Chapter 18Entrepreneurship and Small Business

EXPLORING MANAGEMENT

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, growth-oriented 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

Self-confidence

Passion and action

orientationFlexibility 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.

General Partnership

• The owners share management responsibilities.

Limited Partnership

• General partner manages the business

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

Limited Liability Partnerships

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

SMALL BUSINESS

Forms of Ownership• Partnership

– Two or more people agree to contribute resources to start and operate a business together.

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.