Small Business Management Chapter 1 PDF

 1. Explain the importance of small business and entrepreneurship in our society. 2. Distinguish between the terms small business and entrepreneurial opportunity. 3. Explain the basic characteristics of entrepreneurs, and describe different kinds of entre...

 1. Explain the importance of small business and entrepreneurship in our society. 2. Distinguish between the terms small business and entrepreneurial opportunity. 3. Explain the basic characteristics of entrepreneurs, and describe different kinds of entrepreneurship. 4. Discuss the importance of understanding your motivations and perceptions related to owning a small business. 5. Describe five potential competitive advantages of small entrepreneurial companies over large firms. 6. Explain the concept of an entrepreneurial legacy and its challenges. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 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. 1–2  The Contributions of Small Business Small Businesses:  Represent 99.7% of all firms.  Employ over 50% of employees in the private sector.  Account for 43% of private payrolls.  Outperform larger companies in net job creation.  Hire 43% of high-tech employees  Represent 97.3% of all exporters.  Provide increased business ownership opportunities for minorities and self-employed degreed individuals. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 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. 1–3  1.1 Number of Firms with Fewer than 500 Employees by Industry (2009) © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–4 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Small Business Growth Potential and Profits High-Potential Venture (Gazelle)  Has great prospects for growth Attractive Small Firm  Provides substantial profits to its owner Microbusiness  Provides minimal profits to its owner Lifestyle Business  Permits the owner to follow a desired pattern of living © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–5 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  What Is a Small Business? Criteria for Defining Smallness in Business 1. Small in size relative to larger competitors (fewer than 100 employees) 2. Localized business operations (except marketing) 3. Financing supplied by one person or small group 4. Has the potential to become more than a “one-person show” © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 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. 1–6  Entrepreneurial Opportunities Entrepreneurial Opportunity  An economically attractive and timely opportunity that creates value for interested buyers or end users. Bootstrapping  Doing more with less in terms of resources invested in a business, and, where possible, controlling the resources without owning them. Success Stories  Table Occasions (El Paso, TX)  Blank Label (Boston, MA)  Tender Greens (Pasadena, CA) © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 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. 1–7  Who Are Entrepreneurs? Entrepreneurs are:  A person who starts and/or operates a business.  Individuals who discover market needs and launch new firms to meet those needs.  Risk takers who provide an impetus for change, innovation, and progress.  All active owner-managers (founders and/or managers of small businesses). © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 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. 1–8  Entrepreneurial Characteristics (Timmons and Spinelli) Commitment Commitment and and Determination Determination Motivation Motivation to to Excel Attitudes Leadership Leadership Excel Attitudes and and Behaviors Behaviors of of Creativity, Creativity, Entrepreneu Entrepreneu Self-Reliance, Self-Reliance, rs rs Opportunity Opportunity and and Obsession Obsession Adaptability Adaptability Tolerance Toleranceof of Risk, Risk, Ambiguity, Ambiguity, and and Uncertainty Uncertainty © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–9 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Strong Strong Commitment Locus of Control to the Business (Self-Reliance) (Tenacity) Characteristics of Successful Entrepreneurs Moderate Risk Takers (Financial, Career, Psychic Risks) © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–10 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  How to Fail as an Entrepreneur 1. Overestimate what you can do 2. Lack an understanding of the market 3. Hire mediocre people 4. Fail to be a team player, which is usually the result of taking oneself too seriously 5. Be a domineering manager 6. Fail to share ownership in the business in an equitable way © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–11 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Varieties of Entrepreneurship Founder (“Pure” Entrepreneur)  A person who brings a new firm into existence “Second Stage” Entrepreneur  An administrative entrepreneur who overseas the operations of a ongoing business Franchisee  An entrepreneur whose power is limited by the contractual relationship with a franchising organization Entrepreneurial Team  Two or more people working together as entrepreneurs  Is becoming more common © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–12 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  New Forms of Entrepreneurship Social Entrepreneurship  Is entrepreneurial activity whose goal is to find innovative solutions to society’s most pressing needs, problems, and opportunities. Social Entrepreneur  Seeks ways to solve societal and environmental problems that incorporate the triple bottom line of people, profits, and the planet. