Entrepreneurship: Starting and Entrepreneurship: Starting and Growing a BusinessGrowing a Business

Entrepreneurship: Starting and Entrepreneurship: Starting and Growing a BusinessGrowing a Business

Chapter 5

Chapter 5 Learning GoalsChapter 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 Chapter 5 Learning Goals (cont’d.)(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 1Learning 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

EntrepreneurEntrepreneur::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 EntrepreneursTypes of Entrepreneurs

1. Classic entrepreneursClassic entrepreneurspeople who start their own companies

based on innovative ideas

2. MultipreneursMultipreneurspeople who start a series of companies

3. IntrapreneursIntrapreneurspeople who apply vision and risk taking

within a large organization

Application of IntrapreneurshipApplication of Intrapreneurship

IntrapreneurshipIntrapreneurship 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 2Learning 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 ofCharacteristics ofSuccessful EntrepreneursSuccessful Entrepreneurs

1.1. Personality– ambitious, independent, self-confident, risk-

taking, visionary, creative, energetic, passionate, committed

2. 2. Managerial Ability

3. 3. Technical Knowledge

Learning Goal 3Learning Goal 3

• How do small businesses contribute to the U.S. economy?Small Businesses: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 BusinessSmall Business::

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

Learning Goal 4 Learning Goal 4

• Advantages Advantages – 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

• Disadvantages Disadvantages – 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 BusinessAdvantages of Small Business

1. 1. Greater flexibility

2. 2. More efficient operation

3. 3. Greater ability to serve specialized markets

4. 4. More personal service

Disadvantages of Small BusinessDisadvantages of Small Business

1. 1. High need for managerial skill

2. 2. Difficulty fund-raising

3. 3. Burdensome government regulations

4. 4. Extreme personal commitment from owner

Signs of OverworkingSigns 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 5Learning 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 BusinessesHelp for Small Businesses

Small Business Administration:Small Business Administration: Government agency that helps people start and manage small businesses

1.1. Financial Assistance– Small Business Investment Companies

2. 2. Management Advice– Business Development Library– Volunteer consulting groups

Learning Goal 6Learning 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 BusinessStarting Your Own Business

1.1. Self-assessment

2. 2. Choose to buy a small business or start from scratch

3. 3. Find a business idea

4. 4. Choose a business organization

5. 5. Develop a Business Plan

6. 6. Finance the business

Contents of a Business PlanContents of a Business Plan

1.1. Title Page & Table of Contents

2. 2. Executive Summary

3. 3. Vision and Mission Statement

4. 4. Company Overview

5. 5. Detailed Plans for:Products and/or Services, Marketing,

Management, Operating, and Financing

6. 6. Appendix of Supporting Documents

Tips for a Good Executive SummaryTips 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) & interestingSource: American Express Small Business Exchange, home3.americanexpress.com/smallbusiness

Learning Goal 7Learning 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 IssuesManaging a Small Business Issues

1.1. Using outside consultantscertified public accounting, outsourcing some

business functions

2.2. Hiring and Retaining EmployeesJim 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.)

3.3. Operating Internationallyincreased sales and higher profits

Learning Goal 8Learning 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 EntrepreneurshipTrends in Entrepreneurshipand Small Businessand 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)