Management Presentation Chapter 5

Management Presentation Chapter 5 Management Presentation Chapter 5 Management Presentation Chapter 5 Management Presentation Chapter 5 Management Presentation Chapter 5 Management Presentation Chapter 5 Management Presentation Chapter 5 Management Presentation Chapter 5

The Nature of Entrepreneurship

– A business that is privately owned by one individual

or a small group of individuals.

– It has sales and assets that are not large enough to influence its environment.

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Question: What is your dream? What opportunities do you see in the market?

The Role of Entrepreneurship in Society

– Most U.S workers work for small businesses.

– The majority of small businesses are owner-operated – Small business is a strong presence in both mature and emerging economies.

– Small business has a strong effect on job creation, innovation, and is important to big businesses.

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Q: Have you work for a small company or start-up?

FIGURE 5.1 The Importance of Small Business in the United States

Approximately 86 percent of all U.S businesses employ fewer than 20 people; another 11.7 percent employ between 20 and

99 people In contrast, only about 2.1 percent employ between

100 and 400 workers, and another 0.2 percent employ 500 or more.

24.5 percent of all U.S workers are employed by firms with fewer than 20 people; another 29.6 percent work in firms that employ between 20 and 99 people 25.5 percent of U.S workers are employed by firms with 100–499 employees, and another 20.3 percent work for businesses that employ 500 or more total employees.

Source: US Census Bureau, 2010

Entrepreneurship’s Role in Society

• Small Businesses’ Role in Job Creation

– Create many of the new jobs in the U.S.

– Dominate sectors that have added the most jobs.

– Represent 92% of all U.S exporters.

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Strategy for Entrepreneurial Organizations

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Emphasizing distinctive competencies

Gaining first mover advantage

Choosing an industry in which

to compete

Basic Strategic Challenges

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FIGURE 5.3 Small Business (businesses with fewer than 20 employees)

by Industry

Small businesses create many new innovative products

and services Services are the fastest growing segment of small- business enterprise.

In this case, smaller firms may be able to compete more effectively with larger ones because of the drop in per-unit

manufacturing cost.

FIGURE 5.4 Economies of Scale in Small-Business Organizations

Strategically Utilizing Distinctive Competencies

Identifying new markets

Taking first-mover

advantage

Identifying niches

in established markets

Seeking Competitive

Advantage

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Emphasizing Distinctive Competencies

• Identifying niches in an established market

– Finding part of a market not currently being exploited can offer a competitive advantage.

• Identifying new markets

– Transferring an existing product/service to a new market can create new industries/products/services.

• Taking first-mover advantage

– Exploiting a market opportunity before any other firm does can result in a competitive advantage.

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Q: Why do you think small businesses are better at discovering the niches than are large businesses?

Writing a Business Plan

• Business Plan

– Is a document that summarizes business strategy and structure.

– Should include:

• Business goals and objectives.

• Strategies used to achieve these goals and objectives.

• A plan of how the entrepreneur will implement these strategies.

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Entrepreneurship and International Management

• There is potential for expansion and growth in foreign markets.

• While there are risks, entering a foreign country’s market can be

a real catalyst for success.

• Technology, especially the Internet, has proven to be very helpful to small, international businesses.

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Starting a New Business

• Buying an Existing Business

– Business has a proven ability to draw customers and make a profit.

– Networks are already established.

– Negative: New owners inherit existing problems.

• Starting from Scratch

– Avoids problems associated with previous owners – Allows freedom to choose suppliers, equipment, location, and workers.

– Negative: More business risk and uncertainty.

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Identifying a Business Opportunity

Who are my customers?

Where are they?

At what price will they buy my product?

In what quantities will they buy?

Who are my competitors?

How will my product differ from those of my competitors?

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Financing the New Business

Venture Capital Companies

Small-Business Investment Companies

SBA Financial Programs

Sources of New Business Financing

Personal Resources

Strategic Alliances

Lenders

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Financing the New Business

• Personal Resources

– Using own money and money borrowed from friends and relatives to finance the business.

• Strategic Alliances

– Partnering with established firms such as suppliers in a mutually beneficial

• Venture Capital Companies

– Groups of small investors who provide capital funds to small high-growth potential start-up firms in exchange for an equity position (stock)

in the firms.

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Financing the New Business (cont’d)

• SBA Financial Programs

– Provide assistance (e.g., SBA-guaranteed loans) for small businesses unable to get private financing at reasonable terms.

• Small-Business Investment Companies (SBICs)

– Are investor-owned companies that borrow money from the SBA to loan to small business with high growth potential.

– Minority Enterprise Small-Business Investment Companies (MESBICs) specialize in financing businesses owned by minorities.

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Seeking New Business Advice

Advisory Boards

Management Consultants

Small Business Administration

Networking with Others

Sources of Management Advice

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Sources of Help for Entrepreneurs

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• Franchising Agreement

– Operation of the franchised business

by the entrepreneur (the franchisee) under a license by a parent firm (the franchiser).

– The entrepreneur pays the parent firm for use of trademarks, products,

formulas, and business plans.

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Franchising (cont’d)

• Advantages

– Reduced financial risk

of new business success through experience provided by franchiser.

– Training, financial, and management support

by franchiser.

• Disadvantages

– Start-up fees to purchase franchise.

– Limitations of franchise (market area, product, customers).

– Loss of independence due to imposed

operational controls of franchiser.

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certain product or service or otherwise on a password-protected website for classroom use

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duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use

FIGURE 5.5 Business Start-Up Successes and Failures

The Performance of Entrepreneurial Organizations

Crossovers to small business

by former large-business

employees

The emergence

of E-commerce

Trends in New Business Start-Ups

Better survival rates for small businesses

Increased entrepreneurial opportunities for minorities

and women

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Studies show that 40 percent of all new businesses will survive at least six years

Entrepreneurial Success and Failure

• Reasons for Failure

– Managerial incompetence/

inexperience of the entrepreneur.

– Neglect in not devoting sufficient time and effort to the business.

– Weak control systems that

do not warn of impending problems.

– Insufficient capital to sustain the business until it starts to turn a profit.

• Reasons for Success

– Hard work, drive, and dedication by the

entrepreneur.

– Careful analysis of market conditions provides insights about business conditions – Managerial competence through training and

experience contributes to success.

– Luck sometimes plays a role.

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certain product or service or otherwise on a password-protected website for classroom use

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