Small Business Entrepreneurs: 3 Small Business Entrepreneurs: Characteristics and Competencies McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 3 Objectives: Learn about entrepreneurial personality types Learn the competencies of the successful entrepreneur Discover the types of career paths entrepreneurs pursue Understand the challenges of family business owners Recognize the special nature of entrepreneurial teams Gain insight into the challenges women and minority business owners face Understand the situation of people who become business owners later in life 3-2

Chapter 3 Focus on Small Business: Internet entrepreneur Laura Tidwell The Entrepreneurial Personality: Classic entrepreneur: Bill Gates, Sam Walton Loner, socially isolated Hard worker Fast learner Risk-taker seeking wealth Laura Tidwell is the classic entrepreneur who succeeded through hard work and learning new skills. 3-3

Chapter 3 Characteristics of entrepreneurs have changed through the years. Details are shown over the next few slides. 3-4

Chapter 3 1700’s-1950’s Original Classic Entrepreneur: Hard worker Loner Socially isolated Fast learner Wealth seeker Risk taker 1700’s-1950’s 3-5

Chapter 3 1950’s-1980’s Idea Person: Hard worker Loner (could team up) Socially isolated Fast learner Fame seeker Risk taker 1950’s-1980’s 3-6

Chapter 3 1950’s-1980’s Small Business Owner: Hard worker Loner Socially isolated Average learner Average income seeker Risk averse 1950’s-1980’s 3-7

Chapter 3 1950’s-1980’s Contemporary Classic Entrepreneur: Hard worker Loner Socially isolated Fast learner Wealth seeker Risk taker 1950’s-1980’s 3-8

Chapter 3 1980’s-Today Salesperson Entrepreneur: Hard worker Team player Socially connected Fast learner (socially) Average learner (technologically) Acceptance seeker Risk averse 1980’s-Today 3-9

Chapter 3 1980’s-Today Managerial Entrepreneur: Hard worker Team player Socially connected Fast learner Wealth seeker Risk averse 1980’s-Today 3-10

Chapter 3 Entrepreneurial Competencies Competencies: forms of business-related expertise Basic business competency: understanding the organizational and business processes of a firm Competencies are very important for small business owners A competency is something you do well. Our competency is your strength in business. Many times it takes the form of a hobby which later becomes a small business. 3-11

Chapter 3 Key business functions: activities common to all businesses sales, operations, accounting, finance, and human resources Industry-specific knowledge: activities, skills, and knowledge, specific to businesses in an industry Understanding dimple patterns for making golf balls Chemistry involved in Heating and A/C work Some functions are common to businesses. But every industry has it’s own set of skills necessary to be successful. A doctor’s office and a car mechanic both involve scheduling, selling a service, both have accounting and billing needs, both require employees. But the skills to be a successful doctor or successful mechanic are very different. 3-12

Chapter 3 Resource competencies: the ability or skill of the entrepreneur at finding expendable components necessary to the operation of the business Time Information Location Financing Raw materials Expertise There are some types of competencies which are skills, but not the mechanic or doctor’s skills needed to provide the specific service of the business. 3-13

Chapter 3 Determination competencies: skill identified with the energy and focus needed to bring a business into existence Opportunity competencies: skills necessary to identify and exploit elements of the business environment that can lead to a profitable and sustainable business These competencies are essential to success for entrepreneurs. Starting a new company takes much in terms of time, effort, and focus in order to become successful. 3-14

Chapter 3 Professionalization Professionalization: the extent to which a firm meets or exceeds the standard business practices for its industry Standard business practice: a business action that has been widely adopted within an industry or occupation Professionalization is key in a world with many fly-by-night operations. Customers prefer to do business with a professional company. Outward signs of being a professional company can be Certification (ISO 9000) Membership in the Chamber of Commerce A clean professional website Standard business practices become the norm in an industry. Doctor’s see patients only 4 days per week Retail stores open 7 days per week Providing more than the standard in an industry is an outward sign of quality. Providing less leaves customers questioning whether you are a “real” company. 3-15

Chapter 3 Expert business professionalization: a situation that occurs when all the major functions of a firm are conducted according to the standard business practices of its industry These firms inspire the highest levels of trust among their customers. Doctors Insurance providers Your level of professionalization has a direct affect on the level of trust you garner from customers, banker, suppliers, and others in your community. 3-16

Chapter 3 Expert business professionalization: Subcontractors: big firms require subcontractors to meet hundreds of corporate-dictated procedures Franchises: corporate parents specify most of the procedures for the business’s operation International quality certifications (ISO 9000): small businesses must write in full detail how they will ensure consistency and professionalism 3-17

Chapter 3 Specialized business professionalization: founders or owners who are passionate about one or two of the key business functions, such as sales, operations, accounting, finance, or human resources Specialized firms tend to generate moderate levels of trust among customers. The owner’s passion receives the lion’s share of attention, consciously causing that area of expertise to exceed the standards of the industry. 3-18

Chapter 3 Minimalized business professionalization: a situation that occurs when the entrepreneur does nearly everything in the simplest way possible No systematic accounting Personal sales Street vendors, swap meets, art fairs Very difficult to gain trust 3-19

Chapter 3 There are many different types of entrepreneurs which will be discussed. Some people start only one business in their life (I.e. Doctor’s office) and work their entire career there. Others may make a habit out of starting and selling businesses. 3-20

