CHAPTER 4

UNDERSTANDING ENTERPRENEURSHIP

AND NEW VENTURES

4.a. Small Business

4.a.i. Definition of Small Business

Small business is a business owned dan managed privately also does not

dominated in the market. Definition of Small Business Administration based

on two factors, that are : (1) number of employees and (2) total annual sales.

4.a.ii. The Importance of Small Business

Small business can affect the economic system in USA, include job creation,

innovation, and important to big business.

Job Creation Small business is an important source of job creation ( and

usually have good salary). If the small business add more employees quickly,

that business directly stopped as a small business. This current year, small

business create 38% of new job creation in IT sector.

Innovation The history shows big innovation may be appears from small

business or individu than a big business. The small business found a private

computer or the transistor radio. The innovation does not always a new

product, it also can a process. Michael Dell did not find a new PC, but he

develop an innovatif way to create it and the innovatif way to sell it.

Important to Big Business Almost all product that create by big producer

sold to the consumer by small business. Small business also give many

services and the raw materials that needed by a big business.

4.a.iii.The Popular Small Businesses

Services need less sources and its development is the fastest than other kinds

of small business. They focused to their limited sources in the tighter market.

Example, wedding consultation.

Constactions around 10% of business with employees less than 20 peoples

involve in the constactions. Because mostly constctions are the small local

projects.

Finance and Insurance mostly an affiliation from/or agent for bigger

national firm.

Wholesaling wholesale business buy product from producer and than sell to

the retailer. That’s why one volume business needs less employees than the

producer, retailer or servicer.

Transportation and Manufacturing around 5% of the firms with less than

20 employees on the transportation and manufacturing.

Figure

4.1

Small

business by industries

4.b. Enterpreneurship

4.b.i. The Differences between Enterpreneurship and Small Business

An entrepreneur is the one who take risks and opportunities because creating

and operating a new business.

Owner of Small Business Enterpreneur

There is no ambition to expand their

business

Has an ambition to expand their

business

No plan to growth and develop has plan to growth and develop

Only looking for safe income Ready to take a risk

4.b.ii. Characteristic of Enterpreneurship

Mostly successful entrepreneur have characteristics that differentiate to the

other owner of small business-Examples, resourceful and good relationship

to the customers. Enterpreneur desire to be own boss-gain control life. They

also could face the uncertatinty and risks.

4.c. Start and Operate Small Business

Yesterday Today

Self-Reliant Open Minded

Male Male or Female

Quick Decisions Reliens On Others

There are two reasons to start new business. They could be financial and non-

finacial reason.

Figure 4.2

Financial reasons

to start small

business

Figure 4.3 Non-

Financial reasons

to start small

business

4.c.i. Business Plan

Business plan is a document that made by an entrepreneur to summarize

business strategic for a new firm and how to implement the strategic.

Decide Goals and Objectives specially, business strategic must answer

these three questions: (1) what is entrepreneur goals and objectives? (2)

What strategic should used to achieve it? (3) How to implement those

strategics?

Sales Forecasting Enterpreneur must shows that he masters for the current

market, the strength and weekness of competitors, and the facilities that

used for compite with others.

Financial Planning commonly include the cash budgets, income statement,

balance, and breakeven.

4.c.ii. Start Small Business

Buy Existing may be better: if it success, existing business approve their

ability to catch the customers to get the profit. Buy existing also has a

relationship with other like money lender, supplier, and other important

party.

Start from Scratch not underwrite bad effect of the fault from previous

owner. But, start from scratch has bigger risk than buy excisting. They only

can make prospect estimation. To find their opportunities, entrepreneur

should research their market and answers those questions :

Who is my customers?

Where are they?

In which price they will buy my product?

In which quantity they will buy?

Who is my competitor?

How will my product differenciate with others?

4.c.iii. Financing Small Business

Other Investation Sources venture capital companies is a group of small

investor who invest his capital to the firm that has good development. Small

Business investment companies is investment firm that be regulated by

fedration government to borrow some money from SBA for lended to the

small businesses.

SBA Financial Programs guaranted loans program, small business can

borrow money from commercial borrowers agency. Based on immediate

participation loans program, SBA and one bank give stock loans each of

them. Based on local development compaies program, SBA work together

with a local firm that owned by local person to increase his city’s economic.

Other SBA Programs Service Corps of Retired Executives (SCORE) has

members that is executives retired and all of them are volunteers. Small

Business Develompment Center ( SBDC) is a SBA program that designed to

consolidating information from any discipline knowledge dan serve it for

small businesses.

4.c.iv. Franchise

Franchise is an agreement that organize the transaction between franchisee

to buy a right to sell goods or services from franchiser. Franchisee is the one

who buy the right. Franchiser is the one who sell the right. Franchisee get

profit from the experience and skills of parent company (franchiser).

Franchisee Franchiser

Advantages

Has own business

Access to big business

management skills

Low failure rate

Easy to growth

Disadvantages

High start up cost

Give some percent of sales

to franchiser

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4.d. Successes and Failures of Small Business

4.d.i. Trends in Starting Small Business

E-Commerce, selling of goods and services through electronic media.

