activity 1: Project Revenue96 Student Activity 2: One-Month Projected Income Statement for Grape Expectations...99 Student Activity 3: One-Year Projected Income Statement for Grape Expectations..101 Section 3: The Cash Flow Statement and the Balance Sheet Teacher Notes104 Student Activity 1: Cash Flow Statement for Grape Expectations....108 Student Activity 2: Balance Sheet for Grape Expectations...110 Transparency 1...111 Transparency 2.. 112 Section 4: Mathematical Models and Projections Teacher Notes113 Student Activity: A Mathematical Model for Grape Expectations116

Unit IV: Student Business Project

Section 1: Creating and Refining the Idea Teacher Notes.119 Student Activity 1: Team Formation..121 Student Activity 2: Creating and Refining the Idea125 Student Activity 3: Project Requirements..126 Section 2: Developing Your Business Idea Teacher Notes.128 Student Activity 1: Designing a Questionnaire..133 Student Activity 2: Analyzing the Data..134 Student Activity 3: Determining Market Size135 Student Activity 4: Analyzing Your Competition..136 Section 3: Developing a Financial Model for Your Business Idea Teacher Notes137 Student Activity 1: Assumption Statement138 Student Activity 2: Sales Projection Table for Your Business..139 Student Activity 3: Project Monthly Income Statement for Your Business...140 Student Activity 4: Project Yearly Income Statement For Your Business..141 Student Activity 5: Cash Flow Statement for Your Business.142 Student Activity 6: Balance Sheet for Your Business144 Student Activity 7: A Mathematical Model145 References...147

Introduction
The Dana Center has developed Entrepreneurship: Keeping Score with Mathematics as a module

for teachers to use in teaching Mathematical Models with Applications. Mathematical Models with Applications is a high school course with an Algebra I prerequisite that uses mathematics as a tool to model real-world phenomena in science, finance, music, and art. The course is intended to build on the mathematical background of the students yet stretch their knowledge toward topics studied in Geometry and Algebra II. Basic Understandings developed by the TEKS writing teams for the Mathematical Models with Applications course are available on the Dana Centers Mathematics TEKS Toolkit at www.mathtekstoolkit.org. Entrepreneurship: Keeping Score with Mathematics uses business and marketing models, case studies, and financial models to reinforce and clarify the mathematics that underlie everyday transactions in the world of entrepreneurship. This module consists of four units Introduction to Entrepreneurship, Grape Expectations, Finance, and Student Business Project. Each unit includes teachers notes, student activities, and transparencies. A module that focuses on the science TEKS of Mathematical Models with Applications is also available at www.mathtekstoolkit.org. For information about other Dana Center resources, or to visit our Web catalog, go to www.utdanacenter.org.

Mathematical Models with Applications Entrepreneurship: Keeping Score with Mathematics

Unit I: Introduction to Entrepreneurship

Teacher Notes, Student Activities, and Transparencies
Unit I: Introduction to Entrepreneurship Teacher Notes Section 1: Firms and Their Development in the American Economy Mathematical Models with Applications / Entrepreneurship: Keeping Score with Mathematics 1

Section 1: Firms and Their Development in the American Economy Teacher Notes Context Overview:
In this lesson, students read two readings about several different entrepreneurs and answer questions about the readings. They are introduced to how an entrepreneur recognizes opportunity, and they learn about the role entrepreneurs have played in the American economy.

Goal:
This section should pique students interest in entrepreneurship and provide a framework for the following units.

TEKS Addressed:
There are no TEKS directly addressed by this activity. However, the activity lays the foundation for further study of entrepreneurship.

Materials:
Copies of readings 1 and 2 (1 per student) Reading focus questions (1 per student)

References:
Acs, Z., and D. Gerlowski. 1996. Company. Upper Saddle River: Prentice-Hall. Sexton, D. 2001. Wayne Huizenga: Entrepreneur and Wealth Creator. The Academy of Management Executive. Volume 15, No. 1. Sexton, D., and N. B. Upton. 1991. Entrepreneurship: Creativity and Growth. New York City: Macmillian Publishing Co. Occupational Safety and Health Administration. 1987. Standard Industrial Classification Manual. Washington, D.C.: U.S. Department of Labor.

