MODULE - 1 THE ENTREPRENEURIAL LIFE
Many companies of this type are also
Lesson Objective 1 – Small Business and Entrepreneurial
Opportunity: The same or difference?
What is a Small Business?
What does it mean when we talk about “small business?"
A neighborhood restaurant or bakery is clearly a small
business, and Toyota is obviously not. But among small
businesses, there is great degree of diversity in size, in
growth potential, in organizational structure, and often in
culture.
Many efforts have been made to define the term small
business, using such criteria as number of employees,
sales volume, and value of assets. But there is no generally
accepted or universally agreed-on definition. Size
standards are basically arbitrary, adopted to serve a
particular purpose. For example, the U.S. Small Business
Administration defines a small business as having fewer
than 500 employees. But in specific cases, the government
may define a small business differently—such as one with
fewer than 10 employees in order to exempt a very small
business from certain regulations, if compliance would
prove to be too costly, given its small size.
In addition to size, small businesses differ drastically in
their growth potential. Those few businesses with
phenomenal prospects for growth are called high-
potential ventures, or gazelles (Has great prospects for
growth) Even within this group, there is variation in styles
of operation and approaches to growth. Very few begin as
high-tech startups—the kind that made Silicon Valley
famous. In contrast to such high-potential ventures,
attractive small firms offer substantial financial rewards
for their owners. Income from these entrepreneurial
ventures may grow into the millions or even tens of
millions of dollars. They represent a major segment of
small businesses-solid, healthy firms that can provide
rewarding careers and create financial wealth for the
owners.
The least profitable types of small businesses—including
many small service companies, such as pool-cleaning
businesses, dry cleaners, beauty shops, and appliance
repair shops provide modest returns to their owners.
These are called microbusinesses (Provides minimal
profits to its owner) and their distinguishing feature is
their limited ability to generate significant profits.
Entrepreneurs who devote personal effort to such
ventures receive a profit that essentially compensates
them for their time.
called lifestyle businesses because they permit an owner
to follow a desired lifestyle, even though they provide
only modest financial returns. Employing fewer than 10
employees, lifestyle businesses make up the largest sector
of the U.S. economy. Such enterprises usually do not
attract investors and are financed with owner savings or
money provided by friends and family.
Lifestyle businesses are not only important to the U.S.
economy, but they have also become vital for many
individuals in developing countries in Asia, South America,
and Africa. In these countries, starting and running a small
business can easily double or triple a family's income and
make a significant difference in the quality of family
members' lives. To help these individuals, some
organizations are providing microloans, sometimes for
only a few dollars, to allow them to buy inventory or do
whatever else needs to be done to get started in
business.
So, understanding a small business is dependent on our
definition of small and the firm's growth potential. For our
studies, we will mostly be directing our attention to small
businesses that meet the following criteria, at least in
spirit:
1. Compared to the largest firms in the industry, the
business is small; in most instances, the business has fewer
than 100 employees.
2. Except for its marketing function, the business's
operations are geographically localized.
3. No more than a few individuals provide the equity
financing for the business. Equity financing is the money
invested in the business by the owners and possibly by a
few other individuals.
4. The business may begin with a single individual, but it
has the potential to become more than a “one-person
show” and may eventually grow to be a midsized company
or even a large firm.
5. The business must have growth potential, whether or
not the owner chooses to capture that growth.
Obviously, some small businesses will fail to meet all of
these standards, but they are still of great interest to us.
For example, a small executive search firm—a firm that
helps corporate clients recruit high-level managers—may
operate in many sections of the country and thereby fail to
meet the second criterion. Nevertheless, the discussion of
management concepts in this book is aimed primarily at single proprietorship, cooperative, partnership, or
the type of firm that fits the general pattern outlined by corporation whose total assets, inclusive of those arising
these criteria. from loans but exclusive of the land on which the
particular business entity's office, plant and equipment are
SMALL BUSINESSES: situated, must have value falling under the following
- represent 99.7% of all firms categories:
- employ over 50% of employees in the private sector A. By Asset Size
- account for 43% of private payrolls Micro: Up to P3,000,000
- outperform larger companies in net job creation Small: P3,000,001 - P15,000,000
- hire 43% of high tech employees Medium: P15,000,001 - P100,000,000
- represent 97.3% of all exporters Large: above P100,000,000
- provide increased business ownership opportunities for
Alternatively, MSMEs may also be categorized based on
minorities and self-employed degreed individuals
the number of employees:
Micro: 1 - 9 employees
SMALL and MEDIUM ENTERPRISES in the Philippines
Small: 10 -- 99 employees
In the Philippines, 99.1% of the businesses are small and
Medium: 100 -- 199 employees
medium enterprises (SMEs) and only 0.99% are large
Large: More than 200 employees
enterprises Republic Act No. 9501, The Magna Carta for
Micro, Small and Medium Enterprises (MSMEs), signed by
President Gloria Macapagal Arroyo on 23 May 2008
What Is an Entrepreneurial Opportunity?
