1. Strategic Issues in Entrepreneurial Ventures and Small Business
Chapter 12
Strategic Issues in Entrepreneurial Ventures and Small Business
Dr.Vijaya Kumar
Skyline College
Prentice Hall, 2002
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Wheelen/Hunger

2. Entrepreneurship and Small Business
Small businesses:
22 million
>95% of all businesses
85% new jobs created by small firms
2X R&D dollars on fundamental research compared to large firms
50% of businesses found in any given year, not in business w/i 5 years
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3. Entrepreneurship and Small Business
Small business firm:
One that employs fewer than 500 people and has sales of < $20 million annually.
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4. Entrepreneurship and Small Business
Small business firm:
Independently owned
and operated
Not dominant in its
field
Not engaged in
innovative practices
Entrepreneurial Venture:
Primary goals profit and
growth
Innovative strategic
practices
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5. Entrepreneurship and Small Business
A person who organizes and manages a business and who assumes risk for the sake of profit.
Ultimate strategist
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6. Informal Questions to Begin the Strategic Management Process in a Small Company or Entrepreneurial Venture
Formal Informal
Define mission What do we stand for?
Set objectives What are we trying to achieve?
Formulate strategy How are we going to get there? How can we beat the competition?
Determine policies What sort of ground rules should we all be following to get the job done right?
Establish programs How should we organize this operation to get what we want done as cheaply as possible with the highest quality possible?
Prepare pro forma budgets How much is it going to cost us and where can we get the cash?
Specify procedures In how much detail do we have to lay things out, so that everybody knows what to do?
Determine performance measures What are those few key things that will determine whether we can make it? How can we keep track of them?
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7. Entrepreneurship and Small Business
Strategic planning:
Strongly related to small-business financial performance
Many small firms do not use the process
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8. Entrepreneurship and Small Business
Not enough time
Small Business
Reasons for
Not using
Strategic planning
Unfamiliar
Lack of skills
Lack of trust
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9. Entrepreneurship and Small Business
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10. Entrepreneurship and Small Business
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11. Entrepreneurship and Small Business
Strategic Decision-Making Process:
Develop the basic business idea
A product and/or service having target customers and/or markets
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12. Entrepreneurship and Small Business
Strategic Decision-Making Process:
Scan the external environment
Locate factors in the societal and task environments that pose opportunities and threats
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13. Entrepreneurship and Small Business
Strategic Decision-Making Process:
Scan the internal factors
Objectively consider personal assets, expertise, abilities, and experience
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14. Entrepreneurship and Small Business
Strategic Decision-Making Process:
Analyze the strategic factors
SWOT and SFAS Table (Figure 5.1)
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15. Entrepreneurship and Small Business
Strategic Decision-Making Process:
Decide go or no go
Feasibility to go or further development
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16. Entrepreneurship and Small Business
Strategic Decision-Making Process:
Generate a business plan
Specify how the idea will be transformed into reality
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17. Contents of a Strategic Business Plan for an Entrepreneurial Venture
I. Table of Contents X. Human Resources Plan
II. Executive Summary XI. Ownership
III. Nature of the Business XII. Risk Analysis
IV. Strategy Formulation XIII. Timetables and Milestones
V. Market Analysis XIV. Strategy Implementation—Action Plans
VI. Marketing Plan XV. Evaluation and Control
VII. Operational Plans—Service/Product XVI. Summary
VIII. Financial Plans XVII. Appendices
IX. Organization and Management
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18. Entrepreneurship and Small Business
Strategic Decision-Making Process:
Strategic audit
Framework oriented toward future
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19. Entrepreneurship and Small Business
Strategic Decision-Making Process:
Implement the business plan
Action plans and procedures
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20. Entrepreneurship and Small Business
Strategic Decision-Making Process:
Evaluate the implemented business plan
Compare actual performance against projected performance results
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21. Entrepreneurship and Small Business
Corporate Governance:
Simpler in entrepreneurial firms
Owner as manager
No board unless incorporated
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22. Entrepreneurship and Small Business
Corporate Governance:
Closely-held firms have passive boards
Advisory board
A group of external business people voluntarily meeting with owner to discuss strategic issues
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23. Entrepreneurship and Small Business
Sources of Innovation:
Within the Industry—
The unexpected
The incongruity
Innovation based on process need
Changes in industry or market structure
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24. Entrepreneurship and Small Business
Sources of Innovation:
Societal environment—
Demographics
Changes in perception, mood, and meaning
New knowledge
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25. Entrepreneurship and Small Business
Factors – New Venture’s Success:
3 Factors:
The structure of the industry entered
New venture’s business strategy
Behavioral characteristics of the entrepreneur
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26. Some Guidelines for New Venture Success
• Focus on industries facing substantial technological or regulatory changes, especially those with recent exits by established competitors.
• Seek industries whose smaller firms have relatively weak competitive positions.
• Seek industries that are in early, high-growth stages of evolution.
• Seek industries in which it is possible to create high barriers to subsequent entry.
• Seek industries with heterogeneous products that are relatively unimportant to the customer’s overall success.
• Seek to differentiate your products from those of your competitors in ways that are meaningful to your customers.
• Focus such differentiation efforts on product quality, marketing approaches, and customer service—and charge enough to cover the costs of doing so.
• Seek to dominate the market segments in which you compete. If necessary, either segment the market differently or change the nature and focus of your differentiation efforts to increase your domination of the segments you serve.
• Stress innovation, especially new product innovation, that is built on existing organizational capabilities.
• Seek natural, organic growth through flexibility and opportunism that builds on existing organizational strengths.
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27. Entrepreneurship and Small Business
Small Business Development:
Sub-stages:
Existence
Survival
Success
Disengagement
Growth
Take-off
Resource maturity
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28. Entrepreneurship and Small Business
Family Businesses:
> 1/3 of Fortune 500 family owned or dominated
World percentage = 50%
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29. Entrepreneurship and Small Business
Family Businesses:
Why family businesses fail
Inherited wealth
No allowance for changing firm
Family is neglected
Family lifestyles
Family not prepared to run business
Arena for family conflicts
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30. Entrepreneurship and Small Business
Family Businesses:
Transfer of Power
Phase 1
Owner-managed business
Phase 2
Training and development of new generation
Phase 3
Partnership between generations
Phase 4
Transfer of power
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31. Entrepreneurship and Small Business
Family Businesses:
Issues in evaluation and control
Line between debt and equity is blurred
Lifestyle is part of financial statements
Standard financial formulas don’t always apply
Personal preference determines financial policies
Banks combine personal and business wealth
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