PowerPoint Presentation by Charlie Cook The University of West Alabama © 2010 South-Western, Cengage Learning, Inc. All rights reserved.

10–2 The Nature of Entrepreneurship EntrepreneurshipEntrepreneurship  The process of planning, organizing, operating, and assuming the risk of a business. EntrepreneurEntrepreneur  Someone who engages in entrepreneurship. Small BusinessSmall 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.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–3 The Role of Entrepreneurship in Society Research Findings:Research Findings:  Most new businesses fail, those that survive often do so because the entrepreneur works for little income.  More than 98% of U.S. businesses have fewer than 100 employees.  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 businesses have a strong effect on job creation, innovation, and are important to big businesses.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10– The Importance of Small Business in the United States

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–5 Entrepreneurship’s Role in Society Small Businesses’ Role in Job CreationSmall Businesses’ Role in Job Creation  Create many of the new jobs in the U.S.  Dominate sectors that have added the most jobs.  Represent 92% of all U.S. exporters. InnovationInnovation  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.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10– Representative Jobs Created and Lost between 2007–2008

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–7 Entrepreneurship’s Role in Society (cont’d) Importance to Large BusinessesImportance to Large Businesses  Most products made by large manufacturers are sold to customers by small businesses.  Small businesses as suppliers provide large firms with essential services, supplies, and raw materials.  Large businesses outsource many routine business operations such as packaging, delivery, and distribution to small businesses.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–8 Strategy for Entrepreneurial Organizations Emphasizing distinctive competencies Gaining first mover advantage Choosing an industry in which to compete Basic Strategic Challenges

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10– Small Businesses (Businesses With Fewer Than Twenty Employees) by Industry Services are the fastest growing segment of small-business enterprise.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10– Economies of Scale in Small-business Organizations

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–11 Emphasizing Distinctive Competencies Identifying Niches in Established MarketsIdentifying Niches in Established Markets  Niches represent a market segment currently unexploited in a market where several large firms compete.  Niches offer a competitive advantage to small businesses. Identifying New MarketsIdentifying New Markets  Using the transfer of an existing product/service to explore a new market.  Creating new industries/products/services.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–12 First Mover Advantages First-Mover AdvantageFirst-Mover Advantage  Exploiting an opportunity before any other firm does. Why first-mover advantage is not taken by larger firms:Why first-mover advantage is not taken by larger firms:  Decisions are slowed by organizational hierarchy.  Size of the assets at risk makes large firms overly cautious.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–13 Writing a Business Plan Business PlanBusiness Plan  is a document that summarizes the business strategy and structure. It 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 ManagementEntrepreneurship and International Management  Expansion and growth potential in foreign markets.  Entering a foreign country’s market can be an important catalyst for success.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–14 Entrepreneurial Organization Structure Starting the New BusinessStarting the New Business  Buying an Existing Business  Business has a proven ability to draw customers and make a profit (the business is a going concern).  Networks (e.g., customers and suppliers) are established.  Negative: New owners inherit any existing problems.  Starting from Scratch  Avoids problems associated with previous owners.  Freedom to choose suppliers, equipment, location, and workers.  Negative: More business risk and uncertainty.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–15 Getting into the Game Identifying a Genuine Business OpportunityIdentifying a Genuine 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?

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–16 Financing the New Business Venture Capital Companies Small-Business Investment Companies SBA Financial Programs Sources of New Business Financing Personal Resources Strategic Alliances Lenders

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–17 Seeking New Business Advice Advisory Boards Management Consultants Small Business Administration Networking with Others Sources of Management Advice

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–18 Franchising The Franchising AgreementThe Franchising Agreement  Governs the operation of a franchise business by the entrepreneur (the franchisee) under a license by a parent company (the franchiser).  The entrepreneur pays the parent company for use of trademarks, products, formulas, and business plans.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–19 Franchising (cont’d) DisadvantagesDisadvantages  Start-up fees to purchase franchise.  Limitations of franchise (market area, product, customers).  Loss of independence due to imposed operational controls of franchiser. AdvantagesAdvantages  Reduced financial risk of new business success through experience provided by franchiser.  Training, financial, and management support by franchiser.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–20 Management Challenge Questions What characteristics of a franchisee would an entrepreneur/franchisor likely find most attractive?What characteristics of a franchisee would an entrepreneur/franchisor likely find most attractive? What aspects of this relationship could be detrimental to either party?What aspects of this relationship could be detrimental to either party?

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10– Business Start-up Successes and Failures

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–22 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

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.10–23 Success in Entrepreneurial Organizations Reasons for SuccessReasons 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. Reasons for FailureReasons 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.