defines micro enterprises as entities with total assets of
- An economically attractive and timely opportunity that
not more than Php 3,000,000, small enterprises as The
creates value for interested buyers or end users
new law, R.A. 9501 amends the 17-year old R.A. 6977 or
the Magna Carta for Small Medium Enterprises.
At its core, the entrepreneurial process begins with
identifying an attractive opportunity, which is more than
SMEs are perceived to have greater linkages to
merely having a good idea. Such opportunities make the
microenterprises (backward linkage) and medium and
enterprise economically attractive for the owners while
large businesses (forward sub-contracting links).
offering customers a product or service that is so
appealing that they are willing to let go of their hard-
Among the rationale for developing SMEs in the
earned money to buy it. In other words, an entrepreneur
Philippines includes the fact that they use resources more
must find a way to create value for customers. An
efficiently than large enterprises. The Philippines'
entrepreneurial opportunity, then, is an economically
advantages in terms of investment environment includes
attractive and timely opportunity that creates value both
having an open market economy, reliable infrastructure
for prospective customers and for the firm's owners.
support, available special economic zones and strategic
location, hospitable lifestyle, competitive investment
So an entrepreneur is a person who relentlessly pursues
incentives and quality human resources
an opportunity, in either a new or an existing enterprise,
to create value while assuming both the risk and the
Philippine SMEs usually join a bigger organization,
reward for her or his efforts. Entrepreneurs generally think
cooperative and association. In the Philippines, SMEs are
differently about resources than do employee-managers.
acknowledged to have the following major roles:
While managers in large corporations so often think like
- Substantial contribution to national economic activity
administrators or bureaucrats wanting larger budgets or
- Major source of economic dynamism, economic and
more employees, entrepreneurs work to do more with
social functions at all levels of society
less. They may try to use other people's resources, which
- Major source of provision of outsourcing products and
is called bootstrapping (Doing more with less in terms of
services of Major contribution to regional, local and
resources invested in a business, and, where possible,
community economic development.
controlling the resources without owning them) For
example, an entrepreneur might resort to bartering or, in
Republic Act 6977: Magna Carta for MSMEs
the early days of a business, work to create income from
MSMEs are defined as any business activity/enterprise other sources to fund the business. Let's look at three
engaged in industry, agri-business/services, whether ventures started by some present-day entrepreneurs who
have successfully created value for customers and
themselves alike.
Success Stories
Table Occasions (El Paso, TX)
Blank Label (Boston, MA)
Tender Greens (Pasadena, CA)
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Learning Objective 2- Entrepreneurial Qualities: Big Ego
Not Required
People often ask, “Are entrepreneurs born or made?” That
question has long been debated with little agreement.
However, Stephen Spinelli and Robert Adams have nicely
summarized research on entrepreneurial characteristics.
The entrepreneurs they describe as having and exhibiting
"desirable and acquirable attitudes and behaviors" fall
under the following six descriptors:
1 Commitment and determination—Tenacious, decisive,
and persistent in problem solving.
2. Leadership abilities - Self-starters and team builders
who focus on honesty in their business relationships.
3. Opportunity Obsession - Aware of market and customer
needs.
4. Tolerance of risk, ambiguity, and uncertainty - Risk
takers, risk minimizers, and uncertainty tolerators.
5. Creativity, self-reliance, and adaptability - Open-
minded, flexible, uncomfortable with the status quo, and
quick to learn.
6. Motivation to excel - Goal-oriented and aware of
personal strengths and weaknesses.
On the other side of the coin, some attitudes and
behaviors should be avoided at all costs. An almost certain
way to fail as an entrepreneur, as many have learned by
experience, is to do the following:
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.
