Chapter 6 Managing Small Business Start-ups

Chapter 6
Managing Small Business
Group 2
Hazel G. De Mesa
Gregorio M. Cudiamat
Fritzie P. Tangkia-Fabricante
Christopher L. De Jesus
Ma. Dolorosa E. Ferrer
Learning Objectives:
1. Define the personality characteristics of an
2. Explain social entrepreneurship as a vital part of
today’s small business environment.
3. Outline the necessary steps in launching a small
4. Describe 5 stages of growth for an entrepreneurial
5. Explain relationship of management functions to a
growing entrepreneurial company.
What is Entrepreneurship?
 It is the process of initiating a business venture,
organizing the necessary resources, and assuming the
associated risks and rewards.
What is an entrepreneur?
*Someone who engages in entrepreneurship.
*Recognizes a viable idea for a business or product.
*Finds & assembles resources to undertake the
business venture.
*Assume financial, legal risks and reap the rewards
thru profits.
Small Business Categories
Thrive on the challenge
Of building a more profitable
Works on something new
Creative, meaningful.
Get personal satisfaction
From being business owners.
Hard workers
Enjoy the act of balancing
Work & personal life.
Likes the chance a small
Business gives them to handle
everything themselves.
Thrive on pressure of paying bills
meeting deadlines and meeting
Statistics on World’s Most Entrepreneurial Countries
New Zealand
%of Individuals
%of Individuals
The table shows % of individuals Age 18- 64 Active in Starting/Managing a Small Business.
Reasons why small business is a dynamic part of today’s
1. Economic Changes
2. Globalization & Increased Competition
Economy is a fertile soil for entrepreneurs. It
provides opportunities for small businesses because
medium and large sized companies tend to outsource
services to help them focus on operational aspects
that provides greater impact for them.
Entrepreneurs find bigger opportunities in
Globalization in the sense that it demands an
entrepreneurial behavior of flexibility and
responsiveness. Small business are more resilient
that even the largest companies can
no longer dominate their industry.
3. Technology
4. New Opportunities/Market Niches
Rapid advances and the affordability of computer
technology has introduced new methods of
producing and delivering goods which are within
reach of even the smallest companies. Technology
has enabled businesses to sell products & services
improved productivity, communications & customer service and obtain information about competition & the market they are in.
Small business also capitalize on the sustainability
movement, tapping new business opportunities
towards corporate social responsibility.
Small Business
Job Creation
Research shows that the age of the company
more than its size determine the number of
job it creates. All new jobs in recent years
were created by new companies.
Statistics says that 55% of innovations in 362
different industries were traced to small and
new companies. Small firms filing for patents
has 13-14 times more patents than large firms.
Impact of Small Business
Personality Traits of Entrepreneurs
Internal Locus of Control
High Energy Level
Need to Achieve
Self Confidence
Awareness of Passing Time
Tolerance for Ambiguity
Is the belief that individuals that their future is within their control and that
external forces have little influence. An external locus of Control is the belief
that their future is not within their control but rather is influenced by external
Persistence and putting long hours of work despite the difficulties and struggles.
starting up for entrepreneurs requires great effort and a level of energy to
surpass all obstacles.
Entrepreneurs are motivated to excel and pick situations in which success is likely.
Here a SMART-C goal; Specific, Measurable, Attainable, Realistic, Time-bound
and Challenging, are formulated. They could also be short term, medium term and
long term goals.
Confidence is a must in terms of mastering the day to day activities of managing the
business, anticipating problems and handling these problems that involve customer
relations and the technical details to keep the business moving. Coupled with the
Confidence is the effective skill of decision making.
Patience is not in their vocabulary. They always have a feeling of urgency. They
create the momentum and seize it as if there is no tomorrow.
They are not troubled by disorder and uncertainty. They have the courage to take
both calculated and uncalculated risks.
What is Social Entrepreneurship?
It combines the creativity, business smarts, passion and hard work of the
traditional entrepreneur with a mission to change the world for the better.
