Chapter 18Entrepreneurship and Small Business
EXPLORING MANAGEMENT
Chapter 18
• What is entrepreneurship and who are entrepreneurs?
• What should we know about small businesses and how to start one?
18.1
Entrepreneurship
• Entrepreneurs are risk takers who spot and pursue opportunities
• Entrepreneurs often share similar backgrounds and experiences
• Entrepreneurs often share similar personality traits
• Women and minority entrepreneurs are growing in numbers
• Social entrepreneurs seek novel solutions to pressing social problems
ENTREPRENEURSHIP
Entrepreneurs Are Risk Takers
• Entrepreneurship– Dynamic, risk-taking, creative, growth-
oriented behavior
• Entrepreneur– Person willing to pursue opportunities that
others fail to recognize or view as problems
ENTREPRENEURSHIP
Entrepreneurs Are Risk Takers
• First mover advantage– Exploiting a new market opportunity before
competitors
ENTREPRENEURSHIP
Entrepreneurs Are Risk Takers
• Successful entrepreneurs
Anita Roddick, founder of The Body Shop, PLC
Earl Graves, founder of Earl G. Graves Ltd, a multimedia company including Black
Enterprise.com
David Thomas, founder of Wendy's
Caterina Fake and Stuart Butterfield founders of Flickr
ENTREPRENEURSHIP
Entrepreneur Characteristics
• Similar backgrounds– Family environment– Career and work history– Windows of career opportunity
ENTREPRENEURSHIP
Entrepreneur Characteristics
• Intrapreneurs– Employees of a larger firm that display
entrepreneurial behavior such as developing a new product or process
ENTREPRENEURSHIP
Entrepreneur Characteristics
• Who are the entrepreneurs?
Internal locus of control High energy level High need for
achievementTolerance for
ambiguity Self-confidence Passion and action orientation Flexibility Self-reliance
ENTREPRENEURSHIP
Women and Minorities
• Women and minority entrepreneurs are growing in numbers
• Necessity-based entrepreneurship– People start a business because no other
employment opportunities exist
ENTREPRENEURSHIP
Social Entrepreneurs
• Social entrepreneurs – are driven by a social mission
• Poverty• Illiteracy• Health problems• Social opression
18.2
Small Businesses• Small businesses are mainstays of the economy• Small businesses must master three
life-cycle stages• Family owned businesses can face unique challenges• Most small businesses fail within five years• Assistance is available to help small businesses get
started• A small business should start with a sound business
plan• There are different forms of small business ownership• There are different ways of financing a small business
SMALL BUSINESS
Importance of Small Business
• Small business– Fewer than 500 employees
• Small business statistics– Employ some 52 percent of private workers – Provide 51 percent of private-sector output – Receive 35 percent of federal government
contract dollars – Provide as many as 7 out of every 10 new
jobs in the economy
SMALL BUSINESS
Small Business Life Cycle
SMALL BUSINESS
Challenges
• Family owned businesses– Largest percentage of businesses worldwide– Feuds result when family members disagree
over how the business is run– Succession problem
• Who will run the business when the current head leaves?
• Succession plan outlines leadership transition and financial matters
SMALL BUSINESS
Challenges
• Most small businesses fail within five years– As many as 60% to 80% fail
SMALL BUSINESS
Small Business Assistance
• Business incubator– Provides services to help new businesses get
started
• Small Business Development Centers– Supported by Small Business Administration– Offer help to small business owners to set up
and manage their businesses
SMALL BUSINESS
Business Plans
• Business plan– Describes goals, operating plans and
financing for a new business– Banks want to see a well-developed business
plan before loaning money
SMALL BUSINESS
Forms of Ownership• Sole Proprietorship
– An individual or married couple pursuing business for a profit.
General Partnership
• The owners share management responsibilities.
Limited Partnership
• General partner manages the business
• Limited partners share profit but losses are limited to the amount of their investment
Limited Liability Partnerships
• Professional partnerships (accountants, doctors, lawyers) limits the liability of the partners
SMALL BUSINESS
Forms of Ownership• Partnership
– Two or more people agree to contribute resources to start and operate a business together.
SMALL BUSINESS
Forms of Ownership• Corporation
– A legal entity that exists separately from its owners
• Limited Liability Company (LLC)– A combination of sole proprietorship,
partnership, and corporation.• Protects owners against personal loss other than
what is invested in the company• Treated as a proprietorship or partnership for tax
purposes
SMALL BUSINESS
Financing• Debt Financing
– involves borrowing money from another person, a bank, or a financial institution.
• Equity Financing– involves exchanging ownership shares for outside
investment monies.
• Venture Capitalists – Involves making large investments in new ventures in
return for an equity stake in the business.
SMALL BUSINESS
Financing
• Angel Investor– A wealthy individual willing to invest in return
for equity in a new venture.
• Initial Public Offering (IPO)– An initial selling of shares of stock to the
public at large.