1. Entrepreneurship and Small Business
Exploring Management
Chapter 18
Entrepreneurship and Small Business

2. 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.

3. 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

4. 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.

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

6. 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.

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

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.

23. 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.