8e daft chapter 06

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Managing Small Business Start-Ups

Managing Small Business Start-Ups

CHAPTER 6CHAPTER 6

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2 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Learning ObjectivesLearning Objectives

Describe the importance of entrepreneurship tothe U.S. economy.

Define the personality characteristics of a

typical entrepreneur. Explain social entrepreneurship as a vital part

of todays small business environment.

Outline the planning necessary to launch anentrepreneurial start-up.

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Learning Objectives (contd.)Learning Objectives (contd.)

Describe the five stages of growth for anentrepreneurial company.

Explain how the management functions of

planning, organizing, leading, and controllingapply to a growing entrepreneurial company.

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EntrepreneurshipEntrepreneurship

Process of initiating a business venture

Organizing the necessary resources

Assumes associated risks and rewards

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Five types of Small Business OwnersFive types of Small Business Owners

Idealists24%

Optimizers21%

HardWorkers

20%

Jugglers20%

Sustainers15%

Rewarded by chance towork on something new

and creative

Thrive on the challenge ofbuilding a larger, more

profitable business

Enjoy chance to balancework and personal life

Get personal satisfactionfrom being a businessowner

High energy people who enjoyhandling every detail of their ownbusiness

SOURCE: Study conducted by Yankelovish Partners, reported in Mark Henricks, The-Cast, Entrepreneur (March 2000), 14-16.

Exhibit 6.1

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Entrepreneurship and the EnvironmentEntrepreneurship and the Environment

Turbulence in the technology sector andthe demise of many dot-com start-ups =heightened concerns about small

companies competing against bigbusiness

Entrepreneurship and small business

are vital, dynamic increasing important partsof U.S. economy

are booming in other countries

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7/247 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Why Small Business Today?Why Small Business Today?

Economic changes

Globalization

Advancing technology

Increased competition

New market niches

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Definition of Small BusinessDefinition of Small Business

Definition used by SBA detailed and complex

Independently owned and operated

Not dominant in its field of operation

Definition in the process of being revised

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Examples of SBA Definition of Small FirmsExamples of SBA Definition of Small Firms

Exhibit 6.3

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Impact of Entrepreneurial CompaniesImpact of Entrepreneurial Companies

Generate over 50 percent of nonfarm GDP 97 percent of U.S. exports

2.6 percent of export value

Employ over 50 percent of nonfarm private sector

Businesses with fewer than 500 employees represent99.7 percent of all the firms with employees in the U.S.

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Who Are Entrepreneurs?Who Are Entrepreneurs?

Diversity of Entrepreneurs Often have distinguishing backgrounds and

demographics 1st born, children of

immigrants Emerging growth companies of the next

decadeWomen-owned businesses: in 2005, 6.5 million

businesses that generated $950.6 in revenuesand employ over 7 millionMinority-owned businesses: growing 17% per

year with African American growing the fastest

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Characteristics of EntrepreneursCharacteristics of Entrepreneurs

Awareness of Passing Time High Energy Level

Need to Achieve

Tolerance for Ambiguity

Self-Confidence

Entrepreneurial

Personality

Source: Adapted from Charles R. Kuehl and Peggy A. Lambing, Small Business: Planning and Management (Ft. Worth: The Dryden Press, 1994),45.

Internal Locus of Control

Exhibit 6.5

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Hours Worked per Week byOwners of New BusinessesHours Worked per Week byOwners of New Businesses

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5

10

15

20

25

30

Less than 50 50-59 60-69 70-79 More than 80

Percent%

ofNew

BusinessO

wners

SOURCE: National Federation of Independent Business, Reported in Mark Robichaux, Business First, Family

Second, The Wall Street Journal, May 12, 1989,B1.

Exhibit 6.6

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Sources of Entrepreneurial Motivationand New-Business Ideas

Sources of Entrepreneurial Motivationand New-Business Ideas

To Control My Future

To Fulfill a Dream

To Be My Own Boss

Downsized/Laid Off

Reasons for Starting a Business

In-depth Understandingof Industry/Profession

Market Niche Spotted

Brainstorming

Copying Someone Else

Hobby

Other

37%

36%

7%

44

Source of New-Business Ideas

Source: The Rewards, Inc. State of Small Business, 2001, May 29 2001, 50-51; and Leslie Brokaw, How ToStart an Inc. 500 Company, Inc. 500, 1994, 51-65.

Joined FamilyBusiness41%

36%

27%

25%

5%

11%

Exhibit 6.7

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Business PlanBusiness Plan

Document specifying the businessdetails prepared by an entrepreneurprior to opening a new business

Clear visionRealistic financialprojectionsTarget marketIndustry and competitors

Management teamCritical risks that couldthreaten success

Sources & uses ofstart-up funds &operating funds

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Becoming A Business OwnerBecoming A Business Owner

Sole Proprietorship = unincorporated business

owned by an individual for profit Partnership = unincorporated business owned

by two or more people

Corporation = artificial entity created by thestate and existing apart from its owners.

3 Basic Legal Forms

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Financing ResourcesFinancing Resources

Crucial concern for entrepreneurs

Debt Financing

money to be repaid at alater date

Equity Financing funds invested in

exchange for ownershipin the company

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TacticsTactics

Start a New Business Advantage develop and design own way

Disadvantage long time to get off ground and tomake profitable

Buy an Existing Business Advantage shorter time and existing track record Disadvantage need to pay for goodwill

Ways to Become a Business Owner

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TacticsTactics

Buy a Franchise = an agreement to sella product or service with help from theowner Advantage management help is provided

by owner Disadvantage lack of control

Participate in a Business Incubator=shared office space, management,support services, management advice

Ways to Become a Business Owner

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Five Stages of Growth For an EntrepreneurialCompany

Five Stages of Growth For an EntrepreneurialCompany

Exhibit 6.10

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Managing a Growing BusinessManaging a Growing Business

Planning Defining goals and deciding on the tasks and use

of resources needed to attain them

As organization grows, formal planning usually isnot instituted until around the success stage Business plan must be living document

Planning concern small businesses need tobe Web-savvy

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Organizing 1st two stages typically very informal

At 3rd stage, success, functional managers are

hired Rules and regulations, procedural manuals

Latter stages, delegation

Outsourcing organizing approach

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Leading Early stages leaders vision By success stage, must learn to motivate

employees or bring in managers who can Need for active communication

Leadership is important because many

small firms have a hard time hiringqualified employees

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Controlling Financial control important in each stage Initial stages exercised by simple

accounting records and by personalsupervision

By 3rd stage, operational budgets are inplace; structured control systems

Control Techniques become moresophisticated as the firm matures

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