Founders and Second-Stage Entrepreneurs
We typically think of “pure” entrepreneurs as being
founders of new businesses that bring new or improved
products or services to market. However, at some point
after a new firm is established, it may be purchased or
taken over by a second-generation family member or
another individual who was managing the company. These
“second stage” entrepreneurs do not necessarily differ
greatly from founding entrepreneurs in the way they
manage their businesses. akin to that of a founder than to
that of a manager. Nevertheless, it is helpful to distinguish
between entrepreneurs who start or substantially change
companies and those who direct the continuing operations
of established businesses. Ryan Gibson, a young
entrepreneur and partner in Rydell Holdings in Waco,
Texas, says he has come to understand that his passion
and aptitude are for starting new companies, which he has
successfully done on several occasions. However, when
the business is up and running, he turns the operations
over to his team. He knows that one of his strengths is not
running a business on a day-to-day basis. Again, it comes
back to understanding yourself—your motivations and
personality if you want your journey to be a good one in
the long run.
Franchisees
Franchisees comprise yet another category of
entrepreneurs. According to the International Franchise
Association, 44 percent of businesses in the United States
are franchises. Franchisees differ from other business
owners in the degree of their independence. Because of
the guidance and constraints provided by contractual
arrangements with franchising organizations, franchisees
function as limited entrepreneurs. The franchisee is
authorized to market the company's products or services
and expects the franchisor to provide support in operating
the business. Such support will almost always include
operating systems, training, financing, advertising, and
other services. In addition to paying an annual franchising
fee, the franchisee must also pay a portion of its profits to
the franchisor.
Entrepreneurial Teams
Our discussion thus far has focused on entrepreneurs who
function as individuals, each with his or her own firm. And
this is frequently the case. However, entrepreneurial
teams can be beneficial, if not essential, particularly in
ventures of any substantial size. An entrepreneurial team
consists of two or more individuals who combine their
efforts to function in the capacity of entrepreneurs. In this
way, the talents, skills, and resources of two or more
entrepreneurs can be concentrated on one endeavor.
Social Entrepreneurs - Historically, if someone dreamed of
owning a business, the primary objective was to pursue an
opportunity that would create personal (mostly financial)
benefits for the founder. Also significant, but much less
emphasized, was the aim of improving society through
economic means-for example, by providing a useful
product or service that would make life better for
customers, creating jobs for employees who can then take
care of their families, and paying taxes to help support the
community. But if that same individual had a keen interest
in addressing a social need or solving an environmental
problem, he or she would most likely have had to launch a
not-for-profit organization or to sign on with a
governmental agency. Today, fortunately, the choices are
no longer mutually exclusive.
An increasing number of small businesses are being
launched with the explicit and fundamental purpose of
addressing a major social challenge or human need—
sometimes in the community where the business is
located but also in underdeveloped countries where living
conditions are badly in need of improvement. According to
the Global Entrepreneurship Monitor's “Report on Social
Entrepreneurship,”16 the drive to pursue this form of
activity is greater in the United States than in any other
country. But it may not surprise you to know that the
same study found that the impulse to become a social
entrepreneur is strongest for Americans who are between
the ages of 25 and 45. Reflecting this trend, an increasing
number of universities across the United States are
offering courses and even entire degree programs in social
entrepreneurship. The wildfire apparently has already
been lit.
Small business owners have countless paths they can take
when it comes to making a difference in the lives of
others, from giving to local schools to participating in
mentoring programs for at-risk youth to allowing
employees to spend a portion of their on-the-clock hours
serving the community organizations they believe in most.
But social entrepreneurship entails more than shifting
resources to serve others. It involves focusing on a social
purpose and making it an integral part of the company
itself. Social entrepreneurs find ways to weave their social
purpose into the very fabric of the ventures they launch.
Women Entrepreneurs
- In the 2014 study, these researchers also identified
women's primary motivations for starting their own
businesses. Their reasons are not materially different from
those of men. Specifically, they:
• Liked the small business culture.
• Had long wanted to own their own business.
• Had a business idea and wanted to capitalize on it.
• Did not find working for someone else particularly
appealing.
• Wanted to build personal wealth
The researchers further identified two primary challenges
that women entrepreneurs face: (1) a lack of available
mentors and advisors, and (2) a financing gap (nearly 80
percent of the women surveyed had to rely on personal
savings as their primary funding source).
Regarding the latter challenge, a recent survey of Inc.
