chap 01 entrepreneur the driving force behind small business

Chapter 1: Entrepreneurship 1Copyright 2003 Prentice Hall Publishing Company

Entrepreneurs: The Driving Force

Behind Small Businesses

Entrepreneurs: The Driving Force

Behind Small Businesses


You can't cross the sea merely by standing and You can't cross the sea merely by standing and staring at the water.staring at the water.

--Rabindranath Tagore--Rabindranath Tagore It's not how many times we stumble and fall It's not how many times we stumble and fall

down that matters. It's how many times we down that matters. It's how many times we stumble and get back up that counts.stumble and get back up that counts.

--Max Carey, Jr.--Max Carey, Jr.


The Age of the EntrepreneurThe Age of the Entrepreneur

A new business is born in the Pakistan A new business is born in the Pakistan almost every day. almost every day.

THETHE defining trend of the 21 defining trend of the 21stst century: century:

Entrepreneurship! Entrepreneurship! One of every 200 adults is actively One of every 200 adults is actively

engaged in trying to start a new business.engaged in trying to start a new business.


ObjectivesObjectives Define the role of the entrepreneur.Define the role of the entrepreneur. Describe the entrepreneurial profile.Describe the entrepreneurial profile. Describe the benefits of owning a small business.Describe the benefits of owning a small business. Describe the potential drawbacks of owning a small Describe the potential drawbacks of owning a small

business.business. Explain the forces that are driving the growth in Explain the forces that are driving the growth in

entrepreneurship.entrepreneurship. Discuss the role of diversity in small business and Discuss the role of diversity in small business and

entrepreneurship.entrepreneurship. Describe the contributions small businesses make to the Describe the contributions small businesses make to the

economy.economy. Explain the reasons small businesses fail.Explain the reasons small businesses fail. Put business failure into the proper perspective.Put business failure into the proper perspective. Explain how small business owners can avoid the major Explain how small business owners can avoid the major

pitfalls of running a business. pitfalls of running a business.

Country

Percentage of Adult Population Working to Start a New Business

Finland 1.4%

Japan 1.6%

France 1.8%

Denmark 2.0%

Germany 2.2%

Great Britain 3.3%

Italy 3.4%

Pakistan 0.4%

Canada 6.8%

United States 8.5%

Source: 1999 Global Entrepreneurship MonitorSource: 1999 Global Entrepreneurship Monitor


» This resurgence of the entrepreneurial spirit is This resurgence of the entrepreneurial spirit is the most significant economic development in the most significant economic development in recent business history.recent business history.

» Entrepreneurs have introduced innovative Entrepreneurs have introduced innovative products and services, pushed back products and services, pushed back technological frontiers, created new jobs, technological frontiers, created new jobs, opened foreign markets.opened foreign markets.


» Due to new technological developments, it is Due to new technological developments, it is possible for companies to accomplish more with possible for companies to accomplish more with fewer people. As a result, people who once saw fewer people. As a result, people who once saw launching a business as being too risky now see launching a business as being too risky now see it as the ideal way to create their own job it as the ideal way to create their own job security.security.

» Although launching a business is never easy, Although launching a business is never easy, the resources available today make the job the resources available today make the job much simpler today than ever before since much simpler today than ever before since thousands of colleges and universities offer thousands of colleges and universities offer courses in entrepreneurship.courses in entrepreneurship.

» Internet hosts a sea of information on Internet hosts a sea of information on launching a business including sources of launching a business including sources of capital.capital.

» Another significant shift in growth of small Another significant shift in growth of small company has been due to significant shift in our company has been due to significant shift in our nation's economic structure (rapidly moving nation's economic structure (rapidly moving away from an industrial economy to a away from an industrial economy to a knowledge-based one). knowledge-based one).


The Age of the EntrepreneurThe Age of the Entrepreneur

Survey of college seniors: 29% of men Survey of college seniors: 29% of men and 31% of women said they were and 31% of women said they were interested in pursuing entrepreneurship interested in pursuing entrepreneurship after graduation. after graduation.


What Is an Entrepreneur?What Is an Entrepreneur?

