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.