Entrepreneurship: Starting and Growing a Business Chapter 5

Chapter 5 Learning Goals Why do people become entrepreneurs, and what are the different types of entrepreneurs? Which characteristics do successful entrepreneurs share? How do small businesses contribute to the U.S. economy? What are the advantages and disadvantages facing owners of small businesses?

Chapter 5 Learning Goals (cont’d.) How does the Small Business Administration help small businesses? What are the first steps to take if you are starting your own firm? Why does managing a small business present special challenges for the owner? What trends are shaping the small business environment?

Learning Goal 1 Why do people become entrepreneurs, and what are the different types of entrepreneurs? –People become entrepreneurs for The opportunity for profit Independence Personal satisfaction Lifestyle –Types of entrepreneurs Classic entrepreneursClassic entrepreneurs MultipreneursMultipreneurs IntrapreneursIntrapreneurs

Entrepreneur: person with vision, drive, and creativity willing to take the risk of starting a new business or of greatly changing the scope and direction of an existing firm

Types of Entrepreneurs Classic entrepreneurs 1. Classic entrepreneurs people who start their own companies based on innovative ideas Multipreneurs 2. Multipreneurs people who start a series of companies Intrapreneurs 3. Intrapreneurs people who apply vision and risk taking within a large organization

Application of Intrapreneurship Intrapreneurship Intrapreneurship as a management strategy to encourage managers to invest more in, and take ownership of, their work by giving intrapreneurs 2 types of profit-share: –personal reward –apply toward improving their departments Source: Entrepreneur, Jan. 2000, p. 116

Learning Goal 2 Which characteristics do successful entrepreneurs share? –Successful entrepreneurs Are ambitious, self-confident, creative, passionate, energetic, committed Are high achievers and moderate risk takers Have good interpersonal and communication skills Must have good managerial skills Possess technical knowledge

Characteristics of Successful Entrepreneurs Personality –ambitious, independent, self-confident, risk- taking, visionary, creative, energetic, passionate, committed Managerial Ability Technical Knowledge

Learning Goal 3 How do small businesses contribute to the U.S. economy? Small Businesses: –Dominate the construction, wholesale, and retail fields –Provided most new private-sector jobs created in the U.S. over the past decade –Create about twice as many new goods and services as larger firms

Small Business: business that is independently owned by an individual or small group of investors, locally based, and nondominant in its industry

Learning Goal 4 AdvantagesAdvantages –Flexibility to respond to changing market conditions –Can be efficiently operated –Can serve specialized markets more profitably than large firms –Provide higher level of personal service DisadvantagesDisadvantages –Limited managerial skill –Difficulty in raising start-up and expansion capital –Burden of complying with government regulation –Major personal commitment required on the part of the owner Whatare the advantages and disadvantages facing owners of small businesses?

Advantages of Small Business Greater flexibility More efficient operation Greater ability to serve specialized markets More personal service

Disadvantages of Small Business High need for managerial skill Difficulty fund-raising Burdensome government regulations Extreme personal commitment from owner

Signs of Overworking Unable to reduce amount of time working Forgetfulness Unable to delegate work to others Decreased ability to laugh Weight change People comment on working too hard Physical complaints Source: American Express Small Business Exchange, home3.americanexpress.com/smallbusiness

Learning Goal 5 How does the Small Business Administration help small businesses? –Provides guarantees of private lender loans for small businesses –Offers a wide range of management assistance services Courses Publications Consulting –Offers special programs for veterans, minorities, and women

Help for Small Businesses Small Business Administration: Small Business Administration: Government agency that helps people start and manage small businesses Financial Assistance –Small Business Investment Companies Management Advice –Business Development Library –Volunteer consulting groups

Learning Goal 6 What are the first steps to take if you are starting your own firm? –Find an idea that satisfies a market need –Choose a form of business organization –Develop a formal business plan and use it to: Analyze the feasibility of the idea Obtain both debt and equity financing

Starting Your Own Business Self-assessment Choose to buy a small business or start from scratch Find a business idea Choose a business organization Develop a Business Plan Finance the business

Contents of a Business Plan Title Page & Table of Contents Executive Summary Vision and Mission Statement Company Overview Detailed Plans for: Products and/or Services, Marketing, Management, Operating, and Financing Appendix of Supporting Documents

Tips for a Good Executive Summary Write it after the rest of the business plan Polish it; get feedback from others Include: –business idea, financial features, financial requirements, current state of business, principal owners, major achievements Include: –industry statistics, market research, information that backs up your claims Keep it brief (1-3 pages) & interesting Source: American Express Small Business Exchange, home3.americanexpress.com/smallbusiness

Learning Goal 7 Why does managing a small business present special challenges for the owner? –Owners are involved in all aspects of the firm’s operations at first –Use of outside consultants allows owner to focus on planning, strategy, and day-to-day operations –Owner must find and retain good employees –Owner must monitor market conditions

Managing a Small Business Issues Using outside consultants certified public accounting, outsourcing some business functions Hiring and Retaining Employees Jim Day, Chief Executive of Noble Drilling, recognizes the importance of hiring people good for the job, rather than people similar to oneself (Source: Fortune, Sept. 28, 1998, p. 254.) Operating Internationally increased sales and higher profits

Learning Goal 8 What trends are shaping the small business environment? –Women and minorities are starting businesses at a faster rate than any other groups Women choose self-employment for lifestyle reasons and to overcome limited opportunities in large firms Minorities view business ownership as a way to overcome racial discrimination and economic hardship Special training programs and financial assistance help minorities and women –Internet Makes it easier to open Web-based businesses

Trends in Entrepreneurship and Small Business  Increase in home-based business  More younger, female, and minority entrepreneurs  More small businesses are started on the Internet  The number of small businesses doing e-commerce increased from 150,000 in 1997 to 850,000 in 1999 (Source: International Data Corp./Entrepreneur, Jan. 2000, p. 46)