Who is a Social Entrepreneur?
Social Entrepreneurs are leaders who are committed to both good business and
positive social change. They create business that meet critical human needs and
solve important problems that are unsolved by current economic & social
Their primary goal is improving the society rather than maximizing profits, but
they also emphasize solid business results, high performance standards and
Launching an Entrepreneurial Start-up
With the
Writing the
Choosing a
In pursuing the entrepreneurial dream, it all starts with the idea. Planning comes
next, then decisions on the legal structure should be made, followed by financing
then finally drawing out the action plans needed to keep the business moving.
With the
Entrepreneurs are inspired by new ideas.
Others decide they want to run their own business
And starts to look for ideas and opportunities.
Some Reasons for Starting a Business
1. Joined Family Business – 41%
2. Control the Future – 36%
3. Be your own Boss – 27%
4. Fulfill a Dream – 25%
5. Downsized/Laid off – 5%
Sources of New Business Ideas
1. In depth Understanding of
Industry – 37%
2. Market Niche Spotted – 36%
3. Brainstorming – 7%
4. Copying Someone else – 4%
5. Hobby – 4%
6. Other reasons – 11%
A Business
A Business Plan is a document specifying
the business details prepared by an
Entrepreneur prior to opening a business.
Characteristics of a good Business Plan
1. Demonstrate a clear, compelling vision that creates an air of excitement.
2. Provide clear & realistic financial projections.
3. Profile potential customers & target market.
4. Include detailed information about industry and competitors
5. Provide evidence of an effective entrepreneurial management team.
6. Pay attention to good formatting and writing.
7. Keep the plan short- at the most 50 pages.
8. Highlight critical risks that may threaten business success.
9. Spell out the sources and uses of start-up funds and operating funds.
10. Capture the reader’s interest with a killer summary.
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A Business
Business Plans are absolutely critical for
lenders. Studies show that small businesses
with a carefully thought-out written plan
are much more likely to succeed than those
without one.
Vital Parts of the Business Plan
I. The Executive Summary
II. The Business Description Segment
III. The Marketing Segment
IV. Research, Design & Development Segment
V. Manufacturing Segment
VI. The Management Segment
VII. The Critical Risks Segment
VIII.The Financial Segment
IX. The Milestone Schedule Segment
Before beginning a business, an
Entrepreneur should choose an
Appropriate legal structure for the
Sole Proprietorship
Choosing a
Sole Proprietorship is defined as an unincorporated business
owned by an individual for profit. This is easy to start because
it is easy and it has a few legal requirements. The drawback in
this type is the limited liability for the business resulting to a
higher risk.
A partnership is an unincorporated business owned by two or
more people. Partners share responsibility & resources & contribute their expertise. The disadvantage is the unlimited
liability of the partners and possibility of disagreements that
may somehow affect the business.
A corporation is an artificial entity created by the state and
existing apart from its owners. It is liable for its actions and
must pay taxes on its income. It has a legal life of its own,
and its liability is not limited to the owners, thus it continues
to exist even if the owners live or die.
Starting a business usually requires a significant amount
of funding. An investment is required to acquire the
manpower, materials and facilities needed to start the
Debt Financing
Borrowing money
that has to be repaid
at a later date in order
to start a business.
Angel Financing
Financing provided by
a wealthy individual
who believes in the
idea for a start-up and
provides personal funds
and advice to help the
Business get started.
Equity Financing
Venture Capital Firm
Financing the consists
of funds that are invested in exchange for
ownership in the
A group of companies
or individuals that
invests money in new
or expanding business
for ownership and
potential profits.
Sources of initial funding for small business start-ups.
3. Buy a Franchise
1. Start a New Business
The entrepreneur sees a product or
service that has not been done before.
The advantage is the owner designs the
Business based on how he liked it done.
The disadvantage is there is longer
time to realize profits due to lack of
client base and the common
mistakes new entrepreneurs make.
