Management Presentation Chapter 5

The Nature of Entrepreneurship
• Entrepreneurship
– The process of planning, organizing, operating, and
assuming the risk of a business venture.

• Entrepreneur
– Someone who engages in entrepreneurship.

• Small Business
– A business that is privately owned by one individual
or a small group of individuals.
– It has sales and assets that are not large enough to
influence its environment.
Question: What is your dream? What opportunities do you see in the market?


The Role of Entrepreneurship in Society
• Research Findings:
– Most new businesses fail within the first few years of
being founded.
– More than 97% of U.S. businesses are small with
fewer than 100 employees.
– Most U.S. workers work for small businesses.
– The majority of small businesses are owner-operated.
– Small business is a strong presence in both mature
and emerging economies.
– Small business has a strong effect on job creation,
innovation, and is important to big businesses.
Q: Have you work for a small company or start-up?

FIGURE 5.1

The Importance of Small Business in the United States

Approximately 86 percent of all U.S. businesses employ fewer
than 20 people; another 11.7 percent employ between 20 and
99 people. In contrast, only about 2.1 percent employ between
100 and 400 workers, and another 0.2 percent employ 500 or
more.

Source: US Census Bureau, 2010

24.5 percent of all U.S. workers are employed by firms with
fewer than 20 people; another 29.6 percent work in firms that
employ between 20 and 99 people. 25.5 percent of U.S.
workers are employed by firms with 100–499 employees, and
another 20.3 percent work for businesses that employ 500 or
more total employees.


Entrepreneurship’s Role in Society
• Small Businesses’ Role in Job Creation
– Create many of the new jobs in the U.S.
– Dominate sectors that have added the most jobs.
– Represent 92% of all U.S. exporters.

• Innovation
– Major innovations are as likely to come from small
businesses as from large firms.

– Much of what is created in the high-technology sectors
comes from start-up companies.

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Entrepreneurship’s Importance
to Big Business
• Most products made by large manufacturers
are sold to customers by small businesses.
• Small businesses as suppliers provide large
firms with services, supplies, and raw materials.
• Large businesses outsource many routine
business operations such as packaging,
delivery, and distribution to small businesses.


Strategy for Entrepreneurial Organizations

Basic Strategic
Challenges

Choosing an
industry in which
to compete

Emphasizing
distinctive
competencies

Gaining
first mover
advantage


FIGURE 5.3

Small Business (businesses with fewer than 20 employees)
by Industry

Small businesses
create many new
innovative products
and services.
Services are the
fastest growing
segment of smallbusiness enterprise.

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FIGURE 5.4

Economies of Scale in Small-Business Organizations

In this case, smaller firms may be able to
compete more effectively with larger ones
because of the drop in per-unit
manufacturing cost.

Strategically Utilizing
Distinctive Competencies
Seeking Competitive
Advantage

Identifying niches
in established
markets

Identifying new
markets

Taking first-mover
advantage


Emphasizing Distinctive Competencies
• Identifying niches in an established market
– Finding part of a market not currently being exploited
can offer a competitive advantage.

• Identifying new markets
– Transferring an existing product/service to a new
market can create new industries/products/services.

• Taking first-mover advantage
– Exploiting a market opportunity before any other firm
does can result in a competitive advantage.

Q: Why do you think small businesses are better at discovering the niches than are large
businesses?


Writing a Business Plan
• Business Plan
– Is a document that summarizes
business strategy and structure.
– Should include:
• Business goals and objectives.
• Strategies used to achieve these
goals and objectives.
• A plan of how the entrepreneur
will implement these strategies.


Entrepreneurship and
International Management
• There is potential for expansion
and growth in foreign markets.
• While there are risks, entering a
foreign country’s market can be
a real catalyst for success.
• Technology, especially the
Internet, has proven to be very
helpful to small, international
businesses.


Starting a New Business

• Buying an Existing Business
– Business has a proven ability to draw customers
and make a profit.
– Networks are already established.
– Negative: New owners inherit existing problems.

• Starting from Scratch
– Avoids problems associated with previous owners.
– Allows freedom to choose suppliers, equipment,
location, and workers.
– Negative: More business risk and uncertainty.


Identifying a Business Opportunity

Who are my
customers?

In what
quantities will
they buy?

Who are my
competitors?

Where are they?

At what price
will they buy my
product?

How will my
product differ from
those of my
competitors?


Financing the New Business

Personal
Resources

Strategic
Alliances

Lenders

Venture Capital
Companies

Sources of
New Business
Financing

Small-Business
Investment
Companies

SBA Financial
Programs

Financing the New Business
• Personal Resources
– Using own money and
money borrowed from
friends and relatives to
finance the business.

• Strategic Alliances
– Partnering with established
firms such as suppliers in a
mutually beneficial
relationship.

• Lenders
– Obtaining funding from
traditional lenders
(e.g., banks, independent
investors, and government
loans).

• Venture Capital
Companies
– Groups of small investors
who provide capital funds to
small high-growth potential
start-up firms in exchange
for an equity position (stock)
in the firms.

Financing the New Business (cont’d)
• SBA Financial Programs
– Provide assistance (e.g., SBA-guaranteed loans) for
small businesses unable to get private financing at
reasonable terms.

• Small-Business Investment Companies (SBICs)
– Are investor-owned companies that borrow money
from the SBA to loan to small business with high
growth potential.
– Minority Enterprise Small-Business Investment
Companies (MESBICs) specialize in financing
businesses owned by minorities.


Seeking New Business Advice

Advisory Boards

Sources of
Management
Advice

Management Consultants

Small Business Administration

Networking with Others

Sources of Help for Entrepreneurs
Outside Help

Management Help

•
•
•
•
•
•

Boards of directors
Management consultants
SBA
Trade associations
Small-business networks
Pooling

Professional Help

•
•
•
•
•

Accountants

Bankers
Lawyers
Insurance agents
Computer consultants


Franchising
• Franchising Agreement
– Operation of the franchised business
by the entrepreneur (the franchisee)
under a license by a parent firm (the
franchiser).
– The entrepreneur pays the parent firm
for use of trademarks, products,
formulas, and business plans.


Franchising (cont’d)
• Advantages
– Reduced financial risk
of new business
success through
experience provided by
franchiser.
– Training, financial, and
management support
by franchiser.

• Disadvantages
– Start-up fees to

purchase franchise.
– Limitations of franchise
(market area, product,
customers).
– Loss of independence
due to imposed
operational controls of
franchiser.


FIGURE 5.5

Business Start-Up Successes and Failures

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duplicated, in whole or in part, except for use as permitted in a license distributed with a


The Performance of
Entrepreneurial Organizations
The emergence
of E-commerce

Crossovers to small business
by former large-business
employees

Trends in New Business Start-Ups

Increased entrepreneurial

opportunities for minorities
and women

Better survival rates for
small businesses
Studies show that 40 percent of all new businesses will
survive at least six years.


Entrepreneurial Success and Failure
• Reasons for Failure
– Managerial incompetence/
inexperience of the
entrepreneur.
– Neglect in not devoting
sufficient time and effort to
the business.
– Weak control systems that
do not warn of impending
problems.
– Insufficient capital to sustain
the business until it starts to
turn a profit.

• Reasons for Success
– Hard work, drive, and
dedication by the
entrepreneur.
– Careful analysis of market
conditions provides insights

about business conditions.
– Managerial competence
through training and
experience contributes to
success.
– Luck sometimes plays a
role.