Exploring management 3rd ch18

Exploring Management

Chapter 18
Entrepreneurship
and Small Business


Chapter 18
• What is entrepreneurship and who are
entrepreneurs?
• What should we know about small
businesses and how to start one?


18.1

Entrepreneurship
• Entrepreneurs are risk takers who spot and
pursue opportunities
• Entrepreneurs often share similar backgrounds
and experiences
• Entrepreneurs often share similar personality
traits
• Women and minority entrepreneurs are growing
in numbers
• Social entrepreneurs seek novel solutions to
pressing social problems


ENTREPRENEURSHIP

Entrepreneurs Are Risk Takers
• Entrepreneurship
– Dynamic, risk-taking, creative, growthoriented behavior

• Entrepreneur
– Person willing to pursue opportunities that
others fail to recognize or view as problems


ENTREPRENEURSHIP

Entrepreneurs Are Risk Takers
• First mover advantage
– Exploiting a new market opportunity before
competitors


ENTREPRENEURSHIP

Entrepreneurs Are Risk Takers
• Successful entrepreneurs
Anita Roddick, founder of The Body Shop, PLC

Earl Graves, founder of Earl G. Graves Ltd, a
multimedia company including Black
Enterprise.com

David Thomas, founder of Wendy's

Caterina Fake and Stuart Butterfield founders of

Flickr


ENTREPRENEURSHIP

Entrepreneur Characteristics
• Similar backgrounds
– Family environment
– Career and work history
– Windows of career opportunity


ENTREPRENEURSHIP

Entrepreneur Characteristics
• Intrapreneurs
– Employees of a larger firm that display
entrepreneurial behavior such as developing a
new product or process


ENTREPRENEURSHIP

Entrepreneur Characteristics
• Who are the entrepreneurs?

Internal locus
of control

High energy

level

High need for
achievement

Tolerance for
ambiguity

Selfconfidence

Passion and
action
orientation

Flexibility

Self-reliance


ENTREPRENEURSHIP

Women and Minorities
• Women and minority entrepreneurs are
growing in numbers
• Necessity-based entrepreneurship
– People start a business because no other
employment
opportunities exist

ENTREPRENEURSHIP

Social Entrepreneurs
• Social entrepreneurs
– are driven by a social mission
• Poverty
• Illiteracy
• Health problems
• Social opression


18.2

Small Businesses
• Small businesses are mainstays of the economy
• Small businesses must master three
life-cycle stages
• Family owned businesses can face unique challenges
• Most small businesses fail within five years
• Assistance is available to help small businesses get started
• A small business should start with a sound business plan
• There are different forms of small business ownership
• There are different ways of financing a small business


SMALL BUSINESS

Importance of Small Business
• Small business
– Fewer than 500 employees

• Small business statistics
– Employ some 52 percent of private workers
– Provide 51 percent of private-sector output
– Receive 35 percent of federal government contract
dollars
– Provide as many as 7 out of every 10 new jobs in
the economy


SMALL BUSINESS

Small Business Life Cycle


SMALL BUSINESS

Challenges
• Family owned businesses
– Largest percentage of businesses worldwide
– Feuds result when family members disagree over
how the business is run
– Succession problem
• Who will run the business when the current head
leaves?
• Succession plan outlines leadership transition and
financial matters


SMALL BUSINESS

Challenges
• Most small businesses fail within five
years
– As many as 60% to 80% fail


SMALL BUSINESS

Small Business Assistance
• Business incubator
– Provides services to help new businesses get
started

• Small Business Development Centers
– Supported by Small Business Administration
– Offer help to small business owners to set up
and manage their businesses


SMALL BUSINESS

Business Plans
• Business plan
– Describes goals, operating plans and
financing for a new business
– Banks want to see a well-developed business
plan before loaning money

SMALL BUSINESS

Forms of Ownership
• Sole Proprietorship
– An individual or married couple pursuing
business for a profit.


SMALL BUSINESS

Forms of Ownership
• Partnership
– Two or more people agree to contribute resources to
start and operate a business together.
General
Partnership
• The owners
share
management
responsibilities.

Limited
Partnership

Limited Liability
Partnerships

• General partner
manages the
business

• Limited partners
share profit but
losses are
limited to the
amount of their
investment

• Professional
partnerships
(accountants,
doctors, lawyers)
limits the liability
of the partners


SMALL BUSINESS

Forms of Ownership
• Corporation
– A legal entity that exists separately from its owners

• Limited Liability Company (LLC)
– A combination of sole proprietorship, partnership,
and corporation.
• Protects owners against personal loss other than what
is invested in the company
• Treated as a proprietorship or partnership for tax
purposes

SMALL BUSINESS

Financing
• Debt Financing
– involves borrowing money from another person, a bank,
or a financial institution.

• Equity Financing
– involves exchanging ownership shares for outside
investment monies.

• Venture Capitalists
– Involves making large investments in new ventures in
return for an equity stake in the business.


SMALL BUSINESS

Financing
• Angel Investor
– A wealthy individual willing to invest in return
for equity in a new venture.

• Initial Public Offering (IPO)
– An initial selling of shares of stock to the
public at large.