2. Describe the role of entrepreneurship in society. · 2018-11-15 · Entrepreneurship’s Role in...

5–2© 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as

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1. Discuss the nature of entrepreneurship.

2. Describe the role 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

entrepreneurial firms.

5. Understand the determinants of the performance of

small firms.

Learning OutcomesAfter studying this chapter you should be able to:

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.

© 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as

permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5–3

The Role of Entrepreneurship in Society

• Research Findings:

–Most new businesses fail within the first few years of

being founded.

–86 percent of U.S. firms employ fewer than 20 people.

–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.

–Small business has a strong effect on job creation,

innovation, and is important to big businesses.





FIGURE 5.1 The Importance of Small Business in the United States

Approximately 86 percent of all U.S. businesses employ fewer

than 20 people; another 11.7 percent employ between 20 and

99 people. In contrast, only about 2.1 percent employ between

100 and 400 workers, and another 0.2 percent employ 500 or

more.

24.5 percent of all U.S. workers are employed by firms with

fewer than 20 people; another 29.6 percent work in firms that

employ between 20 and 99 people. 25.5 percent of U.S.

workers are employed by firms with 100–499 employees, and

another 20.3 percent work for businesses that employ 500 or

more total employees.

Entrepreneurship’s Role in Society

• Small Businesses’ Role in Job Creation

–Create many of the new jobs in the U.S.

–Dominate sectors that have added the most jobs.

–Represent 33.5% of all U.S. exporters.

• Innovation

–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.





FIGURE 5.2 Representative Jobs Created and Lost in 2013

Barclays

Merck & Co.

JP Morgan

Wells Fargo

Bank of America

IBM

Aetna

Eli Lilly

AIG

–12,000

–8,500

–8,000

–6,000

–4,200

–3,020

–3,000

–1,600

–1,500

Kroger

Toys R Us

Caterpillar

AT&T

Amazon.com

Motorola

CarMax

Ford

Nissan

+7,000

+6,750

+2,000

+1,200

+3,000

+2,500

+3,500

+1,200

+1,000

JOB LOSSES

JOB GAINS

Entrepreneurship’s Importance

to Big Business

• Most products made by large manufacturers

are sold to customers by small businesses.

• Small businesses as suppliers provide large

firms with 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

5–9



Emphasizing

distinctive

competencies

Gaining

first mover

advantage

Choosing an

industry in which

to compete

Basic Strategic

Challenges



FIGURE 5.3 Small Business (Businesses with Fewer than 20 employees)

by Industry



FIGURE 5.4 Economies of Scale in Small-Business Organizations

Strategically Utilizing

Distinctive Competencies

Identifying new

markets

Taking first-mover

advantage

Identifying niches

in current markets

Seeking Competitive

Advantage



Emphasizing Distinctive Competencies

• Identifying niches in an established market

–Finding part of a market not currently being exploited

can offer a competitive advantage.

• Identifying new markets

–Transferring an existing product/service to a new

market can create new industries/products/services.

• Taking first-mover advantage

–Exploiting a market opportunity before any other firm

does can result in a competitive advantage.



Management Challenge Question

• What would you caution an entrepreneur about

the dangers of taking first-mover advantage?



Writing a Business Plan

• Business Plan

–Is a document that summarizes

business strategy and structure.

–Should include:

• Business goals and objectives.

• Strategies used to achieve these

goals and objectives.

• A plan of how the entrepreneur

will implement these strategies.



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.



Starting a New Business

• Buying an Existing Business

–Business has a proven ability to draw customers and

make a profit.

–Networks are already established.

–Negative: New owners inherit 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.

5–17



Identifying a Business Opportunity

Who are my

customers?

Where are they?

At what price

will they buy my

product?In what

quantities will

they buy?

Who are my

competitors?

How will my

product differ from

those of my

competitors?



Financing the New Business

Venture Capital

Companies

Small-Business

Investment

Companies

SBA Financial

Programs

Sources of

New Business

Financing

Personal

Resources

Strategic

Alliances

Lenders



Financing the New Business

• Personal Resources

– Using 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)

–Are investor-owned companies that borrow money

from the SBA to loan to small business with high

growth potential.

–Minority Enterprise Small-Business Investment

Companies (MESBICs) specialize in financing

businesses owned by minorities.

• SBA Financial Programs

–Provide assistance (e.g., SBA-guaranteed loans) for

small businesses unable to get private financing at

reasonable terms.



Seeking New Business Advice

Advisory Boards

Management Consultants

Small Business Administration

Networking with Others

Sources of

Management

Advice



Sources of Help for Entrepreneurs

• Boards of directors

• Management consultants

• SBA

• Trade associations

• Small-business networks

• Pooling

• Accountants

• Bankers

• Lawyers

• Insurance agents

• Computer consultants

Management Help Professional Help

Outside Help



Franchising

• Franchising Agreement

–Operation of the franchised business

by the entrepreneur (the franchisee)

under a license by a parent firm (the

franchiser).

–The entrepreneur pays the parent firm

for use of trademarks, products,

formulas, and business plans.



Franchising (cont’d)

• Advantages

–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).

–Loss of independence

due to imposed

operational controls of

franchiser.



Management Challenge Questions

• “Business is about relationships”

–What personal characteristics of a franchisee would

an entrepreneur/franchisor likely find most attractive?

most unattractive?

–What personal characteristics of a franchisor would an

entrepreneur/potential franchisee likely find most

attractive? most unattractive?





FIGURE 5.5 Business Start-Up Successes and Failures

The Performance of

Entrepreneurial Organizations

Crossovers to small business

by former large-business

employees

The emergence

of E-commerce

Trends in New Business Start-Ups

Better survival rates for

small businesses

Increased entrepreneurial

opportunities for minorities

and women



Entrepreneurial Success and Failure

• 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.



2. Describe the role of entrepreneurship in society. · 2018-11-15 · Entrepreneurship’s Role in...

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