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Managing Small Business Start-Ups
CHAPTER 6
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Learning Objectives
Describe the importance of entrepreneurship to the U.S. economy.
Define the personality characteristics of a typical entrepreneur.
Explain social entrepreneurship as a vital part of today’s small business environment.
Outline the planning necessary to launch an entrepreneurial start-up.
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Learning Objectives (contd.)
Describe the five stages of growth for an entrepreneurial company.
Explain how the management functions of planning, organizing, leading, and controlling apply to a growing entrepreneurial company.
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Entrepreneurship
● Process of initiating a business venture● Organizing the necessary resources● Assumes associated risks and rewards
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Five types of Small Business Owners
Idealists24%
Optimizers21%
Hard Workers
20%
Jugglers20%
Sustainers15%
Rewarded by chance to work on something new and creative
Thrive on the challenge of building a larger, more profitable business
Enjoy chance to balance work and personal life
Get personal satisfaction from being a business owner
High energy people who enjoy handling every detail of their own business
SOURCE: Study conducted by Yankelovish Partners, reported in Mark Henricks, “The-Cast,” Entrepreneur (March 2000), 14-16.
Exhibit 6.1
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Entrepreneurship and the Environment
Turbulence in the technology sector and the demise of many dot-com start-ups = heightened concerns about small companies competing against big business
Entrepreneurship and small business– are vital, dynamic increasing important parts
of U.S. economy
– are booming in other countries
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Why Small Business Today?
Economic changes
Globalization
Advancing technology
Increased competition
New market niches
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Definition of Small Business
● Definition used by SBA detailed and complex ● Independently owned and operated● Not dominant in its field of operation● Definition in the process of being revised
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Examples of SBA Definition of Small Firms
Exhibit 6.3
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Impact of Entrepreneurial Companies Generate over 50 percent of nonfarm GDP 97 percent of U.S. exports 2.6 percent of export value Employ over 50 percent of nonfarm private sector Businesses with fewer than 500 employees
represent 99.7 percent of all the firms with employees in the U.S.
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Who Are Entrepreneurs?
Diversity of Entrepreneurs– Often have distinguishing backgrounds and
demographics – 1st born, children of immigrants
– Emerging growth companies of the next decade
Women-owned businesses: in 2005, 6.5 million businesses that generated $950.6 in revenues and employ over 7 million
Minority-owned businesses: growing 17% per year with African American growing the fastest
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Characteristics of Entrepreneurs
Awareness of Passing Time High Energy Level
Need to Achieve
Tolerance for Ambiguity
Self-Confidence
EntrepreneurialPersonality
Source: Adapted from Charles R. Kuehl and Peggy A. Lambing, Small Business: Planning and Management (Ft. Worth: The Dryden Press, 1994),45.
Internal Locus of Control
Exhibit 6.5
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Hours Worked per Week byOwners of New Businesses
0
5
10
15
20
25
30
Less than 50 50-59 60-69 70-79 More than 80
Perc
ent %
of N
ew
Bus
ines
s O
wne
rs
SOURCE: National Federation of Independent Business, Reported in Mark Robichaux, “Business First, Family Second,” The Wall Street Journal, May 12, 1989,B1.
Exhibit 6.6
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Sources of Entrepreneurial Motivation and New-Business Ideas
To Control My Future
To Fulfill a DreamTo Be My Own Boss
Downsized/Laid Off
Reasons for Starting a Business
In-depth Understandingof Industry/Profession
Market Niche Spotted
BrainstormingCopying Someone ElseHobby
Other
37%
36%7%
44
Source of New-Business Ideas
Source: “The Rewards,” Inc. State of Small Business, 2001, May 29 2001, 50-51; and Leslie Brokaw, “How To Start an Inc. 500 Company,” Inc. 500, 1994, 51-65.
Joined Family Business41%
36%27%25%5%
11%
Exhibit 6.7
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Business Plan
Document specifying the business details prepared by an entrepreneur prior to opening a new business
Clear visionRealistic financial projectionsTarget marketIndustry and competitorsManagement teamCritical risks that could threaten success
Sources & uses of start-up funds & operating funds
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Becoming A Business Owner
● Sole Proprietorship = unincorporated business owned by an individual for profit
● Partnership = unincorporated business owned by two or more people
● Corporation = artificial entity created by the state and existing apart from its owners.
3 Basic Legal Forms
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Financing Resources
● Crucial concern for entrepreneurs
Debt Financing – money to be repaid at a later date
Equity Financing – funds invested in exchange for ownership in the company
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Tactics
Start a New Business– Advantage – develop and design own way– Disadvantage – long time to get off ground and to
make profitable
Buy an Existing Business– Advantage – shorter time and existing track record– Disadvantage – need to pay for goodwill
Ways to Become a Business Owner
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Tactics
Buy a Franchise = an agreement to sell a product or service with help from the owner– Advantage – management help is provided
by owner– Disadvantage – lack of control
Participate in a Business Incubator = shared office space, management, support services, management advice
Ways to Become a Business Owner
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Five Stages of Growth For an Entrepreneurial Company
Exhibit 6.10
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Managing a Growing Business
Planning– Defining goals and deciding on the tasks and use
of resources needed to attain them– As organization grows, formal planning usually is
not instituted until around the success stage– Business plan must be living document
Planning concern – small businesses need to be Web-savvy
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Managing a Growing Business
Organizing– 1st two stages typically very informal– At 3rd stage, success, functional managers are
hired– Rules and regulations, procedural manuals– Latter stages, delegation
Outsourcing – organizing approach
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Managing a Growing Business
Leading– Early stages – leader’s vision– By success stage, must learn to motivate
employees or bring in managers who can– Need for active communication
Leadership is important because many small firms have a hard time hiring qualified employees
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Managing a Growing Business
Controlling– Financial control – important in each stage– Initial stages – exercised by simple
accounting records and by personal supervision
– By 3rd stage, operational budgets are in place; structured control systems
Control Techniques become more sophisticated as the firm matures