500/5000 firms identified a difference in financing
strategies between women and men who founded high-
growth firms. First, men were more than three times as
likely as women to access equity financing through private
investors. Second, men were more likely than women to
use networks of close friends and business acquaintances.
However, women and men business owners were similar
in their use of bank financing as a source of capital. The
net result of the financing gap for women: Men start firms
with nearly twice the capital that women do.
Although a woman who wants to own a business may
experience challenges not encountered by a man, it's
important to understand that women are very competitive
business owners. In a study sponsored by the Kauffman
Foundation, Alicia Robb and John Watson found no
difference in firm performance between companies
owned by women and those owned by men. There were
no differences between the two groups in failure rates, in
profitability, and in the returns earned relative to the risk
assumed. The findings indicate that women are just as
effective as men when it comes to running profitable,
wealth-creating businesses. Based on their findings, the
authors offer encouragement to women who aspire to
start a business: Women who are contemplating starting a
new venture [should] not be discouraged from doing so by
a false belief that new ventures initiated by women are
less likely to succeed than those initiated by men.
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Learning Objective 3 - Your Motivations for Owning a
Business
Before you choose to enter the small business game, you
need to think carefully about the person you want to be
and how owning a business will help make you that
person. In other words, you do not begin with the
business, you begin with you. Jeff Sandefer, puts it this
way: "When you embark upon a heroic journey—a life
filled with meaning and purpose—the first step is to heed
the admonition inscribed over the entrance to the Oracle
of Delphi in ancient Greece: ‘Know Thyself.' Search out
who you are, and then you will be equipped to discover
your heroic calling.”
As we have already said, being an entrepreneur is
extremely challenging. There will be times when you will
be discouraged, maybe even terrified. Some days, you will
wish you had opted for the security (or at least the
perception of security) of a regular job in an established
company
You may decide to own a small business because of the
influence of family members or friends who have their
own businesses. Researchers at Case Western Reserve
University's Weatherhead School of Management have
found a strong connection between entrepreneurship and
genetics. Also, the U.S. Census Bureau reports that half of
all small business owners worked in their family's business
before founding their own ventures.27 In other words,
they had the opportunity to observe the “entrepreneurial
life” up close. Starting a business may also provide an
escape from an undesirable job situation. Some individuals
become entrepreneurs after being laid off by an employer.
Unemployed personnel with experience in professional,
managerial, technical, and even relatively unskilled
positions often contemplate the possibility of venturing
out on their own. Those who started or acquired small
businesses as a result of financial hardship or other
severely negative conditions have appropriately been
called reluctant entrepreneurs.
Individuals may also flee the bureaucratic environment of
a corporation that seems stifling or oppressive to them. In
a survey of 721 office workers, 42 percent had considered
quitting their jobs over bureaucratic hassles.
Entrepreneurship often provides an attractive alternative
for such individuals, who are sometimes called corporate
refugees. Michelle Lawton left the corporate world to do
her own thing. She had done well as an executive with
such firms as Procter & Gamble, Pepperidge Farm, Lavazza
Coffee, and Rémy Cointreau. She had also been
compensated very well, at least until you consider the long
hours she worked. She finally decided she had endured
enough of the corporate world. “I was at a point in my life
where I was looking for a real shift," Lawton says. She
wanted to do something that she was really passionate
about and that would allow her to pave her own way
moving forward. As her own boss in food and beverage
branding, Lawton was able to do things she never could do
before, such as lunchtime yoga and Pilates classes. “It's
something I can't quantify,” explains Lawton. “I've never
been healthier. What I'm not gaining in financial rewards,
I've gained in personal well-being. It sounds like a cliché,
but it's a trade-off.
Types of Entrepreneurial Motivations
A recent Harris poll inquiring into the reasons
entrepreneurs give for owning a company includes the
following:
(1) to improve financial well-being (73%),
(2) to be the boss (41%), and
(3) to follow a passion (22%).32 We believe that there are
four fundamental reasons, which incorporate those listed
in the Harris poll: personal fulfillment, personal
satisfaction, independence, and financial rewards. These
motivations, along with specific examples of each, are
shown in Exhibit 1.1 and discussed in the following
sections
Personal Fulfillment
Owning a business should provide significant personal
fulfillment. If it doesn't, then you should look elsewhere.
