Ch 3 - D. H. Holt 13.03 (1)
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Transcript of Ch 3 - D. H. Holt 13.03 (1)
SMALL BUSINESS AND CORPORATE ENTREPRENEURSHIP: CONTRASTING ENTERPRISE
DR. M. TA
YYEB JAV
ED – H
EAD ORIC
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OBJECTIVES• Describe the environment of small business and
how it is changing• Identify the most common causes for small
business failure• Explain the important success factors for small
business enterprises• Describe corporate entrepreneurship• Discuss the major approaches to corporate
entrepreneurship• Describe emerging ways corporations are
encouraging entrepreneurship
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ENTREPRENEURSHIPFundamental concepts: Creativity, and Innovation
Small business and Corporate entrepreneurship are two highly contrasting approaches to new venture creation and both
contribute to high quality life in developed countries.
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SMALL BUSINESSServices, local professional practices, and
merchandisers…that all of us rely onClothiers, shoe store, convenience stores, restaurants, laundries, gas stations…we all need to function
Without accounting firms, dentists, pharmacies, and attorneys, we would lack important services
Without music stores, florists, photography, shops, candy stores, beauty salons and book stores, life would be bland/tasteless
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WHAT IS “SMALL BUSINESS”?
Independently owned and managed business that does not dominate its market
Job Creation
Innovation
Importance to Big Businesses
SMALL BUSINESS PLAYS A CRITICAL ROLE IN ECONOMY
POPULAR AREAS OF SMALL BUSINESS ENTERPRISE
• Services• Retailing• Construction• Financial• Insurance• Wholesaling• Transportati
on• Manufacturi
ng Services37.6%Retailing
22.7%
Manufacturing5%
Finance &Insurance
10%
Construction10%
Transportation5%
Other1.7%
Wholesale8%
ROLE RESPONSIBILITIES OF SMALL BUSINESS OWNERS• Investment Finance• Customer Relations• Personnel and Human Resources• Cash Control• Bookkeeping• Inventory Control• Purchasing• Marketing and Sales• Leadership• Business Planning
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RISK & FAILURE• External Factors of Failure – economic business cycle, fluctuating
interest rates, interrupted supplies, labor market trends, inflation, government regulations and unstable financial markets
• Personal Factors of Failure – 52% of all business failures to “management issues”, and as much as 90% of small business failures to incompetent managers
• Inexperience – lack of technical skills or management insight, in other instance, capable individuals start new enterprises within their respective fields but cannot manage their resources or provide leadership for their employees
• Arrogance - particularly inventors and innovators become egocentrically occupied
• Mismanagement – bad decisions in critical situations, Overinvestment, Poor Inventory Control, Poor Financial Control
• Poor Business Philosophy & Lack of Planning
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RESOLUTIONS FOR SUCCESSPlan Well
•Reversing the factor of Failure – a proper attitude is important, the owner must have a purpose for being in business and want to provide customers with the value for their money•Understanding the Purpose of Being in Business – Clarity of purpose, distinct competency
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TYPES OF BUSINESS ORGANIZATIONS
Type of BusinessType of Business
73%73% 7%7% 20%20%
Sole ProprietorshipSole Proprietorship PartnershipPartnership CorporationsCorporations
Sales RevenueSales Revenue
5%5%
6%6%
89%89%
COMPARATIVE SUMMARY: THREE FORMS OF BUSINESS
Business Form Liability Continuity Management Investment
Sources
Personal, limited
Ends with death or decision of owner
Personal, unrestricted
Personal
Personal, unlimited
Ends with death or decision of any partner
Unrestricted or depends on partnership agreement
Personal by partner(s)
Capital invested
As stated in charter, perpetual or for specified period of years
Under control of board of directors, which is selected by stockholders
Purchase of stock
Proprietorship
General Partnership
Corporation
Copyright ©2003 Prentice Hall, Inc.Copyright ©2003 Prentice Hall, Inc. 4 - 4 - 1212
Advantages:• Freedom• Simple to form• Low start up
costs• Tax benefits
Disadvantages:• Unlimited Liability
SOLE PROPRIETORSHIPS
Limited resourcesLimited fundraising capabilityLack of continuity
Unlimited LiabilityLegal principle holding owners responsible for paying off all debts of a business
Advantages:• More talent and
money• More fundraising
capability• Relatively easy to
form• Tax benefits
Disadvantages:• Unlimited Liability
PARTNERSHIPS
Disagreements among partnersLack of continuity
Unlimited LiabilityLegal principle holding owners responsible for paying off all debts of a business
““WHEN TWO MEN IN BUSINESS WHEN TWO MEN IN BUSINESS ALWAYS AGREE, ONE OF THEM ALWAYS AGREE, ONE OF THEM IS UNNECESSARY.”IS UNNECESSARY.”