A person who creates a new business A person who creates a new business in the face of risk and uncertainty in the face of risk and uncertainty for the purpose of achieving profit for the purpose of achieving profit and growth by identifying and growth by identifying opportunities and assembling the opportunities and assembling the necessary resources to capitalize on necessary resources to capitalize on those opportunities. those opportunities.

5%

25%

27%

36%

41%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Percentage

Have been downsized or laid off

Wanted to fulfill lifelong goal

Tired of working for someone else

Wanted more control over future

Joined fanily business

Why Entrepreneurs Went into Business


Characteristics of EntrepreneursCharacteristics of Entrepreneurs

Desire for responsibilityDesire for responsibility Preference for moderate riskPreference for moderate risk Confidence in their ability to succeedConfidence in their ability to succeed Desire for immediate feedbackDesire for immediate feedback High level of energyHigh level of energy Future orientationFuture orientation Skilled in organizationSkilled in organization Value achievement over moneyValue achievement over money


» Desire for responsibility.Desire for responsibility. They prefer to be in control of their resources and to use They prefer to be in control of their resources and to use

those resources to achieve self-determined goals. those resources to achieve self-determined goals.

» Preference for moderate risk.Preference for moderate risk. Entrepreneurs are not wild risk-takers, but are instead Entrepreneurs are not wild risk-takers, but are instead calculatingcalculating risk-takers. risk-takers.

» Confidence in their ability to succeed.Confidence in their ability to succeed. They need to be optimistic about the chances for success.They need to be optimistic about the chances for success.


» Desire for immediate feedback.Desire for immediate feedback. Entrepreneurs like to know how they are doing and are Entrepreneurs like to know how they are doing and are

constantly looking for reinforcement.constantly looking for reinforcement.

» High level of energy.High level of energy. Entrepreneurs are more energetic than the average person. Entrepreneurs are more energetic than the average person.

Typically, they work long hours, often 60 to 80 hours a week.Typically, they work long hours, often 60 to 80 hours a week.

» Future orientation.Future orientation. Entrepreneurs tend to dream big and then formulate plans to Entrepreneurs tend to dream big and then formulate plans to

transfer those dreams into reality.transfer those dreams into reality.


» Skill at organizing.Skill at organizing. Entrepreneurs know how to put the right people and Entrepreneurs know how to put the right people and

resources together to accomplish a task.resources together to accomplish a task.

» Value achievement over money. Value achievement over money. Achievements seems to be the primary motivating force Achievements seems to be the primary motivating force

behind entrepreneurs - money is simply a way off keeping behind entrepreneurs - money is simply a way off keeping score off accomplishments.score off accomplishments.


» High degree of commitment.High degree of commitment. An Entrepreneur’s commitment to his or her and the An Entrepreneur’s commitment to his or her and the

business it spawns determines how successful his or her business it spawns determines how successful his or her company ultimately becomes.company ultimately becomes.

» Tolerance for ambiguity.Tolerance for ambiguity. Entrepreneurs tend to have a high tolerance for ambiguous, Entrepreneurs tend to have a high tolerance for ambiguous,

ever-changing situations.ever-changing situations.

» Flexibility.Flexibility. Entrepreneurs must be willing to adapt their businesses to Entrepreneurs must be willing to adapt their businesses to

meet changes.meet changes.

» Tenacity.Tenacity. Successful entrepreneurs have the willpower to conquer the Successful entrepreneurs have the willpower to conquer the

barriers that stand in the way of their success.barriers that stand in the way of their success.

The Entrepreneurial Personality

Idealists24%

Optimizers21%Hard Workers

20%

Jugglers20%

Sustainers15%

Source: Yanjelovich Partners and Pitney Bowes.


» Idealists. Idealists. Idealists started their businesses because they had a great idea or Idealists started their businesses because they had a great idea or

wanted to work on something special. wanted to work on something special. Idealists enjoy creative work but are impatient with performing Idealists enjoy creative work but are impatient with performing

administrative tasks such as financial analysis or legal matters. administrative tasks such as financial analysis or legal matters. This group of entrepreneurs and their businesses are most This group of entrepreneurs and their businesses are most

dependent on computers. dependent on computers.

» Optimizers. Optimizers. Optimizers (21% of all entrepreneurs) are the second largest Optimizers (21% of all entrepreneurs) are the second largest

category. category. The benefits of entrepreneurship are most important to them; they The benefits of entrepreneurship are most important to them; they

enjoy the freedom and flexibility of owning a business and would enjoy the freedom and flexibility of owning a business and would not be willing to work for someone else. not be willing to work for someone else.

