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Transcript of 8e Daft Chapter 06
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Managing Small Business Start-Ups
Managing Small Business Start-Ups
CHAPTER 6CHAPTER 6
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2 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Learning ObjectivesLearning Objectives
Describe the importance of entrepreneurship tothe U.S. economy.
Define the personality characteristics of a
typical entrepreneur. Explain social entrepreneurship as a vital part
of todays small business environment.
Outline the planning necessary to launch anentrepreneurial start-up.
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3 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Learning Objectives (contd.)Learning Objectives (contd.)
Describe the five stages of growth for anentrepreneurial company.
Explain how the management functions of
planning, organizing, leading, and controllingapply to a growing entrepreneurial company.
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4 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
EntrepreneurshipEntrepreneurship
Process of initiating a business venture
Organizing the necessary resources
Assumes associated risks and rewards
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5 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Five types of Small Business OwnersFive types of Small Business Owners
Idealists24%
Optimizers21%
HardWorkers
20%
Jugglers20%
Sustainers15%
Rewarded by chance towork on something new
and creative
Thrive on the challenge ofbuilding a larger, more
profitable business
Enjoy chance to balancework and personal life
Get personal satisfactionfrom being a businessowner
High energy people who enjoyhandling every detail of their ownbusiness
SOURCE: Study conducted by Yankelovish Partners, reported in Mark Henricks, The-Cast, Entrepreneur (March 2000), 14-16.
Exhibit 6.1
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6 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Entrepreneurship and the EnvironmentEntrepreneurship and the Environment
Turbulence in the technology sector andthe demise of many dot-com start-ups =heightened concerns about small
companies competing against bigbusiness
Entrepreneurship and small business
are vital, dynamic increasing important partsof U.S. economy
are booming in other countries
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Why Small Business Today?Why Small Business Today?
Economic changes
Globalization
Advancing technology
Increased competition
New market niches
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8/248 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Definition of Small BusinessDefinition of Small Business
Definition used by SBA detailed and complex
Independently owned and operated
Not dominant in its field of operation
Definition in the process of being revised
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Examples of SBA Definition of Small FirmsExamples of SBA Definition of Small Firms
Exhibit 6.3
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Impact of Entrepreneurial CompaniesImpact of Entrepreneurial Companies
Generate over 50 percent of nonfarm GDP 97 percent of U.S. exports
2.6 percent of export value
Employ over 50 percent of nonfarm private sector
Businesses with fewer than 500 employees represent99.7 percent of all the firms with employees in the U.S.
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11/2411 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Who Are Entrepreneurs?Who Are Entrepreneurs?
Diversity of Entrepreneurs Often have distinguishing backgrounds and
demographics 1st born, children of
immigrants Emerging growth companies of the next
decadeWomen-owned businesses: in 2005, 6.5 million
businesses that generated $950.6 in revenuesand employ over 7 millionMinority-owned businesses: growing 17% per
year with African American growing the fastest
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Characteristics of EntrepreneursCharacteristics of Entrepreneurs
Awareness of Passing Time High Energy Level
Need to Achieve
Tolerance for Ambiguity
Self-Confidence
Entrepreneurial
Personality
Source: Adapted from Charles R. Kuehl and Peggy A. Lambing, Small Business: Planning and Management (Ft. Worth: The Dryden Press, 1994),45.
Internal Locus of Control
Exhibit 6.5
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Hours Worked per Week byOwners of New BusinessesHours Worked per Week byOwners of New Businesses
0
5
10
15
20
25
30
Less than 50 50-59 60-69 70-79 More than 80
Percent%
ofNew
BusinessO
wners
SOURCE: National Federation of Independent Business, Reported in Mark Robichaux, Business First, Family
Second, The Wall Street Journal, May 12, 1989,B1.
Exhibit 6.6
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14/2414 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Sources of Entrepreneurial Motivationand New-Business Ideas
Sources of Entrepreneurial Motivationand New-Business Ideas
To Control My Future
To Fulfill a Dream
To Be My Own Boss
Downsized/Laid Off
Reasons for Starting a Business
In-depth Understandingof Industry/Profession
Market Niche Spotted
Brainstorming
Copying Someone Else
Hobby
Other
37%
36%
7%
44
Source of New-Business Ideas
Source: The Rewards, Inc. State of Small Business, 2001, May 29 2001, 50-51; and Leslie Brokaw, How ToStart an Inc. 500 Company, Inc. 500, 1994, 51-65.
Joined FamilyBusiness41%
36%
27%
25%
5%
11%
Exhibit 6.7
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15 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Business PlanBusiness Plan
Document specifying the businessdetails prepared by an entrepreneurprior to opening a new business
Clear visionRealistic financialprojectionsTarget marketIndustry and competitors
Management teamCritical risks that couldthreaten success
Sources & uses ofstart-up funds &operating funds
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16 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Becoming A Business OwnerBecoming A Business Owner
Sole Proprietorship = unincorporated business
owned by an individual for profit Partnership = unincorporated business owned
by two or more people
Corporation = artificial entity created by thestate and existing apart from its owners.
3 Basic Legal Forms
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17 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Financing ResourcesFinancing Resources
Crucial concern for entrepreneurs
Debt Financing
money to be repaid at alater date
Equity Financing funds invested in
exchange for ownershipin the company
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18 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
TacticsTactics
Start a New Business Advantage develop and design own way
Disadvantage long time to get off ground and tomake profitable
Buy an Existing Business Advantage shorter time and existing track record Disadvantage need to pay for goodwill
Ways to Become a Business Owner
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19 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
TacticsTactics
Buy a Franchise = an agreement to sella product or service with help from theowner Advantage management help is provided
by owner Disadvantage lack of control
Participate in a Business Incubator=shared office space, management,support services, management advice
Ways to Become a Business Owner
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20 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Five Stages of Growth For an EntrepreneurialCompany
Five Stages of Growth For an EntrepreneurialCompany
Exhibit 6.10
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21 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Managing a Growing BusinessManaging a Growing Business
Planning Defining goals and deciding on the tasks and use
of resources needed to attain them
As organization grows, formal planning usually isnot instituted until around the success stage Business plan must be living document
Planning concern small businesses need tobe Web-savvy
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22 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Managing a Growing BusinessManaging a Growing Business
Organizing 1st two stages typically very informal
At 3rd stage, success, functional managers are
hired Rules and regulations, procedural manuals
Latter stages, delegation
Outsourcing organizing approach
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23 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.
Managing a Growing BusinessManaging a Growing Business
Leading Early stages leaders vision By success stage, must learn to motivate
employees or bring in managers who can Need for active communication
Leadership is important because many
small firms have a hard time hiringqualified employees
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24 Copyright 2008 by South Western a division of Thomson Learning All rights reserved
Managing a Growing BusinessManaging a Growing Business
Controlling Financial control important in each stage Initial stages exercised by simple
accounting records and by personalsupervision
By 3rd stage, operational budgets are inplace; structured control systems
Control Techniques become moresophisticated as the firm matures
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