Procedures:
Reading 1 1. Allow the students to preview the questions prior to doing the reading. This may help them focus during the reading. 2. Ask students to read Reading 1 and answer questions 1A-C on the reading focus questions worksheet.
Unit I: Introduction to Entrepreneurship Teacher Notes Section 1: Firms and Their Development in the American Economy Mathematical Models with Applications / Entrepreneurship: Keeping Score with Mathematics 2

3. Discuss the students answers to the questions, summarize, and define entrepreneur. Possible Answers: A. What did all of the stories have in common? Answers will vary. Possible answers are: All the companies were small when they started. All the companies were started by one or two people. All of the entrepreneurs saw a window of opportunity for a certain product or service. B. What were some differences between the stories? Answers will vary. Possible answers are: Some of the businesses started on a part-time basis. Some people learned skills in the military. Some companies eventually ended while others merged or acquired other companies. C. How would you define entrepreneur? After some discussion, the class or groups may decide on a definition. Two of the most widely accepted definitions of entrepreneur are: A person who perceives an opportunity, acquires the necessary resources, and creates an organization to pursue it. A person who identifies an opportunity and pursues it regardless of the resources available to them. Other definitions seem to convey the same concept and include phrases such as for long-term personal gain, innovative or creative process or products, or significant market potential. 4. You may also want to ask the students, Are you an entrepreneur if you started or acquired a business? For example, Dave Thomas, the founder of Wendy's (Reading 1), started his business when he saw an opportunity to provide a moist, juicy fast-food hamburger. Ask the students if they can think of a business which was acquired by someone and developed into a successful business. One example that might be given is Ray Kroc of McDonalds, who saw the opportunity to expand nationwide using the fast-food concept developed by the McDonald brothers.

Reading 2 1. Allow the students to preview the questions prior to doing the reading. This may help them focus during the reading. 2. Ask the students to read Reading 2 and answer questions 2A-C on the reading focus questions worksheet.
Unit I: Introduction to Entrepreneurship Teacher Notes Section 1: Firms and Their Development in the American Economy Mathematical Models with Applications / Entrepreneurship: Keeping Score with Mathematics 3

3. Discuss and summarize the students answers to the questions. Possible Answers: A. Does a business need to grow fast to be considered an entrepreneurial firm? Not necessarily. The rate of growth and the ultimate size of a business are a function of the entrepreneur's desire for growth and the ability to manage growth in an expanding market. Not all businesses are intended to be large firms. B. How did Dave Thomas and Chevrolet get into their respective markets? They wanted to produce moist, juicy hamburger patties and colored automobiles, respectively. C. Give some examples of how opportunities arose for Wayne Huizenga. Waste Management System: Customers became dissatisfied with the timeliness and cleanliness of their trash removal. Blockbuster: Customers objected to the limited number of videotapes available for rental and the requirements for buying a membership card. AutoNation: Customers wanted a no-hassle, one-price approach to buying an automobile. D. Why are there no new mousetraps on the market today? Answers may vary. Perhaps mice are not as common today because we have better sanitation and poisons.
Unit I: Introduction to Entrepreneurship Student Activity Section 1: Firms and Their Development in the American Economy Mathematical Models with Applications / Entrepreneurship: Keeping Score with Mathematics 4

Student Activity Reading Focus Questions

1. Read Reading 1, and answer the following questions. A. What did all of the stories have in common? B. What were some of the differences in the stories? C. How would you define entrepreneur? 2. Read Reading 2, and answer the following questions. A. Does a business need to grow fast to be considered an entrepreneurial firm? B. How did Dave Thomas and Chevrolet get into their respective markets? C. Give some examples of how opportunities arose for Wayne Huizenga. D. Why are there no new mousetraps on the market today?
Unit I: Introduction to Entrepreneurship Student Activity Section 1: Firms and Their Development in the American Economy Mathematical Models with Applications / Entrepreneurship: Keeping Score with Mathematics 5

Reading 1 From Acorns to Mighty Oak Trees

Most new business ventures in the United States do not grow much beyond their initial sales. The reason is that these businesses are often formed to provide temporary income between regular jobs, or they are an extension of a craft or hobby. Frequently, the idea is that the business will be started on a temporary or part-time basis, and if the concept is feasible, it will be expanded to a full-time operation. Heavenly Potpourri Pies was started to provide a unique craft for household parties and a gift item to enhance the aroma of a house. Cari conceived the idea of filling a baked piecrust with potpourri and covering it with a criss-crossed top crust. The pie could be warmed to enhance its aroma and then set out for a party or other gathering. The owner, her sister, and a friend baked the pies while another friend made the deliveries. Orders came from people at craft shows as well as friends and family members. The concept was well received. The business ceased when the part-time deliverer had to leave because of job pressures, and the owner decided that the venture was not going to grow to the point that it would replace her full-time job. Bob Evans returned from military service in 1946 and purchased a small 12-stool diner. Unique to the diner was "whole hog" sausage. His truckdriving customers soon began to buy the sausage, uncooked, in 6-pound tubs to take home. The truck drivers spread the word about the sausage throughout Ohio, Indiana, Illinois, Kentucky, Michigan, and West Virginia. By 1989, there were 222 Bob Evans restaurants. Bob retired in December, 1986. In 1987, Bob Evans restaurants acquired Owens Country Sausage of Richardson, Texas. Colette Fitzpatrick, a high school student, started a lawn cutting business in her neighborhood. Colette offered high-quality cutting, trimming, and clean up for a price that was about half that of a full-time lawn service. She built the business in the second summer to about 15 lawns per week. She decided she was maxed out and hired a friend to help. Colette ended the business and gave all her clients to her friend when she left home for college.
Unit I: Introduction to Entrepreneurship Student Activity Section 1: Firms and Their Development in the American Economy Mathematical Models with Applications / Entrepreneurship: Keeping Score with Mathematics 6