They want their companies to grow, but their focus is on profits They want their companies to grow, but their focus is on profits rather than on revenues. rather than on revenues.

These business owners are highly knowledgeable about financial These business owners are highly knowledgeable about financial issues and use technology to keep costs down and productivity up.issues and use technology to keep costs down and productivity up.

They worry less than other business owners because they see They worry less than other business owners because they see themselves as maintaining control over their businesses.themselves as maintaining control over their businesses.

They also have learned the secrets of balancing their home and They also have learned the secrets of balancing their home and

business lives.business lives.


» Hard Workers. Hard Workers. Hard workers make up 20% of the entrepreneurial population.Hard workers make up 20% of the entrepreneurial population. They love their work and are more likely than any other group to They love their work and are more likely than any other group to

put in extra hours to achieve the targets.put in extra hours to achieve the targets. They tend to be detail-oriented and are the most growth-oriented They tend to be detail-oriented and are the most growth-oriented

entrepreneurial group.entrepreneurial group. They are financially aggressive and exercise broad control over the They are financially aggressive and exercise broad control over the

details of running their businesses. details of running their businesses. Hard workers typically have long-term business plans and stick to Hard workers typically have long-term business plans and stick to

them. them.

» Jugglers.Jugglers. Jugglers also make up 20 percent of the entrepreneurial population.Jugglers also make up 20 percent of the entrepreneurial population. They have a difficult time delegating authority and responsibility.They have a difficult time delegating authority and responsibility. They prefer to do things themselves to make sure everything meets They prefer to do things themselves to make sure everything meets

their high standards.their high standards. They are highly energetic people who are good at handling multiple They are highly energetic people who are good at handling multiple

tasks simultaneously.tasks simultaneously. They readily embrace technology in their companies and are always They readily embrace technology in their companies and are always

looking for ways to improve their businesses. looking for ways to improve their businesses. Jugglers feel pressure to maintain positive cash flow in their Jugglers feel pressure to maintain positive cash flow in their

companies.companies.


» Sustainers. Sustainers. Sustainers comprise 15 percent of all entrepreneursSustainers comprise 15 percent of all entrepreneurs These entrepreneurs are more likely to have inherited or These entrepreneurs are more likely to have inherited or

bought their companies. bought their companies. They are the least comfortable with technology and prefer They are the least comfortable with technology and prefer

to put in more time than to figure out how to apply to put in more time than to figure out how to apply technology to solve a particular problem. technology to solve a particular problem.

Sustainers are the most conservative group and do not strive Sustainers are the most conservative group and do not strive to achieve significant levels of growth. to achieve significant levels of growth.

Maintaining a good balance between business and home life Maintaining a good balance between business and home life

is important to them.is important to them.


Benefits of Small Business Benefits of Small Business OwnershipOwnership

The opportunity to:The opportunity to: gain control over your own destinygain control over your own destiny make a differencemake a difference reach your full potentialreach your full potential reap unlimited profitsreap unlimited profits contribute to society and to be recognized for contribute to society and to be recognized for

your effortsyour efforts do what you enjoydo what you enjoy


Opportunity to gain control over your own Opportunity to gain control over your own destinydestiny

» Owning a business.Owning a business.

» Rewards of knowing you are the driving forces Rewards of knowing you are the driving forces behind their businesses.behind their businesses.

Opportunity to make a differenceOpportunity to make a difference» Opportunity to do what is important to you.Opportunity to do what is important to you.


Opportunity to reach your full potentialOpportunity to reach your full potential» Escape from boring and unchallenging work.Escape from boring and unchallenging work.

» Entrepreneurship is a vehicle for self-Entrepreneurship is a vehicle for self-expression.expression.

Opportunity to reap unlimited profitsOpportunity to reap unlimited profits» Money is not the primary motivator, but Money is not the primary motivator, but

owning your own business is a great way to owning your own business is a great way to create wealth.create wealth.


Opportunity to contribute to society and be Opportunity to contribute to society and be recognized for your effortsrecognized for your efforts

» Often small business owners are among the Often small business owners are among the most trusted and respected members of their most trusted and respected members of their communities.communities.