WILLIAM WRIGLEY WILLIAM WRIGLEY JR.JR.
Remember…Remember…
But…But…An exit plan is still crucial!An exit plan is still crucial!
WHAT IS A CORPORATION?
““An artificial being, invisible, intangible, and existing only in An artificial being, invisible, intangible, and existing only in
contemplation of the law.”contemplation of the law.”
Advantages:• Limited Liability• Continuity• Stronger
fundraising capability
Disadvantages:• Double Taxation• Fluid control• Complicated and
expensive to form
CORPORATIONS
TYPES OF CORPORATIONS
Closely Held (Private) CorporationPublicly Held (Public) Corporation
Limited Liability Corporation (LLC)Professional CorporationMultinational or Transnational Corporation
STOCKHOLDERSOWNERS OF CORPORATIONSStock: Share of ownership in a corporation
Common Stock Preferred Stock
CORPORATE GOVERNANCE HIERARCHY
OfficersOfficers
Board of DirectorsBoard of Directors
StockholdersStockholders
Joint Ventures & Joint Ventures & Strategic AlliancesStrategic Alliances
SPECIAL ISSUES IN CORPORATE OWNERSHIP
Employee Stock Employee Stock Ownership Programs Ownership Programs
(ESOPS)(ESOPS)
Institutional Institutional OwnershipOwnership
Mergers & Acquisitions
(M&As)
SPECIAL ISSUES IN CORPORATE OWNERSHIP
Divestitures & Spin-offs
Mergers & Acquisitions
(M&As)
Divestitures & Spin-offsDivestitures & Spin-offs
ENTREPRENEURSHIP VS. SMALL BUSINESS
Entrepreneur: Accepts the risks and opportunities of creating, operating and growing a new business
Small Business Owner: Does not have plans for growth
TRENDS IN SMALL BUSINESS START-UPS
Emergence of Emergence of E-commerceE-commerce
Crossovers FromCrossovers FromBig BusinessBig Business
Opportunities for Opportunities for Minorities & WomenMinorities & Women
GlobalGlobalOpportunitiesOpportunities
IncreasedIncreasedSurvival RatesSurvival Rates
Reasons for Failure• Poor management• Neglect• Weak control
systems• Insufficient capital
Reasons for Success
Hard work, drive, dedication
Market demandStrong
managementLuck!!!
REASONS FOR SUCCESS AND FAILURE
EIGHT REASONS WHY MANY SMALL BUSINESSES FAIL.
MANAGEMENT - CHAPTER 6 26
GETTING STARTED
Buying an Existing
Business
Starting From
Scratch
FINANCING THE SMALL BUSINESSPersonal resourcesLoansVenture capital companiesSmall-business investment companiesSmall Business Association (SBA)
Financial aid and management advice
AdvantagesAdvantagesProven Proven
business business opportunityopportunity
Access to Access to management management expertiseexpertise
DisadvantagesDisadvantagesStart-up costsStart-up costsOn-going On-going
paymentspaymentsManagement Management
rules and rules and restrictionsrestrictions
FRANCHISING
An Ownership OpportunityAn Ownership Opportunity
TYPES OF INNOVATIONRadical InnovationThe launching of inaugural breakthroughs.These innovations take experimentation and determined vision, which are not
necessarily managed but must be recognized and nurtured.Incremental InnovationThe systematic evolution of a product or service into newer or larger markets.Many times the incremental innovation will take over after a radical innovation
introduces a breakthrough.
TABLE 3.4DEVELOPING AND SUPPORTING RADICAL AND INCREMENTAL INNOVATION
Radical Incremental
Stimulate through challenges and puzzles. Set systematic goals and deadlines.
Remove budgetary and deadline constraints when possible.
Stimulate through competitive pressures.
Encourage technical education and exposureto customers.
Encourage technical education and exposure to customers.
Allow technical sharing and brainstorming sessions.
Hold weekly meetings that include key management and marketing staff.
Give personal attention—develop relationships of trust.
Delegate more responsibility.
Encourage praise from outside parties. Set clear financial rewards for meeting goals and deadlines.
Have flexible funds for opportunities that arise.
Reward with freedom and capital for new projects and interests.