Entrepreneurship and Small Business 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? Entrepreneurship and Small Business are exciting and can be very rewarding but they are also very risky endeavors.

Entrepreneurs are risk takers who spot and pursue opportunities 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 Dynamic, risk-taking, creative, growth-oriented behavior Entrepreneur Person willing to pursue opportunities that others fail to recognize or view as problems Many entrepreneurs have started more than one business.

ENTREPRENEURSHIP Entrepreneurs Are Risk Takers First mover advantage Exploiting a new market opportunity before competitors Examples would be Amazon, Zappos and Blockbuster.

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 This list is a profile of successful entrepreneurs. Most are not successful the first time they try. Some are never successful.

ENTREPRENEURSHIP Entrepreneur Characteristics Similar backgrounds Family environment Career and work history Windows of career opportunity Many have parents who owned businesses or were entrepreneurs.

ENTREPRENEURSHIP Entrepreneur Characteristics Intrapreneurs Employees of a larger firm that display entrepreneurial behavior such as developing a new product or process A popular example of intrapreneurship is Art Fry inventing Post-it notes at 3M.

ENTREPRENEURSHIP Entrepreneur Characteristics Internal locus of control High energy level High need for achievement Tolerance for ambiguity Self-confidence Passion and action orientation Flexibility Self-reliance Who are the entrepreneurs? The more that apply, the better the chances of success.

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 Women have the creativity and staying power to be successful small business owners. They also tend to be good at human relations.

ENTREPRENEURSHIP Social Entrepreneurs are driven by a social mission Poverty Illiteracy Health problems Social opression Social entrepreneurs find a way to help others through business.

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 businesses include the local independently owned shops that you see in every town. They include restaurants, dry cleaners, gift shops and many more types of businesses.

SMALL BUSINESS Importance of 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 Obviously, it is not the size of the business that generates these numbers. It is the shear quantity of them.

SMALL BUSINESS Small Business Life Cycle The main problem in any of these stage is cash flow. Even high growth profitable businesses can run out of cash.

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 It’s surprising, given the stress of running a business and the difficulty of maintaining relationships, that there are as many family owned businesses as there are.

SMALL BUSINESS Challenges Most small businesses fail within five years As many as 60% to 80% fail Most of this has to do with lack of experience or education.

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 Many first time business owners use the services and support of the Small Business Administration.

SMALL BUSINESS Business Plans Describes goals, operating plans and financing for a new business Banks want to see a well-developed business plan before loaning money Small Business Development centers assist entrepreneurs in developing business plans.

SMALL BUSINESS Forms of Ownership Sole Proprietorship An individual or married couple pursuing business for a profit. Some couples retire from one career to begin a career as entrepreneurs, turning a hobby or interest into a business.

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 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 Partnerships are a very common form of family owned businesses.

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 The LLC is relatively new but it is becoming very popular. In addition to providing the protection of a corporation, it avoids the double taxation paid by owners of the corporation.

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. Venture capitalists expect large returns in a short period of time for their investments. They typically demand a large equity position in the companies that they invest in.

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. Angels typically invest less than $500,000 in a company. They are often the first outside investors.