Franchising allows others to purchase the right to distribute the
Products and services with the
help from the owner. The advantage is that management help
is provided by the owner. Disadvantage is lack of control of the
owner in terms of exploring
other options to increase efficiency.
Tactics for Becoming a Business Owner
2. Buy an existing business
4. Business Incubator
An established business already has
systems in place, operating procedure,
existing customer base. The advantage
is the shorter time to get the business
running. The disadvantage is the need
to pay goodwill and the flexibility in
terms of introducing changes of
to the system for improvement.
A business incubator provides
shared office, management support
services & legal advice to entrepreneurs. The great value of this is the
expertise of a mentor, who serves
as advisor, model & ready access
to a team of professionals.
Five Stages of Growth for an Entrepreneurial Company
Main Problems are producing the product or
Service and obtaining customers.
Resource Maturity
The business demonstrates that it is a workable
Business entity. It produces the product & service
and it has sufficient customers. Concerns here
include finances.
The company is solidly based & profitable. Systems
& procedures are in place. The owner could stay
involved or turn the managing tasks to professional
Here the key problem is how to grow rapidly
& finance the growth. The owner must learn to
Delegate and the company must have sufficient
Capital to sustain the growth.
The company’s substantial financial
Gains may come at the cost of losing
Its advantages of small size, including
Flexibility and the entrepreneurial
Four Managerial Functions in Relation to Small Business Start-Ups
Planning is in the form of the Business Plan.
One Planning concern is to be Web Savvy.
The driving force in a small business
start ups is the leader’s vision.
The leader can signal values of
Service, efficiency, quality &
Ethics. The leader must learn
to motivate employees.
Managers must learn to delegate
and decentralize authority.
The organization must hire
competent managers who
could handle the fast growth
rate of the organization.
Financial control is important in the firm’s growth.
Control is exercised by simple accounting records
and by personal supervision. Operational budget are
in place and a structured system must be implemented.
Small & Medium Enterprises
in the Philippines
Small and medium
enterprises (SMEs) comprise
99.6% of all registered
business in the Philippines
and employ 70% of the
Source : SMED in the Philippines Survey (Google)
Recently, Republic Act No. 9178,
otherwise known as the
Barangay Micro Business
Enterprise (BMBE) Act of 2002
has redefined the categories.
Hence, the present structure,
by law, is as follows :
up to 3,000,000
P3,000,001 - 15,000,000
P15,000,001 - 100,000,000
above P100,000,000
Current State of SMEs in the
Philippine Economy
Number of Establishments and Employees
According to the statistics of business establishments
published by the National Statistics Office, there are
811, 589 business establishments in the country.
Of total, micro-enterprises account for 743,949
(97.1%), small enterprises 61,759 (7.6%), medium
enterprises 2, 923 (.4%), and large enterprises 2,958
Geographic Distribution
The analysis of geographic distribution
of enterprises throughout the country
indicates a high concentration in the
National Capital Region (NCR), which
accounts for 24.4% of all establishments
and 40.1% of all employees.
The five regions subject to the present study (NCR, Regions 3, 4, 7
and 11) hold a combined share of 65.0% of total establishments.
Similarly, the regions account for 72.1% of total employees. As a
result, around two-thirds of SMEs are concentrated in the five
The government is keen on helping small
to medium enterprises in terms of financial
assistance and thru the power of education.
Thru these initiatives, there is hope that the
Philippines could create more entrepreneurs
who are socially responsible & who will
contribute to the growth of the country’s
Group 2-Case Chapter 6. Emma’s Parlor
1. At what business sage is Emma’s Parlor? As what stage is her
Web-based organic tea business? What synergies exist between
the two businesses? How critical do you think these synergies are
to the success of each business?
Emma’s Parlor is in Stage 3.The business already has a enough
customers to make it profitable. And at point,, the owner, already
has a choice to consider hiring professional managers/supervisors
to take over the daily operations of the business. However, If
Emma, the owner, decides not to pursue any expansion or
diversification of her business, then , Emma’s Parlor is already in
Stage 5. Because , at this stage, the business already has
financial stability, manpower resources and a solid customer base.