» Entrepreneurs enjoy the recognition they get Entrepreneurs enjoy the recognition they get from customers for doing a job well.from customers for doing a job well.

Opportunity to do what you enjoy doingOpportunity to do what you enjoy doing» Their work is not really work; it's their Their work is not really work; it's their

avocation turned into a vocation.avocation turned into a vocation.


Drawbacks of Small Business Drawbacks of Small Business OwnershipOwnership

Uncertainty of incomeUncertainty of income» The regularity of income from working for someone is The regularity of income from working for someone is

gone.gone.

» "The entrepreneur is the last one to be paid.""The entrepreneur is the last one to be paid."

Risk of losing your entire invested capitalRisk of losing your entire invested capital


Drawbacks of Small Business Drawbacks of Small Business OwnershipOwnership

Uncertainty of incomeUncertainty of income Risk of losing your entire invested capitalRisk of losing your entire invested capital

» 34% fail within 2 years.34% fail within 2 years.» 50% shut down within 4 years.50% shut down within 4 years.» 60% fold within 6 years.60% fold within 6 years.» Consider the risk-reward trade-off.Consider the risk-reward trade-off.

What is the worst thing that could happen if my business fails?What is the worst thing that could happen if my business fails? How likely is it that the worst to happen?How likely is it that the worst to happen? What can I do to lower the risk that my business will fail?What can I do to lower the risk that my business will fail? What is my contingency plan for coping if my business fails?What is my contingency plan for coping if my business fails?

Long hours and hard workLong hours and hard work


Uncertainty of incomeUncertainty of income» The regularity of income from working for someone is The regularity of income from working for someone is

gone.gone.» "The entrepreneur is the last one to be paid.""The entrepreneur is the last one to be paid."

Risk of losing your entire invested capitalRisk of losing your entire invested capital» 34% fail within 2 years.34% fail within 2 years.» 50% shut down within 4 years.50% shut down within 4 years.» 60% fold within 6 years.60% fold within 6 years.» Consider the risk-reward trade-off.Consider the risk-reward trade-off.

What is the worst thing that could happen if my business fails?What is the worst thing that could happen if my business fails? How likely is it that the worst to happen?How likely is it that the worst to happen? What can I do to lower the risk that my business will fail?What can I do to lower the risk that my business will fail? What is my contingency plan for coping if my business fails?What is my contingency plan for coping if my business fails?


Long hours and hard work Long hours and hard work » 10- to 12-hour days and six- or seven-day workweeks with no 10- to 12-hour days and six- or seven-day workweeks with no

paid vacations.paid vacations.» Owners experience intense, draining workdays.Owners experience intense, draining workdays.

Lower quality of life until the business gets establishedLower quality of life until the business gets established» The workload can take a toll on the entrepreneur’s personal life The workload can take a toll on the entrepreneur’s personal life

and family.and family.» Most launch their business when they are between 25 and 34, Most launch their business when they are between 25 and 34,

just as their families are starting.just as their families are starting.» Figure 1.2.Figure 1.2.

High levels of stressHigh levels of stress» Running your own business is highly stressful.Running your own business is highly stressful.» Failure can mean total financial ruin.Failure can mean total financial ruin.

Complete responsibilityComplete responsibility» Entrepreneurs end up taking on issues with which they are Entrepreneurs end up taking on issues with which they are notnot

knowledgeable.knowledgeable.» The owner is the business.The owner is the business.

DiscouragementDiscouragement» Requires much dedication, discipline, and tenacity. Requires much dedication, discipline, and tenacity. » Entrepreneurs will run headlong into many obstacles, some of Entrepreneurs will run headlong into many obstacles, some of

which may appear to be insurmountable. which may appear to be insurmountable. » Discouragement and disillusionment can set in.Discouragement and disillusionment can set in.

