Entrepreneurship and Small Business

Management I Week Five Chapter 6: Entrepreneurship and Small Business 1. What is entrepreneurship? 2. What is special about small businesses? 3. How does one start a new venture? 4. What resources support entrepreneurship and business development? ---------------------------------------------------------- The Nature of Entrepreneurship Entrepreneurship and Small Business New Venture Creation Entrepreneurship and Business Development - Who are the entrepreneurs? - Characteristics of entrepreneurs -Diversity and entrepreneurship - Entrepreneurship and the Internet - International business entrepreneurship - Family business - Why many small businesses fall - Life cycles of entrepreneurial firms - Writing the business plan - Choosing the form of ownership - Financing the new venture - Entrepreneurship in large enterprises - Business incubation - Small Business Development Centers 1 Entrepreneurship is dynamic, strategic thinking and risk-taking, creative, growth-oriented behavior. An entrepreneur is willing to pursue opportunities in situations others view as problems or threats (see the chart below): The U.S. Small Business Administration report that entrepreneurship is opening business doors for minorities and women. E.g. women are starting new businesses at twice the national average. 2 A small business has fewer than 500 employees, is independently owned and operated, and does not dominate its industry. A franchise is when one business owner sells to another the right to operate the same business in another location. A franchiser – a seller, a franchisee – a buyer. A family business is owned and controlled by members of a family. Some common problems of family businesses: • Disagreement about responsibilities, business strategy, operating approaches, finances, or other matters • The succession problem is the issue of who will run the business when the current head leaves. (A possible solution is a succession plan that describes how the leadership transition and related financial matters will be handled). Reasons for new business failures: A sole proprietorship is an individual pursuing business for a profit. A partnership is when two or more people agree to contribute resources to start and operate a business together. A corporation is a legal entity that exists separately from its owners. A limited liability corporation (LLC) is a hybrid business form combining advantages of the sole proprietorship, partnership, and corporation. If you want your new business succeed – have the answers to the following questions: Helpful tips for new businesses: 3 A first-mover advantage comes from being first to exploit a niche or enter a market. Stages in the life cycle of an entrepreneurial firm: A business plan describes the direction for a new business and the financing needed to operate it. A Business Plan outline: • Executive summary – overview of business purpose and highlight of key elements of the plan. • Industry analysis – nature of the industry, including economic trends, important legal or regulatory issues, and potential risk. • Company description – mission, owners, and legal form. • Product and services description – major goods or services, with special focus on uniqueness vis-à-vis competition. • Market description – size of market, competitor strength and weaknesses, five-year sales goals. • Marketing strategy – product characteristics, distribution, promotion, pricing, and market research. • Operations description – manufacturing or service methods, supplies and suppliers, and control procedures. • Staffing description – management and staffing skills needed and available, compensation, human resource systems. • Financial projection – cash flow projections for one to five years, break-even points, and phased investment capital. • Capital needs – amount of funds needed to run the business, amount available, amount requested from new sources. • Milestones – a time table of dates showing when key stages of new venture will be completed. FINANCING THE NEW VENTURE Debt financing involves borrowing money that must be repaid over time with interest. Equity financing involves exchanging ownership shares for outside investment resources. Venture capitalists make large investments in new ventures in return for an equity stake in the business. An initial public offering (IPO) is an initial selling of shares of stock to the public. An angel investor is a wealthy individual willing to invest in return for equity in a new venture. 4 Intrapreneurship is entrepreneurial behavior displayed by people or subunits within large organizations. Skunkworks are teams allowed to work creatively together, free of constraints from the larger organization. Business incubators offer space, shared services, and advice to help small businesses get started. Small Business Development Centers offer guidance and support to small business owners in how to set up and run the business operations.