Chapter 3 Entrepreneurial Careers Habitual entrepreneurs: owners for a lifetime, sometimes in one business, sometimes across several firms No succession plan Figure to keep working until they can no longer continue A single practice doctor’s office is a habitual entrepreneur. They work until they retire. Kids don’t come in and take over the business when dad retires. 3-21

Chapter 3 Growth entrepreneurs: lifetime owners whose goal is major success If they top out with one business, they’ll start another growth-oriented company, often before they exit the first one When they do retire, they tend to want to micro-manage their successors Harvest entrepreneurs: owners with an exit plan Work first in order to play later Build one company at a time, sell it, enjoy the proceeds, and then start another 3-22

Chapter 3 a) Spiral (Helical) entrepreneurs Question What term describes entrepreneurs who alternate periods of growth and stability? a) Spiral (Helical) entrepreneurs b) Occasional entrepreneurs c) Habitual entrepreneurs d) Growth entrepreneurs Answer: a 3-23

Chapter 3 Spiral (helical) entrepreneurs: alternate periods of growth and stability Driven by a need to balance family and business The endgame strategy is scaling down the business Occasional entrepreneurs: people who generally have another primary job Fascinated by entrepreneurship and pursue it periodically Classic part-time entrepreneur Seasonal basis (doing taxes, or making Christmas wreaths) 3-24

Chapter 3 Family Businesses Family business: a firm in which one family owns a majority stake and is involved in the daily management of the business 1/3 of the Standard & Poor’s 500 are family owned and managed Family businesses have all the facets of normal entrepreneurial firms but also have the emotional drama inherent in a family. 3-25

Chapter 3 Example It’s All Relative Robert Douglas Jr. graduated from Eckerd College with a political science degree and got his commercial pilot license worked as a flight engineer for a father-son airline business Enjoying the family atmosphere, Robert Jr. decided to work for his father at The Black Dog Tavern Co. Inc. A restaurant located at Martha’s Vineyard in Massachusetts T-shirts famous for Ivy Leaguers Example It’s All Relative Robert Douglas Jr. graduated from Eckerd College with a political science degree and got his commercial pilot license worked as a flight engineer for a father-son airline business Enjoying the family atmosphere, Robert Jr. decided to work for his father at The Black Dog Tavern Co. Inc. A restaurant located at Martha’s Vineyard in Massachusetts T-shirts famous for Ivy Leaguers Robert Jr., now CEO, says “it isn’t all milkshakes and cotton candy” coming back as the kid 3-26 http://www.entrepreneur.com/magazine/entrepreneur/2005/march/76152.html

Chapter 3 Question What percentage of U.S. businesses are small family businesses? a) 4% b) 25% c) 71% d) 39% Answer: d 3-27

Chapter 3 Family businesses make up over 1/2 of the businesses in the United States. 39% of businesses in the United States are small family businesses. They employ 58% of America’s workforce. 3-28

Chapter 3 Family Business Challenges Role conflict: the kind of problem that arises when people have multiple responsibilities, such as parent and boss, and the different responsibilities make different demands on them Whenever possible, make decisions based on business necessities. 3-29

Chapter 3 Question What is the term for the process of intergenerational transfer of a business? a) Transition b) Succession c) Take-over d) Acquisition Answer: b 3-30

Chapter 3 Family Business Challenges Succession: the process of intergenerational transfer of a business Lack of clear transition plan is the death knell Answer is taking a professional approach Only 5% of entrepreneurs can rely on family members to take over One problem seen in successful family owned businesses is that the second generation may not be as passionate about, or as capable of, running the family business. Many children who grow up with parents running a successful family business do not desire to work the weekends and late nights which were required to make the business successful. Another issue is who is the successor? And where does that leave a child who chooses not to work in the family business? These issues will also be discusses later in the book. 3-31

Chapter 3 Women and Minorities Women-owned businesses are one of the fastest-growing sectors of all United States businesses 30% of all businesses are majority owned by women, with 18% equally owned by men and women 3-32

Chapter 3 Example Girl Power Women Presidents’ Organization brought together women entrepreneurs and elementary-age girls to teach financial literacy Cash flow – financial game created for kids “WPO members wanted to give back in a meaningful way that fit with our mission of accelerating and enhancing the growth of women-owned businesses” Several girls already own a craft business and plan to create a board game Call Cash flow an inspiration 3-33 http://www.entrepreneur.com/magazine/entrepreneur/2007/september/183042.html

Chapter 3 Minority-owned businesses represent 11% of all United States businesses. 1992-1997 Growth rates General Business 7% Minority-owned 30% Native-American/Alaskan 84% African-American 26% Hispanic 30% Asian/Pacific Islander 30% 3-34

Chapter 3 Access Problems Discrimination in financing: Minority applicants were denied at twice the rate of whites. Asian and Hispanic owners pay higher interest rates on their loans Set asides: government contracting funds earmarked for particular kinds of firms, such as minority- or women-owned firms While there are Government Set-asides for minority and women-owned firms, often these firms do not know they exist. It is often helpful to network with other minority or female entrepreneurs and get advice on which banks were more helpful to them. 3-35

Chapter 3 Late career entrepreneurs: people who begin their businesses after having retired or resigned from work in corporations at age 50 or older Get advice Take control over life Networking Keep personal finances out of the business If starting a business late in life, it is essential to keep the money you have already amassed, safe. Keep in mind, if you lose all your money in this venture, you will not have as much time to rebuild your personal security. 3-36

Chapter 3 ? ? ? Questions? 3-37