All other motivations will not be enough in the really tough
times—and those times are sure to come. Apple co-
founder Steve Jobs said it well: “The only way to do great
work is to love what you do. If you haven't found it yet,
keep looking. Don't settle. As with all matters of the heart,
you'll know when you find it.” If you want to get started on
the right foot, we suggest that the core reason for
becoming an entrepreneur and owning your own business
should be to make the world a better place. L. John Doer,
one of the most famous venture capitalists of all time,
inspired the phrase “make meaning,” suggesting that the
most impactful and sustainable businesses are built on
such a foundation. Your first goal should be to create a
product or service that improves life for others. Only when
your company is about something more significant than
yourself, will you have a sense that what you are doing is
meaningful and well worth the effort.
Entrepreneurs
are some of the most giving people we know. In fact, the
names on many university buildings are those of
entrepreneurs who have given back to their alma maters.
Bill Waugh, the founder of Casa Bonita, a very successful
chain of Mexican food restaurants that includes Taco
Bueno, sought to make a difference by providing his
company's resources to not for-profit organizations. He
said, “My company is my base for helping others.” Small
business owners usually don't—and shouldn't expect
anything in return for their community stewardship. It
should be about others, not yourself. Good may come
from what you do, and you will most likely reap benefits,
but that should not be your reason for giving to the
community. In a Gallup Poll of over 100,000 working
adults, researchers examined the relationship between
work and happiness for different occupational groups.
They developed an overall index of contentment based on
six criteria: emotional health, physical health, job
satisfaction, healthy behaviors, access to basic needs, and
self-reports on overall life quality. Business owners were
found to outrank all other occupational groups in terms of
overall contentment.
Personal Satisfaction
- Closely related to personal fulfillment is the personal
satisfaction that business owners frequently experience
from their businesses. For one thing, entrepreneurs feel
rewarded in working with a particular product or providing
a service and being good at it. They find great satisfaction
in being the best at what they do. Rick Davis, founder and
CEO of Davaco, a Dallas-based company, says “There is
nothing else I would rather do. I love the challenged,
working with other to see our dreams come true, and
making a difference in the community. It is fun
Independence
Many people have a strong desire to make their own
decisions, take risks, and reap the rewards. They find it
important to be free to make their own choices in their
work. In other words, the more control they have over
their work, the happier they are. Business owners also
have discretion about when they want to engage in
nonbusiness activities. They have the freedom to decide
when to work, when to be with family, and when to be
engaged in community activities in ways that employees
frequently cannot be.
Financial Rewards
As a general rule, when businesses are profitable,
everyone benefits. Jobs are created, taxes are paid, and
charities receive donations. Furthermore, like any other
job or career, starting a business is a way to earn money
and make ends meet. Of course, some entrepreneurs earn
lots of money. In The Millionaire Next Door, Thomas
Stanley and William Danko note that self-employed people
are four times more likely to be millionaires than are those
who work for others.
A significant number of entrepreneurs are, no doubt,
highly motivated by the prospect of making money. While
some entrepreneurs do become rich quickly, the majority
do not. Therefore, a more reasonable goal would be to
"get rich slowly.” Wealth will most likely come, provided
the business is economically viable and the owner has the
patience and determination to make it happen. When it
comes to making money, keep in mind the adage “Money
is not a problem, but money without wisdom is a
problem.”
Understanding Your Paradigm
Knowing your motivations is important to anyone
interested in starting a business. But that is not enough.
You also need to understand if your perceptions of what it
takes to be successful in business are accurate. In The 7
Habits of Highly Effective People, Stephen Covey teaches
that to make important changes in our lives, we need to
change from the inside-out. He says that having a positive
attitude or working harder is not enough. Instead, we have
to change how we fundamentally see a situation, or what
he calls a paradigm shift. So, the question for someone
wanting to start a business is, “What do you believe it will
take for you to create a successful business?” Your answer
to this question will depend largely on your past
experiences, which have a significant influence on your
paradigm.
The Technician Personality
If you start an auto repair business because you love
working on cars or a pie shop because your friends say you
make the best pies they have ever eaten, you most likely
have what Gerber calls a technician personality. The
technician personality is usually a steady worker,
experienced at doing what he or she knows best. The
technician dislikes managing, wanting instead to be left
alone to get the job done. He or she lives in the moment,
without thinking of the future. To the technician, starting a
business may be both a dream-come-true and a nightmare
at the same time. The thought of no longer being managed
and having total control over what gets done is exciting,
but the need to be organized and think strategically is
daunting. A technician's approach to business decision
making can be characterized in the following ways:
• Paternalistic (he or she guides the businesses much as he
or she might guide family members).