11%

33% 32%

16%

6%2%

0%

5%

10%

15%

20%

25%

30%

35%

Under 25 25-34 35-44 45-54 55-64 65 andover

Age

Owner Age at Business Formation


Feeding the Entrepreneurial FireFeeding the Entrepreneurial Fire

Entrepreneurs as heroesEntrepreneurs as heroes Entrepreneurial educationEntrepreneurial education Economic and demographic factorsEconomic and demographic factors Shift to a service economyShift to a service economy


Feeding the Entrepreneurial FireFeeding the Entrepreneurial Fire

Technological advancementsTechnological advancements Independent lifestylesIndependent lifestyles E-Commerce and the World Wide E-Commerce and the World Wide

WebWeb International OpportunitiesInternational Opportunities


Trends in EntrepreneurshipTrends in Entrepreneurship Young EntrepreneursYoung Entrepreneurs

» Generation X, people born between 1965 Generation X, people born between 1965 and 1980, is the most entrepreneurial and 1980, is the most entrepreneurial generation in history. generation in history.

» Members of this generation are responsible Members of this generation are responsible for 70 percent of all business start-ups! for 70 percent of all business start-ups!

» Recent surveys have found that 60 percent Recent surveys have found that 60 percent of 18-to 29-year-olds say they hope to of 18-to 29-year-olds say they hope to launch their own businesses. launch their own businesses.

» ““Generation X” might be more Generation X” might be more appropriately called “Generation E.”appropriately called “Generation E.”


Women EntrepreneursWomen Entrepreneurs» Small business has been a leader in offering Small business has been a leader in offering

women opportunities for economic expression women opportunities for economic expression through employment and entrepreneurship. through employment and entrepreneurship.

» Increasing numbers of women are discovering Increasing numbers of women are discovering that the best way to break the "glass ceiling" that the best way to break the "glass ceiling" that prevents them from rising to the top of that prevents them from rising to the top of many organizations is to start their own many organizations is to start their own companiescompanies


» Women are opening businesses at a rate twice Women are opening businesses at a rate twice that of the national averagethat of the national average

» Women are launching businesses in fields that Women are launching businesses in fields that traditionally have been male-dominated.traditionally have been male-dominated.

0.0

2.0

4.0

6.0

8.0

10.0

Mill

ion

s o

f B

us

ine

ss

es

1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999

Women-Owned Businesses


Part-time entrepreneursPart-time entrepreneurs Permits people to try it with low-risk.Permits people to try it with low-risk. A large number of governments servant are self-employed A large number of governments servant are self-employed

part-time.part-time. Use it to "test the waters."Use it to "test the waters."

Home-based businessesHome-based businesses» 53% of all businesses are home-based, but about 80 53% of all businesses are home-based, but about 80

percent of them are very small with no employees. percent of them are very small with no employees.

» The biggest advantage is the cost savings of not The biggest advantage is the cost savings of not having to lease or buy an external location.having to lease or buy an external location.

» They also enjoy the benefits of flexible work and They also enjoy the benefits of flexible work and lifestyles. lifestyles.

» Studies suggest that the success rate for home-based Studies suggest that the success rate for home-based businesses is high.businesses is high.

Trends in EntrepreneurshipTrends in Entrepreneurship


Managing a Successful Home-Based Managing a Successful Home-Based Business. Business.

Do your homework Do your homework Find out what your Find out what your

zoning restrictions are zoning restrictions are Choose the most efficient Choose the most efficient

location for your officelocation for your office Focus your home-based Focus your home-based

business ideabusiness idea Discuss your business Discuss your business

rules with your familyrules with your family Select an appropriate Select an appropriate

business namebusiness name Buy the right equipmentBuy the right equipment Dress appropriatelyDress appropriately Learn to deal with Learn to deal with

distractionsdistractions Realize that your phone Realize that your phone

can be your best friend ... can be your best friend ... or your worst enemyor your worst enemy

Be firm with friends and Be firm with friends and neighborsneighbors

Take advantage of tax Take advantage of tax breaksbreaks

Make sure you have Make sure you have adequate insurance adequate insurance coveragecoverage

Understand the special Understand the special circumstances under circumstances under which you can hire which you can hire outside employeesoutside employees

Be prepared if your Be prepared if your business requires clients business requires clients to come to your hometo come to your home

Get a post office boxGet a post office box Network, network, Network, network,

network network Be proud of your home-Be proud of your home-

based businessbased business


Trends in EntrepreneurshipTrends in Entrepreneurship Family businessesFamily businesses

» Only 33% of family businesses survive to the Only 33% of family businesses survive to the second generation; just 12% make it to the second generation; just 12% make it to the third generation; and only 3% survive to the third generation; and only 3% survive to the fourth generation and beyond. fourth generation and beyond.


