Transcript Chapter 18
EXPLORING MANAGEMENT Chapter 18 Entrepreneurship and Small Business 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, growthoriented 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 Selfconfidence 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. SMALL BUSINESS Forms of Ownership • Partnership – Two or more people agree to contribute resources to start and operate a business together. General Partnership • The owners share management responsibilities. Limited Partnership Limited Liability Partnerships • General partner manages the business • Limited partners share profit but losses are limited to the amount of their investment • Professional partnerships (accountants, doctors, lawyers) limits the liability of the partners 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.