Chapter 5: Entrepreneurship and Small Business Management ...
Chapter 5: Entrepreneurship and Small Business Management ● Entrepreneurship – creating new business by strategic thinking and taking risk ● Entrepreneur – individuals who establish businesses on their own o willing to pursue opportunities in situations others view as problems or threats o
founders of businesses that become large-scale enterprises
o
respond quickly to changes
o
show greater flexibility
o
try to use economies of scale, but it’s difficult
● Characteristics of entrepreneurs: o Internal locus of control: Entrepreneurs believe that they are in control of their own destiny; they are self-directing and like autonomy. o
High energy level: Entrepreneurs are persistent, hard working, and willing to exert extraordinary efforts to succeed.
o
High need for achievement: Entrepreneurs are motivated to accomplish challenging goals; they thrive on performance feedback.
o
Tolerance for ambiguity: Entrepreneurs are risk takes; they tolerate situations with high degree of uncertainty.
o
Self-confidence: Entrepreneurs feel competent, believe in themselves, and are willing to make decisions.
o
Passion and action-orientation: Entrepreneurs try to act ahead of problems; they want to get things done and not waste valuable time.
o
Self-reliance and desire for independence: Entrepreneurs want independence; they are self-reliant; they want to be their own bosses, not work for others.
o
Flexibility: Entrepreneurs are willing to admit problems and errors, and are willing to change a course of action when plans aren’t working.
● Necessity-Based Entrepreneurship: takes place because other employment options don’t exist ● Agency theory states that individuals try to make as much money as possible. Using this theory, entrepreneurs try to cut costs wherever possible. ● Entrepreneurs have to remember that 50% of small businesses fail in the first 4 years of operation. ● Tritech, Dell and Microsoft are small companies. ● National Bank of Canada, General Motors, and 3M are large corporations. ● Small Business o Are ones with or 100 or fewer employees.
o
Independently owned and operated
o
48 percent of all private sector employees work in small businesses.
o
The World Bank estimates that one of the strongest factors in the growth of any nations GMP (Gross National Product) is small business.
o
Small business owners can react quickly to changes.
o
Nearly 85% of small businesses are conducting business over the internet.
● Small businesses fail because: o lack of experience o
lack of expertise
o
lack of strategy and strategic leadership
o
poor financial control
o
growing too fast
o
insufficient commitment
o
ethical failure
● Franchising o The style of franchise grants the franchisee the right to sell a widely recognized product or brand: product and trademark franchising. o
The style of franchise grants the franchisee the right to market the product and trademark and use a complete operating system: business format franchising.
o
Franchises account 41% for percent of all retail trade.
● Family Business – owned and controlled by members of a family ● Family Business Feud – occurs when family members have major disagreements over how the business should be done ● Succession Problem – the issue of who will run the business when the current head leaves ● Succession Plan – describes how the leadership transition and related financial matters will be handled ● Intrapreneurship – when you have an organization and you appoint people who are working to come up with new products within the organization ● Intrapreneur – a person within a corporation who is given the freedom and resources to initiate projects, business ventures, etc. ● What are Skunk works? An experimental laboratory or department of a company or institution, typically smaller than and independent of its main research division. ● The following situations are most likely to encourage entrepreneurship.
o
New immigrants may not find opportunities for traditional jobs open to them.
o
Executives may hit a “glass ceiling” where they find limited opportunities for promotion in their organization.
o
People who are laid off during a downsizing or organizational restructuring may choose to become an entrepreneur.
o
Someone who is fed up with the bureaucracy in their present job may quit to start up their own business.
o
It’s hardly likely that someone who likes working in a bureaucratic environment would be entrepreneur.
● What is a global start-up? People for different countries get together as an organization and sell the product through each of their companies around the world, sharing those revenues. ● What is a side-street effect? When you have a business and you sell a product, and you find a market for another product, you start selling the other product by reading the ongoing current market. Change plans quickly. ● What is a bootlegging effort? Getting certain products in another country for a cheaper price in that country. ● Entrepreneurial Strategy Matrix Quadrants High
I-r High Innovation
I-R
Low Risk Large Corporations
High Risk High-Tech
i-r Low Innovation
i-R
Low Risk Government Organizations
High Risk Small Businesses
High
Innovation
Corporations Innovation (Creating a unique and different product/service) Low
Low
Innovation
Low
Risk
High
● The Internet and Entrepreneurship o The practice of charging fees to advertise on an Internet site is called the Advertising Support Model. o
Charging fees to direct Internet site visitors to other companies’ sites is called the Affiliate Model.
o
Charging fees for Internet site visits is called the Subscription Model.
● First-Move Advantage – an advantage of being the first to exploit a nice or enter a market ● Life Cycles of Entrepreneurial Firms o Birth stage - establishing the firm - getting customers - finding the money o
Breakthrough stage - working on finances - becoming profitable - growing
o
Maturity stage - refining the strategy - continuing growth - managing for success
● Business Plan – describes the direction for a new business and the financing needed to operate it ● Forms of ownership o Sole Proprietorship – a form of business where an individual pursues a profit o
Partnership – a form of business where two or more people agree to contribute resources to start and operate a business together
o
Corporation – a legal entity that exists separately from its owners
o
Limited Liability Corporation – a hybrid business form combining advantages of the sole proprietorship, partnership and corporation
● Financing a new venture o Debt Financing – involves borrowing money that must be repaid over time, with interest o
Equity Financing – involves exchanging ownership shares for outside investment monies
o
Venture Capitalists – makes large investments in new ventures in return for an equity stake in the business
o
Initial Public Offering (IPO) – an initial selling of shares of stock to the public at large
o
Angel Investor – a wealthy individual willing to invest in a new venture in return for equity in a new venture
founders of businesses that become large-scale enterprises
o
respond quickly to changes
o
show greater flexibility
o
try to use economies of scale, but it’s difficult
● Characteristics of entrepreneurs: o Internal locus of control: Entrepreneurs believe that they are in control of their own destiny; they are self-directing and like autonomy. o
High energy level: Entrepreneurs are persistent, hard working, and willing to exert extraordinary efforts to succeed.
