Chapter 5
description
Transcript of Chapter 5
Entrepreneurship and
New Venture Management
Chapter 5
Learning Objectives
After studying this chapter, you should be able to:
1. Discuss the nature of entrepreneurship.
2. Describe the roles of entrepreneurship in society.
3. Understand the major issues involved in choosing strategies for small firms and the role of international management in entrepreneurship.
4. Discuss the structural challenges unique to small firms.
5. Understand the determinants of the performance of entrepreneurial firms.
Chapter Outline
The Nature of Entrepreneurship The Role of Entrepreneurship in Society
Job Creation Innovation Importance to Large Businesses
Strategy for Entrepreneurial Organizations Choosing an Industry Emphasizing Distinctive Competencies Writing a Business Plan Entrepreneurship and International
Management
Chapter Outline (cont’d)
Structure of Entrepreneurial Organizations Starting the New Business Financing the New Business Sources of Management Advice Franchising
The Performance of Entrepreneurial Organizations Trends in Small-Business Start-ups Reasons for Failure Reasons for Success
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.
The Role ofEntrepreneurship in Society
Research Findings: Most new businesses fail within the first few years
of being founded. Those that survive often do so because the entrepreneur works for little income.
Most (more than 99%) 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. It has a strong effect on job creation, innovation, and is important to big businesses.
The Importance of Small Business in the United States
Representative Jobs Created and Lost by Big Business (1996-
2005)
The Role ofEntrepreneurship in Society
(cont’d)
Innovation Historically, 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.
The Role ofEntrepreneurship in Society
(cont’d)
Importance to Large Business Most products made by large
manufacturers are sold to customers by small businesses.
Small businesses as suppliers provide large firms with essential 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
Three Basic Strategic Challenges Choosing an industry in which to
compete. Emphasizing distinctive
competencies. Writing a business plan.
Small Businesses (Businesses with Less Than Twenty Employees) by Industry
Economies of Scale inSmall Business Organizations
Strategy for Entrepreneurial Organizations (cont’d)
Emphasizing Distinctive Competencies Identifying a niche in an established market
Finding part of a market not currently being exploited that offers a competitive advantage to small businesses.
Identifying New Markets Using the transfer of an existing product/service
to a new market, entrepreneurs can create new industries, products, or services.
First-Mover Advantage Exploiting an opportunity before any other
firm does.
Strategy for Entrepreneurial Organizations (cont’d)
Writing a Business Plan A business plan is a document
that summarizes the business strategy and structure.
The plan should include: business goals and
objectives. strategies used to achieve
these goals and objectives. a plan of how the
entrepreneur will implement these strategies.
Strategy for Entrepreneurial Organizations (cont’d)
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.
Structure of Entrepreneurial Organizations
Starting a New Business Buying an Existing Business
Business has a proven ability to drawcustomers and make a profit.
Networks (e.g., customers and suppliers)are already established.
Negative: New owners inherit any 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.
Structure of Entrepreneurial Organizations (cont’d)
Identifying a Genuine Business Opportunity
Who are my Who are my customers?customers?
Where are they?Where are they?
At what price At what price will they buy my will they buy my
product?product?In what In what quantities will quantities will
they buy?they buy?
Who are my Who are my competitors?competitors?
How will my How will my product differ from product differ from
those of my those of my competitors?competitors?
Financing the New Business
Personal Resources Using your 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)
Small-Business Investment Companies (SBICs) SBICs are investor-owned companies that borrow
money from the SBA and, in turn, loan it to small business with high growth potential.
Minority Enterprise Small-Business Investment Companies (MESBICs) specialize in financing businesses owned by minorities.
SBA Financial Programs The Small Business Administration has several
financing programs (e.g., SBA-guaranteed loans) for small businesses that are unable to get private financing at reasonable terms.
Franchising
Franchising Agreement Operation of the franchised
business by the entrepreneur (the franchisee) under a license by a parent company (the franchiser).
The entrepreneur pays the parent company for use of trademarks, products, formulas, and business plans.
Franchising (cont’d)
Advantages of Franchising 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). Imposed operational controls of franchiser.
Business Start-Up Successes and Failures
The Performance ofEntrepreneurial Organizations
(cont’d)
Trends in New Business Start-Ups The emergence of E-commerce
Internet-based business Crossovers to small business by former
large-business employees Increased entrepreneurial opportunities
for minorities and women
Better survival rates for small businesses
The Growthof On-Line Commerce
Where Women Entrepreneurs Come From and What They Like About
Their Work
Source: Wall Street Journal, May 24, 1999, p. R12.
The Performance of Entrepreneurial Organizations
(cont’d)
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.