PowerPoint Presentation
to Accompany
Management
Third Canadian Edition
John R. Schermerhorn, Jr.
Barry Wright
Prepared by: Jim LoPresti
University of Colorado, Boulder
Revised by: Dr. Shavin Malhotra
Ryerson University, Toronto, Ontario
Chapter 5:
Entrepreneurship and Small
Business Management
Management Fundamentals - Chapter 5
22
Chapter 5 Learning Objectives
• 5.1 Define entrepreneurship and list the
characteristics of entrepreneurs.
• 5.2 Describe various types of small
businesses and explain why many small
businesses fail.
• 5.3 Outline how to create a new venture.
Management Fundamentals - Chapter 5
33
The Nature of Entrepreneurship
 Entrepreneurship
• Strategic thinking and risk-taking behaviour that
results in the creation of new opportunities for
individuals and/or organizations.
 Entrepreneurs
• Risk-taking individuals who take actions to pursue
opportunities and situations others may fail to
recognize or may view as problems or threats.
Management Fundamentals - Chapter 5
44
The Nature of Entrepreneurship

Entrepreneurs are …
• Founders of businesses that become large-scale
•
enterprises.
People who:
• Buy a local franchise outlet
• Open a small retail shop
• Operate a self-employed service business
• People who introduce a new product or
operational change in an existing organization.
Management Fundamentals - Chapter 5
55
The Nature of Entrepreneurship

Typical characteristics of entrepreneurs:
• Internal locus of control
• High energy level
• High need for achievement
• Tolerance for ambiguity
• Self-confidence
• Passion and action-orientation
• Self-reliance and desire for independence
• Flexibility
Management Fundamentals - Chapter 5
66
The Nature of Entrepreneurship
Figure 5.2 Personal traits and characteristics of entrepreneurs.
Management Fundamentals - Chapter 5
77
The Nature of Entrepreneurship

Typical entrepreneurial backgrounds and
experiences:
• Parents were entrepreneurs or self-employed.
• Families encouraged responsibility, initiative, and
•
•
•
•
•
independence.
Have tried more than one business venture.
Have relevant personal or career experience.
Become entrepreneurs between 22 and 45 years of age.
Have strong interests in creative production and
enterprise control.
Seek independence and sense of mastery.
Management Fundamentals - Chapter 5
88
The Nature of Entrepreneurship

Reasons for women and member of visible
minorities becoming entrepreneurs:
• Out of necessity (necessity-based entrepreneurship)
• Gain economic independence.
• Provide a pathway to career success that may be
blocked otherwise.
Management Fundamentals - Chapter 5
99
The Nature of Entrepreneurship

Common myths about entrepreneurs:
• Entrepreneurs are born, not made.
• Entrepreneurs are gamblers.
• Money is the key to entrepreneurial success.
• You have to be young to be an entrepreneur.
• You must have a degree in business to be an
entrepreneur.
Management Fundamentals - Chapter 5
10
10
The Nature of Entrepreneurship

Social Entrepreneurship:
• A unique form of ethical entrepreneurship that
seeks novel ways to solve pressing social
problems.
• Social enterprises have a social mission to help
make lives better for underserved populations.
Management Fundamentals - Chapter 5
11
11
Entrepreneurship and Small Business

Small businesses …
• Ones with 100 or fewer employees.
• Independently owned and operated.
• 48 percent of the private labour force works in
small businesses.
• Accounts for 23% of Canada’s GDP.
• Are established by:
• Starting a new business.
• Buying an existing business.
• Buying and running a franchise.
Management Fundamentals - Chapter 5
12
12
Entrepreneurship and Small Business

Internet or Web-based Entrepreneurship
• Internet entrepreneurship is the use of the
internet to pursue an entrepreneurial venture.
• The Internet offers numerous entrepreneurial
opportunities.
• Nearly 85% of small businesses are conducting
business over the internet.
Management Fundamentals - Chapter 5
13
13
Entrepreneurship and Small Business

Web-based business models include:
• Advertising model
• Brokerage model
• Community model
• Freemium model
• Infomediary model
• Merchant model
• Referral model
• Subscription model
Management Fundamentals - Chapter 5
14
14
Entrepreneurship and Small Business

Family businesses …
• Owned and financially controlled by family
•
•
•
members.
Largest percentage of businesses worldwide.
Can provide an ideal business situation.
Problems unique to family businesses:
• Family business feud
• Succession problem
Management Fundamentals - Chapter 5
15
15
Entrepreneurship and Small Business

Reasons for small business failures:
• Lack of experience
• Lack of expertise
• Lack of strategy and strategic leadership
• Poor financial control
• Growing too fast
• Insufficient commitment
• Ethical failure
Management Fundamentals - Chapter 5
16
16
Entrepreneurship and Small Business
Figure 5.3 Eight reasons why many small businesses fail.
Management Fundamentals - Chapter 5
17
17
New Venture Creation

Important issues in new venture creation:
• Does the entrepreneur have good ideas and the
courage to give them a chance?
• Is the entrepreneur prepared to meet and master the
test of strategy and competitive advantage?
• Can the entrepreneur identify a market niche that is
being missed by other established firms?
• Can the entrepreneur identify a new market that has
not yet been discovered by existing firms?
• Can the entrepreneur generate first-mover advantage
by exploiting a niche or entering a market before
competitors?
Management Fundamentals - Chapter 5
18
18
New Venture Creation

Life cycle of entrepreneurial firms
• Birth stage
• Breakthrough stage
• Maturity stage

Each stage poses different managerial
challenges and requires different managerial
competencies.
Management Fundamentals - Chapter 5
19
19
New Venture Creation
Figure 5.4 Stages in the life cycle of an
entrepreneurial firm.
Management Fundamentals - Chapter 5
20
20
New Venture Creation

Basic items that should be included in a
business plan:
• Executive summary
• Industry analysis
• Company description
• Product and services description
• Market description
• Marketing strategy
• Operations description
• Staffing description
• Financial projection
• Capital needs
• Milestones
Management Fundamentals - Chapter 5
21
21
New Venture Creation

Forms of legal ownership
• Sole proprietorship
• Partnership
• General partnership
• Limited partnership
• Limited liability partnership
• Corporation
• Limited liability corporation (LLC)
Management Fundamentals - Chapter 5
22
22
New Venture Creation

Financing the new venture
• Sources of outside financing
• Debt financing
• Equity financing
• Equity financing alternatives
• Venture capitalists
• Initial public offerings
• Angel investors
Management Fundamentals - Chapter 5
23
23
COPYRIGHT
Copyright © 2014 John Wiley & Sons Canada, Ltd. All
rights reserved. Reproduction or translation of this work
beyond that permitted by Access Copyright (The
Canadian Copyright Licensing Agency) is unlawful.
Requests for further information should be addressed to
the Permissions Department, John Wiley & Sons Canada,
Ltd. The purchaser may make back-up copies for his or
her own use only and not for distribution or resale. The
author and the publisher assume no responsibility for
errors, omissions, or damages caused by the use of these
programs or from the use of the information contained
herein.