Chapter 18
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Transcript of Chapter 18
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 achievement
Tolerance for ambiguity
Self-confidence
Passion and action
orientationFlexibility 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.