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

achievementTolerance for

ambiguity Self-confidence Passion and action orientation Flexibility 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.