1. First, we make a sketch. Strategic disposition of a bear's book will help us solve the fundamental problem which faces every professional illustrator: draw a teddy-bear with or without pants?

Open a graphic editor (I use XaraXtreme). Draw the bear's stuff using the sketch. Fill it with the desired color of the bear and the book.

Now try to surmise where the sun (or some other lighting equipment) is shining from. I suspect it's somewhere on top-right.
And lay circular gradient fills on the bear, to make him convex in certain places. Then we put a light line on the book's back.

Do fine details: stitches, fingers, amd so on.
Note that details we draw usually consists of very simple things: they are either light or dark lines

A teddy-bear is fatty. Does it matter to us? In fact, not at all. But bear in mind: he can be fat or he can be thin but his parts should drop shadows. So let's drop them.
Now look at the book, something happened to it as well. Specifically, it's cover has become filles with a red gradient fill instead of plain red. But the cover is plain after all, so why has that happened. I tell you why. That is because no surface in this naughty world can be illuminated uniformly except for an operating table in a surgery.

The bear is nearly fine but still sad a little bit. We will cheer him up with highlights.

Get the bear from Xara and put into Photoshop to polish a little bit. (I don't do it in there anymore but I used to think it was easier).

Apply the Curves operation to the bear for him to become light and soft as a creamy yoghurt. Also add some noise to make him woolen a little.

Take the Airbrush tool and spray a shadow under the bear until he's sitting densely but not ominously

Final touches, make-up I call it. Tonal cream, powder, lipstick.. aaaand ready!
Please note that the icon in question is a commercial work and published here in demo purposes only. It can't be distributed or used in any way.