Introduction to management 13th schemerhorn bachrach chapter 06
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John R. Schermerhorn, Jr.
6
Daniel G. Bachrach
Introduction to Management
th
13 edition
Chapter 6
Entrepreneurship and Small Business
Management
Planning Ahead – Key Takeaways
Define entrepreneurship and identify entrepreneurs.
Describe how small businesses get started and common problems they face.
Explain how entrepreneurs plan, legally structure, and fund new business ventures.
Copyright ©2015 John Wiley & Sons, Inc.
Chapter 6 Outline
1.
2.
The Nature of Entrepreneurship
1.
Who are the entrepreneurs?
2.
Characteristics of entrepreneurs
3.
Women and minority entrepreneurs
4.
Social entrepreneurship
Entrepreneurship and Small Business
1.
Why and how small businesses get started
2.
Why small businesses fail
3.
Family-owned small businesses
Copyright ©2015 John Wiley & Sons, Inc.
Chapter 6 Outline
3.
New Venture Creation
1.
Life cycles of entrepreneurial firms
2.
Writing a business plan
3.
Choosing the form of ownership
4.
Financing the new venture
Copyright ©2015 John Wiley & Sons, Inc.
The Nature of Entrepreneurship
Entrepreneurship
•
Risk-taking behavior that results in new opportunities
Classic entrepreneur
•
Pursues opportunities others view as problems
Serial entrepreneur
•
Starts and runs business and nonprofits over and over again
First-mover advantage
•
First to exploit a niche or enter a market
Copyright ©2015 John Wiley & Sons, Inc.
The Nature of Entrepreneurship
Intrapreneurs
Display entrepreneurial behavior as employees of larger firms
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Figure 6.1 Personality traits and characteristics of entrepreneurs
Copyright ©2015 John Wiley & Sons, Inc.
The Nature of Entrepreneurship
Female and minority entrepreneurs are growing in numbers
Necessity-based entrepreneurship
People start a business because no other
employment opportunities exist
Copyright ©2015 John Wiley & Sons, Inc.
The Nature of Entrepreneurship
Social entrepreneurship
–
Unique form of ethical entrepreneurship that seeks new ways to solve pressing
social problems
–
Social entrepreneurs
• Take risks to find new ways to solve pressing
social problems such as poverty, literacy, illness,
homelessness
Copyright ©2015 John Wiley & Sons, Inc.
Entrepreneurship and Small Business
A small business has fewer than 500 employees
Copyright ©2015 John Wiley & Sons, Inc.
Entrepreneurship and Small Business
Starting a small business
–
Franchise
• One business owner sells to another the right to operate the same business in another location
–
Business model
• Plan for making a profit by generating revenues that are greater than costs
–
Startup
• New and temporary venture that is trying to establish a profitable business model
–
Lean startups
• Use open source software and free web services to contain costs while staying small and keeping operations
simple
Copyright ©2015 John Wiley & Sons, Inc.
Entrepreneurship and Small Business
Why small businesses fail
– SBA reports that about 50% of new businesses fail in first five years
– Reasons why small businesses fail
- Insufficient financing
- Lack of experience
- Lack of commitment
- Lack of strategy and strategic leadership
- Ethical failure
- Lack of expertise
- Growing too fast
- Poor financial control
Copyright ©2015 John Wiley & Sons, Inc.
Figure 6.2 Eight reasons why many small businesses fail
Copyright ©2015 John Wiley & Sons, Inc.
Entrepreneurship and Small Business
Family-owned small businesses
–
–
–
–
Account for 78% of new jobs created in the U.S.
Provide 60% of the nation’s employment
Feuds result when family members disagree over how the business is run
Possible succession problems
• Who will run the business when the current head leaves?
• Succession plan outlines leadership transition and financial matters
Copyright ©2015 John Wiley & Sons, Inc.
Entrepreneurship and Small Business
Small business development
Business incubator
Offers space, shared services and advice to get small businesses started
Small Business Development Centers
Founded with U.S. Small Business Administration to provide advice to new and existing small businesses
Copyright ©2015 John Wiley & Sons, Inc.
Figure 6.3 Stages in the life cycle of an entrepreneurial firm
Copyright ©2015 John Wiley & Sons, Inc.
New Venture Creation
Business plan
Describes the direction for a new business and the financing needed to operate
it
Banks want to see a well-developed business plan before loaning money
Copyright ©2015 John Wiley & Sons, Inc.
New Venture Creation
Sample Business Plan Outline:
Executive summary
Industry analysis
Company description
Products and services description
Market description
Marketing strategy
Operations description
Staffing description
Financial projection
Capital needs
Milestones
Copyright ©2015 John Wiley & Sons, Inc.
New Venture Creation
Forms of ownership
Sole Proprietorship
An individual or married couple pursuing business for a profit. This does not involve
incorporation.
Copyright ©2015 John Wiley & Sons, Inc.
New Venture Creation
Forms of ownership
–
Partnership
• Two or more people agree to contribute resources to start and operate a business
together
Copyright ©2015 John Wiley & Sons, Inc.
New Venture Creation
Forms of ownership
–
Corporation
• A legal entity that exists separately from its owners
–
Benefit Corporation (B Corp)
• Corporate form for businesses whose stated goals are to combine making a profit with
benefiting society and the environment. combination of sole proprietorship, partnership,
and corporation
Copyright ©2015 John Wiley & Sons, Inc.
New Venture Creation
Forms of ownership
–
Limited Liability Corporation (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
Copyright ©2015 John Wiley & Sons, Inc.
New Venture Creation
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
Copyright ©2015 John Wiley & Sons, Inc.
New Venture Creation
Financing
–
Angel Investor
• A wealthy individual willing to invest in return for equity in a new venture
–
Crowdfunding
• Entrepreneurs starting new ventures go online to get startup financing from crowds of
investors
Copyright ©2015 John Wiley & Sons, Inc.