Dave Thomas, founder of Wendy's, learned his trade when he was a cook in the military. After leaving the military, he managed a number of restaurants for a chain until he discovered that people buying hamburgers at fast food stores preferred a juicy hamburger. The rest is history. Dave is now retired, but he is the star in Wendy's commercials. Edward Lowe combined his love for cats with his dislike of cleaning cat

boxes. He located a couple of sources of highly absorbent, relatively dustfree dirt. He used this dirt to produce Kitty Litter. Ewing Marion Kauffman was a successful pharmaceutical salesperson. His commission sales were such that his income was greater than the president of the company's salary. When his commissions were cut, he quit his job and started packing pills from bulk into smaller containers. He sold them to the same drugstores that he had sold to with his original company. He called his new company Marion Labs, and it later merged with Dow Chemical into Marion Merrill Dow. His estate funded the Ewing Marion Kauffman Foundation, which funds, among other things, entrepreneurship education programs in middle and high schools throughout the United States.
Unit I: Introduction to Entrepreneurship Student Activity Section 1: Firms and Their Development in the American Economy Mathematical Models with Applications / Entrepreneurship: Keeping Score with Mathematics 7

Reading 2 Entrepreneurship
In this module, we are going to look at the entrepreneur. We will determine what it takes to start a business, and you will create a business plan of your own. Before we get started, we need to think about a few characteristics of entrepreneurs. One question to consider is about growth. Does a business need to grow fast to be considered an entrepreneurial firm? Once a business has been started, it needs to grow until the owner is satisfied with the amount of money being created by the firm. Michael Dell, founder and C.E.O. of Dell Computer Corporation, and Bill Gates of Microsoft, have created businesses that have grown rapidly. Other companies, such as Justin Boots and Taco Cabana, have experienced slower, yet substantial, growth. Perhaps the growth and the ultimate size of a business are a function of the entrepreneur's desire for growth and the ability to manage growth in an expanding market. Growth is not automatic. It is controllable and can be managed, nurtured, or pruned. Not all businesses are intended to become large firms requiring a full-time effort on the part of the entrepreneur. In some of the examples you just read, many of the businesses were established to provide supplemental income. Another example might be a teacher who provides tutoring services part-time in addition to his or her teaching. A business may also be a substitute for a full-time job when a person is between jobs. Effects of Product Ideas and Marketing on Growth Businesses with a creative product or marketing process have a greater opportunity for growth if that growth can be achieved before others copy the concept. This type of growth often results from identifying a need in the marketplace. When Dave Thomas started Wendy's, he had to determine how to produce juicy hamburgers without wasting food. Thomas achieved

this by removing the hamburger patty from the grill before it became overcooked and using it as the ground hamburger in chili. Years ago, Chevrolet gained a foothold in Fords essential monopoly by offering automobiles in different colors. Ford offered its Model T in one
Unit I: Introduction to Entrepreneurship Student Activity Section 1: Firms and Their Development in the American Economy Mathematical Models with Applications / Entrepreneurship: Keeping Score with Mathematics 8

colorblack. Chevrolet offered several colors, and they were twice as expensive as the Ford automobiles were. Opportunity Recognition It has been noted that entrepreneurs identify opportunities at a time when they are prepared to convert those opportunities into business ventures. Some call this luck. Wayne Huizenga is the entrepreneur who built Waste Management, Blockbuster Video, and AutoNation. All three firms are the largest in their industries. He also owns the Miami Dolphins, the Florida Panthers, and Pro Player Stadium. The opportunity for Waste Management arose when customers became dissatisfied with the cleanliness and the amount of time required for trash removal. Wayne started this business with leased trash containers. The founding of Blockbuster was the result of a friend informing him of a business opportunity in Dallas, Texas. The friend told him that customers objected to the limited number of videotapes available for rental and to the requirements for buying membership cards. Wayne built a chain of large video stores and gave discounts to those with membership cards. Finally, Wayne built AutoNation to provide customers with a no-hassle, one-price approach to buying an automobile. AutoNation addressed the customers frustration with high-pressure salespeople who push options in order to increase their commissions. It is interesting to think about how many others had identified the same needs or frustration but were not prepared to take action. Consider the often-noted demand for a better mousetrap. At last count, there were about twenty patents for "improved mouse traps" registered with the United States Patent Office. Yet only the standard trap appears on the markets, and its demand has been reduced by other means, such as better sanitation and poisons. Absence of a product in the marketplace does not always indicate an unfilled demand. For example, how many guillotines are sold on a yearly basis?