Figure 4.4 Growth of E-Commerce

Big Business Crossover, leave big business to create small business and

use experience and knowledge from big business for their own.

Opportunities for Minorities and Women, after they responsible to their

own business, they are happy be a boss, set their on work time, controll

their goals, make a decision and achieve the goals.

Figure 4.5

Women

Enterpreneurs

Global Trade/ Suppliers, many enterpreneurs find new opportunities in

overseas market.

Better Survival Rates, many peoples interest to try their ability and skills

as an enterpreneurs because failures rate of small business is decreasing in

this current year.

4.d.ii. Reasons for Failure

Inexperienced and Inlegibility Manager. only using their logic to

manage their business without knowing principle of management.

Careless. not devote their time wholeheartedly.

Low control system. effective control system is needed to help

manager solve the problem.

Lake of Capital. the profit do not rotate quickly will cause financial

problem.

4.d.iii. Reasons For Success

Hardwork, Drive, and Dedication. To achive the success, owner

should give their time and effort as many as they can to make it true.

Demand for Goods and Services. Good analyses of market condition

can help owner see the probabilities of their product acceptance in

market.

Managerial Competence. Owner has many experience and training

or learning from others.

Luck. This is from God.

4.e.Business Ownership

4.e.i. Sole Propietorship

Sole proprietorship is owned and operated by one person and responsible to

all of its liabilities.

Advantages :

Freedom

Easy to Form

Low start-up cost

Tax benefits

Disadvantages :

Unlimited liabilities, a legal principle that require owner to

responsible to pay liabilities

Lack of Continuity

Resources of one persons

4.e.ii. Partnership

Partnership (CV and Firm) is business with two or more owner that

work together to operate the business and has the same responsible of

its financial and liabilities.

Advantages:

More talents and

money

Easy to create

Partnets taxed as

individuals

Diadvantages

Unlimited Liabilities

Lack of Continuity

Difficult to Transfer

Ownership

Alternatives of Partnership, limited partnership is kind of

partnership that has limited partner and has one active partner to

manage. Commanditair Partner is a member that is not join the the

management process of business and only has responsible of its

liabilities equally with their invested capital. Active partner is a partner

that has responsible to manage the firm and has no limited liabilities.

Master Limited Partnership is a form of ownership of selling the

stocks to investor that accept dividen and pay tax from incone of

dividen.

4.e.iii.Cooperation

Cooperation is a form of ownership with single ownership group

and/or partnership that is dealing to work together for profit.

4.f. Firm

4.f.i. Legal Business Entity

Firm is a legal business who considered as a separated entity from its

owners from responsible of liabilities itself: responsible of owners is

limited based on their investation.The characteristic of firm: legal

entity, property’s right and responsibility is separated, life time is not

limited.

Firm Profit limited liability is a legal principle where responsible of

investor of their liabilities are limited based on their investation in the

firm.

Firm Loss the tender offer is a supply for buying stock that done by

prospective buyers, directly to the shareholder who is intended than

decide by themselves to sell or not.

Double Taxation is the payment situation by a firm from its profit or

by shareholders from its dividen.

4.f.ii. Types of Corporation

Closely Held Corporation/ Private Corporation is stock of

corporation held by some people and not sell for public.

Public Corporation a corporation which its shares can held by a

whole world and can sell to all of people.

S Corporation is managed by closed corporation and get addition

regulation also partnership tax.

Limited Liability Corporation have the same characteristic with S

corporation but LLC is managed by public corporation.

Professional Corporation is managed by partnership and limitied

responsibility but unlimited professional responsibility.

Multinational Corporation across the national limitation and accept

the different regulation from different country.

4.f.iii. Managing Corporation

Corporate Governance is role of shareholder, director, and manager

on decision making.

Stockholders/Shareholders is owner of some shares.

Preferred Stock is share that ensure the fix dividen for its holders and

have a claim priority of corporation assets but not have right to vote in

the corporation

Common Stock is share that ensure give the right to vote in the

corporation but have last clain in the corporation assets

Board of Director responsible to control the corporation and report to

shareholders and as delegation to operate daily activity.

Chief Executive Officer is top manager that is hired by BOD to run

the corporation

4.f.iv. Corperate Ownership-Special Issues

Joint Ventures & Strategic Alliances

Employee Stock Ownership

Institutional Ownership

Mergers & Acquisitions

Divestitures & Spin-Offs

Questions

1. Explain how to start small business?

2. Why small business is important?

3. What is the differences between francishe, franchisee, and franchiser?

4. Explain the differences between enterpreneurs yestesday and nowadays?

5. Explain the reason of starting new business?

6. Justify your answer business should buy existing to start the business?

7. Explain the two types of share?

8. What is the difference between shareholders and stakeholders?

9. Explain what are the advantages and disadvantages of sole proprietorship

business?

10. Explain what is the trend of starting small business?