o
High need for achievement: Entrepreneurs are motivated to accomplish challenging goals; they thrive on performance feedback.
o
Tolerance for ambiguity: Entrepreneurs are risk takes; they tolerate situations with high degree of uncertainty.
o
Self-confidence: Entrepreneurs feel competent, believe in themselves, and are willing to make decisions.
o
Passion and action-orientation: Entrepreneurs try to act ahead of problems; they want to get things done and not waste valuable time.
o
Self-reliance and desire for independence: Entrepreneurs want independence; they are self-reliant; they want to be their own bosses, not work for others.
o
Flexibility: Entrepreneurs are willing to admit problems and errors, and are willing to change a course of action when plans aren’t working.
● Necessity-Based Entrepreneurship: takes place because other employment options don’t exist ● Agency theory states that individuals try to make as much money as possible. Using this theory, entrepreneurs try to cut costs wherever possible. ● Entrepreneurs have to remember that 50% of small businesses fail in the first 4 years of operation. ● Tritech, Dell and Microsoft are small companies. ● National Bank of Canada, General Motors, and 3M are large corporations. ● Small Business o Are ones with or 100 or fewer employees.
o
Independently owned and operated
o
48 percent of all private sector employees work in small businesses.
o
The World Bank estimates that one of the strongest factors in the growth of any nations GMP (Gross National Product) is small business.
o
Small business owners can react quickly to changes.
o
Nearly 85% of small businesses are conducting business over the internet.
● Small businesses fail because: o lack of experience o
lack of expertise
o
lack of strategy and strategic leadership
o
poor financial control
o
growing too fast
o
insufficient commitment
o
ethical failure
● Franchising o The style of franchise grants the franchisee the right to sell a widely recognized product or brand: product and trademark franchising. o
The style of franchise grants the franchisee the right to market the product and trademark and use a complete operating system: business format franchising.
o
Franchises account 41% for percent of all retail trade.
● Family Business – owned and controlled by members of a family ● Family Business Feud – occurs when family members have major disagreements over how the business should be done ● Succession Problem – the issue of who will run the business when the current head leaves ● Succession Plan – describes how the leadership transition and related financial matters will be handled ● Intrapreneurship – when you have an organization and you appoint people who are working to come up with new products within the organization ● Intrapreneur – a person within a corporation who is given the freedom and resources to initiate projects, business ventures, etc. ● What are Skunk works? An experimental laboratory or department of a company or institution, typically smaller than and independent of its main research division. ● The following situations are most likely to encourage entrepreneurship.
o
New immigrants may not find opportunities for traditional jobs open to them.
o
Executives may hit a “glass ceiling” where they find limited opportunities for promotion in their organization.
o
People who are laid off during a downsizing or organizational restructuring may choose to become an entrepreneur.
o
Someone who is fed up with the bureaucracy in their present job may quit to start up their own business.
o
It’s hardly likely that someone who likes working in a bureaucratic environment would be entrepreneur.
● What is a global start-up? People for different countries get together as an organization and sell the product through each of their companies around the world, sharing those revenues. ● What is a side-street effect? When you have a business and you sell a product, and you find a market for another product, you start selling the other product by reading the ongoing current market. Change plans quickly. ● What is a bootlegging effort? Getting certain products in another country for a cheaper price in that country. ● Entrepreneurial Strategy Matrix Quadrants High
I-r High Innovation
I-R
Low Risk Large Corporations
High Risk High-Tech
i-r Low Innovation
i-R
Low Risk Government Organizations
High Risk Small Businesses
High
Innovation
Corporations Innovation (Creating a unique and different product/service) Low
Low
Innovation
Low
Risk
High
● The Internet and Entrepreneurship o The practice of charging fees to advertise on an Internet site is called the Advertising Support Model. o
Charging fees to direct Internet site visitors to other companies’ sites is called the Affiliate Model.
o
Charging fees for Internet site visits is called the Subscription Model.
● First-Move Advantage – an advantage of being the first to exploit a nice or enter a market ● Life Cycles of Entrepreneurial Firms o Birth stage - establishing the firm - getting customers - finding the money o
Breakthrough stage - working on finances - becoming profitable - growing
o
Maturity stage - refining the strategy - continuing growth - managing for success
● Business Plan – describes the direction for a new business and the financing needed to operate it ● Forms of ownership o Sole Proprietorship – a form of business where an individual pursues a profit o
Partnership – a form of business where two or more people agree to contribute resources to start and operate a business together
o
Corporation – a legal entity that exists separately from its owners
o
Limited Liability Corporation – a hybrid business form combining advantages of the sole proprietorship, partnership and corporation
● Financing a new venture o Debt Financing – involves borrowing money that must be repaid over time, with interest o
Equity Financing – involves exchanging ownership shares for outside investment monies
o
Venture Capitalists – makes large investments in new ventures in return for an equity stake in the business
o
Initial Public Offering (IPO) – an initial selling of shares of stock to the public at large
o
Angel Investor – a wealthy individual willing to invest in a new venture in return for equity in a new venture
