David StokesNicholas Wilson

Small Business Management and Entrepreneurship

Fifth Edition

Lecture outlineInternal and external influencesWhen and where to setupWhich industry or market to chooseSink or swim?Porter’s five force analysisWhy will small businesses excel?Critical survival factors

Internal influencesOwner-manager motivesPersonal attributesTechnical skillsManagement competencies

Marketing, finance, human resource management

Entrepreneurial management behaviorsOpportunity identification and exploitation,

resource coordination, networking, entrepreneurial decision making

External influencesMacro

PoliticalEconomicSocialTechnologicalInternational

MicroLocal economyMarketCompetitorsCustomers

When to set upLevels of unemploymentGovernment policiesProfitabilityInterest ratesPersonal savings and assetsConsumer expenditureStructural change

Where to set upGeographic areas with:

Population growthUnemploymentWealthWorkforce qualificationBusiness sizeHouse pricesLocal government spendingGovernment policy

Which industry and market to choose?Lets first differentiate between market and

industry.

Economies of scaleProduct differentiationSwitching costsAccess to distribution channelsGovernment policy

Impact of internetWhat can a business do to give it the best

possible chance of success on the internet?Niche or specialized productFlexible payment methodsSecure electronic paymentsMinimum capital investmentStock controlQuick and reliable logisticsHigh visibility on the internetProvide a comprehensive web site

Types of business closuresMost common types of business closures are:

Financial failuresNot meeting owner’s objectivesTechnical closuresSold on

Adjusting to uncertaintyWhy are small firms more likely to face

uncertainty compared to large firms?Inability to control pricesLack of market powerDependency on a small customer base

Small firms can face three types of uncertainty:Technical uncertainty

Unsure of the success of the product or service and the costs

Market uncertainty Entrepreneur does not know if the demand of the

product will existCompetitive uncertainty

How will entrepreneurs handle and deal with competition

Some problemsProblems that the small business owners are

likely to face with respect to uncertainty: Interest ratesCash flow and paymentsLow turnoverLack of skilled employeesTax burdenPremises, rent and rates InflationGovernment regulations and paperworkAccess to financeCompetition from big businessHigh rates of pay

Porter’s five force analysisPotential for Entry (barriers to entry)Power of BuyersPower of suppliersPotential for substitutesRivalry

In some industries large firms will have advantage over small firms but in some industries it is the other way.

Some industries may be fragmented into large number of smaller firms for the following reasons:Low entry barriersDiseconomies of scaleHigh creative contentPersonal serviceClose local controlNewness

Assignment Identify some critical survival factors in the

small business environment which help to determine whether a new venture will sink or swim.