EXPLORING MANAGEMENT
Chapter 18
Entrepreneurship
and Small Business
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, growthoriented 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
achievement
Tolerance for
ambiguity
Selfconfidence
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.
SMALL BUSINESS
Forms of Ownership
• Partnership
– Two or more people agree to contribute resources to
start and operate a business together.
General
Partnership
• The owners
share
management
responsibilities.
Limited
Partnership
Limited Liability
Partnerships
• General partner
manages the
business
• Limited partners
share profit but
losses are limited
to the amount of
their investment
• Professional
partnerships
(accountants,
doctors, lawyers)
limits the liability
of the partners
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.