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 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. 1–13  Women Entrepreneurs More Women Entrepreneurs  More women than men are starting new businesses  Many businesses are now majority female-owned  Movement of women into nontraditional industries Problems Facing Female Entrepreneurs  Discrimination and difficulties related to gender  Lack of access to credit  Lack of networking connections  Balancing work and family life © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–14 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  The Importance of Mentors Mentors  Are knowledgeable persons who can offer guidance from their experience in a given field.  Teach entrepreneurs what and how to do.  Show them how to avoid mistakes.  Provide entrepreneurs encouragement when needed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–15 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Your Motivations for Owning a Business Being an entrepreneur:  Is extremely challenging.  Takes undying love and passion to keep going.  Can run in a family.  Can help make the world a better place.  Can make meaning in your life. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 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. 1–16  Is Owning a Small Business a Good Fit for You? 1. Am I passionate about my product or service? 2. What is my tolerance for risk? 3. Am I effective in making decisions? 4. Am I willing to take on numerous responsibilities? 5. Will I be able to avoid burnout? © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 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. 1–17  Why People Become Entrepreneurs Reluctant Entrepreneur  A person who becomes an entrepreneur as a result of some severe hardship. Refugee  A person who becomes an entrepreneur to escape an undesirable situation. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 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. 1–18  Artisan Entrepreneurs Artisan Entrepreneur  A person with primarily technical skills and little business knowledge who starts a business Characteristics:  Take a paternalistic approach  Are reluctant to delegate  Use few sources of capital  Have a traditional marketing strategy  Focus on personal sales effort  Have a short planning horizon © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–19 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Opportunistic Entrepreneurs Opportunistic Entrepreneur  A person with both sophisticated managerial skills and technical knowledge who starts a business Characteristics:  Broad-based education  Scientific approach to problems  Willing to delegate  Broad view of strategy  Diversified marketing approach  Longer planning horizon  Sophisticated accounting and financial control © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–20 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Millennial Entrepreneurs (Gen-Y) Have no fear of technology Are idealistic and optimistic Are more collaborative Build elements of community in the business Start companies while studying entrepreneurship Fail fast, learn a lot, and keep going © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–21 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  1.2 Entrepreneurial Motivations © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–22 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  1.3 Understanding Your Business Paradigm © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–23 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  1.4 Understanding Your Business Paradigm © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–24 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  The Competitive Edge of Entrepreneurs Customer Focus Competitive Niche Advantages Quality Markets Performance of Entrepreneur ial Firms Innovation and Integrity and Globalization Responsibility © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–25 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Resources Every small business owner should take advantage of the following websites: U.S. Small Business Administration: www.sba.gov National Federation of Independent Business: www.nfib.com Global Entrepreneurship Monitor: http://gemconsortium.org/docs Marion Ewing Kauffman Foundation and the U.S. Commerce Department: www.entrepreneurship.org SCORE, a network of more than 360 offices nationwide where veteran small business executives offer free confidential advice and mentoring: www.score.org © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 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. 1–26  Building an Entrepreneurial Legacy Looking Back At An Entrepreneurial Life  Proper values and actions lead to a good exit.  Evaluating accomplishments Winning the Wrong Game  The nature of the entrepreneurial endeavor reflects personal goals and values. Crafting a Worthy Entrepreneurial Legacy  The tangible items and intangible qualities passed on to both heirs and society. Satisfaction and Fulfillment  Achieving balance with what do I want to do. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitt 1–27 ed in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Key Terms attractive small firm lifestyle business bootstrapping manager personality corporate refugee mentor entrepreneur microbusiness entrepreneur personality microloans entrepreneurial legacy niche market entrepreneurial opportunity paradigm shift entrepreneurial team reluctant entrepreneur founder small business franchisee social entrepreneurship high-potential venture technician personality (gazelle) © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or 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. 1–28