The three factors determines if a company is matured or not.
Emma’s Web-Based Organic Tea Business is also in Stage 3. It
has a solid customer base and a level of sales that would make it
financially stable.
The Web-Based Organic Tea Business of Emma Lathbury, does
not only reach customers who are interested in buying Emma’s
product but also reached those who wants to avail of the services
that Emma’s Parlor has. Web Based Organic Tea Business of
Emma is also a means to gather customer feedback. Feedbacks
are important to gauge customer satisfaction. Some, if not most of
these customers, would look for a venue/place where these
special products are served. Emma’s Parlor becomes a place
where , not only can these customers experience, freshly made
tea, but also , a venue for other activities. The Web Based Tea
Business of Emma, does not only market the Tea itself, but also
the venue where these product are served. This is quite similar to
a coffee shop business.
In the food business, where competition is stiff, the entrepreneur
should find innovative ways of reaching out to customers. Faced
with an ever increasing cost of doing business, having an
substantial number of customers is a factor to determine growth
and stability.
2. How does Emma Lathbury fit the profile of the typical
entrepreneurs? Which of those traits are likely to continue to
serve her all, and which might be counterproductive at this stage
of her business?
An entrepreneur is someone who initiates a business venture,
organized the available resources and assumes the risks and
rewards. An entrepreneur exudes internal locus of control, high
energy level, need to achieve, self-confidence, awareness of
passing time, and tolerance for ambiguity.
Emma Lathbury had an idea of making and serving tea. Her
successs was mainly due to her own efforts from choosing a
location, putting up her tea house, blending different tea and
marketing these through her Web-Based Tea Business.
At this point, the trait that has always been a factor for her success
is would behaving a high energy level,awareness of the risk
involved and an internal locus of control. During the formative
years of a business, the entrepreneur needs to work for extended hours .
This would not be possible if a person has a low energy level which can
effect their interest, motivation and resourcefulness , factors that a
starting up business heavily relies on. Awareness of the risk and the
obstacles involved in starting a business is one advantage of an
entrepreneur may have. Identifying the risk involved in starting small
business is a lot better than relying on instincts. Some entrepreneurs
,even before the actual start of business operation , are discouraged if
they see that the risks are too great. But an entreprenur with an internal
locus of control, a belief that an individual has control of their future,
would think otherwise. In any other case, a business plan is usually the
most useful guide to operating a business.
Tolerance for Ambiguity might be a counterproductive trait of an
entrepreneur. Tolerance for ambiguity or uncertainty during the formative
years is different compared to when the business is already established.
Once a business becomes stable or matures, the entrepreneur might
overlooked some important factors or environmental conditions that has
an effect on the business. Factors like pricing, franchising, wholesale
and retail agreements, competition, labor laws, availability or scarcity of
materials can change the status of a business. So the entrepreneur has to
always prepare alternatives courses of action in preparation for
uncertainties in the future.
3. After listing the pros and cons for each of Emma’s
options and considering her personality, which course
of action would you recommend?
I think the best options for Emma is to delegate some of her
responsibility to a professional supervisor or manager. The food
business is a very competitive and physically demanding . As
business grows, there needs to be additional manpower to cater
for present and future customers. In addition to this, the number of
employees, strict compliance for government agencies like the
FDA and Department of Health ,IRS may require a lot of tedious
leg work. If these requirements coincides with the daily routine of
supervising the tea house, it will be very difficult for Emma to
meet all of these requirements alone . If Emma would hire a
professional manager, she could find better ways to serve the
customer, meet compliance requirements of the government
which I believe has stringent penalties, deal with suppliers and
creditors properly and some more task which would eventually
result in the conti continued success of the business. Knowing
Emma, she would always like to have a hand on the daily
operation of the business. She still could. This options is the best
for her.
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