CopreneursCopreneurs

» Entrepreneurial couples who work together as co-owners of Entrepreneurial couples who work together as co-owners of their businesses.their businesses.

» Companies co-owned by spouses represent one of the fastest Companies co-owned by spouses represent one of the fastest growing business sectors. growing business sectors.

» Some of the characteristics they rely on include:Some of the characteristics they rely on include: personalities that mesh.personalities that mesh. mutual respect.mutual respect. compatible goals.compatible goals. equal partnership.equal partnership. complementary business skills.complementary business skills. open communication.open communication. clear division of roles and authority.clear division of roles and authority. ability to encourage each other.ability to encourage each other. separate work spaces.separate work spaces. boundaries between work and personal life.boundaries between work and personal life. a sense of humor.a sense of humor. may not work with every couple.may not work with every couple.


Corporate castoffsCorporate castoffs As major companies have "trimmed their ranks," many of As major companies have "trimmed their ranks," many of

these displaced workers have launched their own these displaced workers have launched their own companies.companies.

20% of these managers start their own companies.20% of these managers start their own companies. An entrepreneurial offense is the best defense to corporate An entrepreneurial offense is the best defense to corporate

layoffs.layoffs.

Corporate dropoutsCorporate dropouts Downsizing has diminished employee loyalties.Downsizing has diminished employee loyalties. Many are striking out on their own for more opportunity, Many are striking out on their own for more opportunity,

better income, and more “job security.”better income, and more “job security.”

Service40%

Retail20%

Construction12%

Wholesale8%

Manufacturing6%

Finance8%

Other6%

A Profile of Small Business by Industry


Small Businesses...Small Businesses...

make up 56% of all the businesses make up 56% of all the businesses in Pakistan.in Pakistan.

employ 52% of the nation's employ 52% of the nation's private sector workforce.private sector workforce.

create more jobs than big create more jobs than big businesses.businesses.

lead the way in training workers lead the way in training workers for jobs. for jobs.


Small Businesses...Small Businesses...

produce 51% of the nation's GDP.produce 51% of the nation's GDP. account for 47% of business sales.account for 47% of business sales.

0%

20%

40%

60%

80%

100%

% o

f Sm

all F

irm

s S

urv

ivin

g

New 2 4 6 8 10

# of Years in Business

Small Business Survival Rate


The Small Business Failure The Small Business Failure RecordRecord

24% of new businesses fail after two 24% of new businesses fail after two years.years.

51% fail within four years.51% fail within four years. 60% fail within six years.60% fail within six years.


Nine Deadly Mistakes of Nine Deadly Mistakes of EntrepreneurshipEntrepreneurship

Management incompetenceManagement incompetence Lack of experienceLack of experience UndercapitalizationUndercapitalization Poor cash managementPoor cash management Lack of strategic managementLack of strategic management


Nine Deadly Mistakes of Nine Deadly Mistakes of EntrepreneurshipEntrepreneurship

Weak marketing effortWeak marketing effort Uncontrolled growthUncontrolled growth Poor locationPoor location Lack of inventory controlLack of inventory control Inability to make the Inability to make the

“entrepreneurial transition” “entrepreneurial transition”


Putting Failure Into PerspectivePutting Failure Into Perspective

Failure is a natural part of the creative Failure is a natural part of the creative process.process.

Failures are simply stepping stones along Failures are simply stepping stones along the path to success. the path to success.

The “secret” to success is the ability to The “secret” to success is the ability to fail fail intelligentlyintelligently, learning why you failed , learning why you failed so that you can avoid making the same so that you can avoid making the same mistake again. mistake again.


How to Avoid the PitfallsHow to Avoid the Pitfalls

Know your business in depth.Know your business in depth. Prepare a business plan.Prepare a business plan. Manage financial resources.Manage financial resources. Understand financial statements.Understand financial statements. Learn to manage people effectively.Learn to manage people effectively. Set your business apart from the Set your business apart from the

competition. competition. Keep in tune with yourself.Keep in tune with yourself.

chap 01 entrepreneur the driving force behind small business

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