Chapter 5: Entrepreneurship And Small Business Management
Chapter 5: Entrepreneurship And Small Business Management •
Entrepreneurship is a risk-taking behavior that results in new opportunities o
•
An entrepreneur is willing to pursue opportunities in situations others view as problems or threats
Some key traits entrepreneurs possess include: o
Internal locus of control
o
High energy level
o
High need for achievement
o
Tolerance for ambiguity (uncertainty)
o
Self-confidence
o
Passion and action orientation
o
Self-reliance and desire for independence
o
Flexibility
•
When economists speak about entrepreneurs, they speak about a special group who are driven by absolute need. This is called necessity based entrepreneurship; they start new ventures because they have few or no other employment and career options.
•
In Canada, a small business is described as one with 100 or fewer employees, and almost 98% of Canadian businesses fall into that category
•
One way to get started is to buy and run a franchise – it is a form of business where one business owner sells to another the right to operate the same business in another location. For example, Subway, you will run the franchise under the original owner’s business name and guidance. In return you will get a share of income or flat fee.
•
Family Businesses on the other hand, and ones owned and financially controlled by family members. The largest percentage of business operations worldwide are family businesses. o
A family business feud can occur when family members have major disagreements over how the business should be run
o
The succession problem is the issue of who will run the business when the current head leaves
o
For this, business advisors recommend a succession plan – a formal statement that describes how the leadership transition and related financial matters will be handled when the time for changing ownership arrives.
Why Small Businesses Fail •
Small businesses have a high failure rate. There are several kinds of mistake typically made: 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
New Venture Creation •
A first-mover advantage comes from being first to exploit a niche or to enter a market.
•
There are 3 stages in the life cycle of an entrepreneurial firm: o
o
Birth Stage
Establish the firm
Getting customers
Finding the money
Fighting for existence and survival
Breakthrough Stage
Working on finances
Becoming profitable
Growing
o
•
Coping with growth and takeoff
Maturity Stage
Refining the strategy
Continuing growth
Managing for success
Investing wisely and staying flexible
A business can benefit from a good business plan. This plan describes the details needed to obtain start-up financing and operate a new business.
Ownership Forms •
Sole proprietorship – and individual pursuing a business for profit. People mostly do business under a personal way. Business owner liable for business debts and claims
•
Partnership – two or more people agree to contribute resources to start and operate a business together. o
In a general partnership, business partners agree on the contribution of resources and skills to the new venture, and on the sharing of profits and losses
o
In a limited partnership, there are one or more “limited” partners that do not participate in day-to-day business management
o
In a limited liability partnership, limits the liability of one partner for the negligence of another
•
Corporation – it is a legal entity in itself, and it exists separately from its owners
•
Limited Liability Corporation – hybrid business form combining advantages of sole proprietorship, partnership, and corporation.
Financing A New Venture •
Debt Financing involves borrowing money that must be repaid over time, with interest
•
Equity Financing involves giving ownership shares in the business to outsiders in return for their cash investments. This money does not need to be paid back, it is an investment into the company, and investors assume risk for gains/losses. o
Equity financing is usually obtained from venture capitalists that make large investments in new ventures in return for an equity stake in the business. They
usually take a management role, board of director seats, to oversee the business growth •
An Initial Public Offering (IPO) is an initial selling of shares of stock to the public at large
•
An Angel Investor is a wealthy individual willing to invest in a new venture in return for equity.
Entrepreneurship is a risk-taking behavior that results in new opportunities o
•
An entrepreneur is willing to pursue opportunities in situations others view as problems or threats
Some key traits entrepreneurs possess include: o
Internal locus of control
o
High energy level
o
High need for achievement
o
Tolerance for ambiguity (uncertainty)
o
Self-confidence
o
Passion and action orientation
o
Self-reliance and desire for independence
o
Flexibility
•
When economists speak about entrepreneurs, they speak about a special group who are driven by absolute need. This is called necessity based entrepreneurship; they start new ventures because they have few or no other employment and career options.
•
In Canada, a small business is described as one with 100 or fewer employees, and almost 98% of Canadian businesses fall into that category
•
One way to get started is to buy and run a franchise – it is a form of business where one business owner sells to another the right to operate the same business in another location. For example, Subway, you will run the franchise under the original owner’s business name and guidance. In return you will get a share of income or flat fee.
•
Family Businesses on the other hand, and ones owned and financially controlled by family members. The largest percentage of business operations worldwide are family businesses. o
A family business feud can occur when family members have major disagreements over how the business should be run
o
The succession problem is the issue of who will run the business when the current head leaves
o
For this, business advisors recommend a succession plan – a formal statement that describes how the leadership transition and related financial matters will be handled when the time for changing ownership arrives.
Why Small Businesses Fail •
Small businesses have a high failure rate. There are several kinds of mistake typically made: 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
New Venture Creation •
A first-mover advantage comes from being first to exploit a niche or to enter a market.
•
There are 3 stages in the life cycle of an entrepreneurial firm: o
o
Birth Stage
Establish the firm
Getting customers
Finding the money
Fighting for existence and survival
Breakthrough Stage
Working on finances
Becoming profitable
Growing
o
•
Coping with growth and takeoff
Maturity Stage
Refining the strategy
Continuing growth
Managing for success
Investing wisely and staying flexible
A business can benefit from a good business plan. This plan describes the details needed to obtain start-up financing and operate a new business.
Ownership Forms •
Sole proprietorship – and individual pursuing a business for profit. People mostly do business under a personal way. Business owner liable for business debts and claims
•
Partnership – two or more people agree to contribute resources to start and operate a business together. o
In a general partnership, business partners agree on the contribution of resources and skills to the new venture, and on the sharing of profits and losses
o
In a limited partnership, there are one or more “limited” partners that do not participate in day-to-day business management
o
In a limited liability partnership, limits the liability of one partner for the negligence of another
•
Corporation – it is a legal entity in itself, and it exists separately from its owners
•
Limited Liability Corporation – hybrid business form combining advantages of sole proprietorship, partnership, and corporation.
Financing A New Venture •
Debt Financing involves borrowing money that must be repaid over time, with interest
•
Equity Financing involves giving ownership shares in the business to outsiders in return for their cash investments. This money does not need to be paid back, it is an investment into the company, and investors assume risk for gains/losses. o
Equity financing is usually obtained from venture capitalists that make large investments in new ventures in return for an equity stake in the business. They
usually take a management role, board of director seats, to oversee the business growth •
An Initial Public Offering (IPO) is an initial selling of shares of stock to the public at large
•
An Angel Investor is a wealthy individual willing to invest in a new venture in return for equity.