• Reluctant to delegate authority.
• Defining marketing strategy in terms of the traditional
components of price, quality, and company reputation
• Focusing on sales efforts that are primarily personal.
• Short-term thinking, with little planning for future
growth or change.
1.2 Understanding Your Business Paradigm EXHIBIT One
Person, Three Personalities
Technician
• Thinks short-term Is paternalistic
• Uses only traditional marketing strategies
• Is reluctant to delegate
• Relies on personal selling
Manager
• Avoids paternalism
• Delegates authority
• Varies marketing strategies
• Uses different sales approaches Seeks multiple financing
sources Entrepreneur
• Asks how the business must work. Sees the business as a
system
• Visualizes the future Develops strategies for the business
by first seeing the whole picture
Balance Determines Level of Effectiveness
The Manager Personality
An individual with a manager personality is pragmatic,
assuming responsibility for the planning, order, and
predictability of the business. In Gerber's words, “The
manager is the part of us that goes to Sears and buys
stacking plastic boxes, takes them back to the garage, and
systematically stores all the various mixed nuts, bolts, and
screws in their own carefully identified drawer.” A
manager personality tends to do the following:
• Avoid paternalism.
• Delegate authority as necessary for growth.
• Employ diverse marketing strategies.
• Use different types of sales efforts.
• Obtain original financing from more than two sources.
The Entrepreneur Personality
The entrepreneur personality takes an idea and turns it
into an opportunity. This personality does not look at the
work that a business does. Instead, the entrepreneur
examines how the business does what it is intended to do.
In this way, the entrepreneur is able to see the big picture
and develop strategies that will help the venture flourish.
According to Gerber, this personality needs to be
harnessed effectively, or it will wreak havoc by trying to
pull the business in many directions at the same time. The
entrepreneurial personality tends to do the following:
• Ask the question, "How must the business work?”
• See the business as a system for producing outside
results for the customer, and in so doing, producing
profits.
• Start with a picture of a well-defined future and then
attempt to change the present to match the vision.
• Develop strategies for the business by first seeing the
whole picture
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Learning Objective 4 - The Entrepreneur's Competitive
Edge
How is it that small and entrepreneurial firms can hold
their own and often gain an edge over successful, more
powerful businesses? The answer lies in the ability of new
and smaller firms to exploit opportunities. If a business can
make its product or service cheaper, faster, and better,
then it can be competitive. Small companies—if well
managed are just as able as larger firms to develop
strategies that offer a competitive advantage.
Integrity and Responsibility
The beginning point of any competitive advantage begins
with a commitment to integrity. In order to maintain a
strong competitive advantage, it is essential that a
business owner add a solid reputation for honesty and
dependability to good customer service and excellent
product quality. In fact, the quickest way to lose a
competitive advantage is to act without regard for others
or worse, to act dishonestly. We all respond positively to
evidence of integrity because we all have, at times, been
taken advantage of when buying a product or service.
Consistently operating with integrity can set a small
business apart as being trustworthy at a time when stories
of corporate greed and corruption abound. Above all else,
the core values of the entrepreneur, as reflected in what
she or he says and does, determine the culture within a
business. Others will do business with a company only
when they feel that they can trust that company. Trust is
the foundation of all relationships, including business
relationships.
Customer Focus
Business opportunities exist for those who can produce
products and services desired by customers. Small
companies are particularly adept at competing when they
commit to a strong customer focus. Good customer
service can be provided by a business of any size.
However, in many instances, small businesses have a
greater potential than larger firms to achieve this goal. If
properly managed, small entrepreneurial companies have
the advantage of being able to serve customers directly
and effectively, avoiding the layers of bureaucracy and
corporate policies that tend to stifle employee initiative. In
many cases, customers are personally acquainted with the
entrepreneur and other key people in the small business.
Quality Performance
There is no reason that a small business needs to take a
back seat to larger firms when it comes to achieving
quality in operations. We frequently talk to owners of
small businesses whose operations not only equal the
quality performance of larger firms but, in fact, also
surpass the performance of the giants. In general, quality
is mostly independent of firm size. But if there is an
advantage, it most often goes to the smaller business. As a
small business owner, you should not accept anything less
than the highest-quality performance. An uncompromising
commitment to quality will move you a long way on the
road to having a competitive advantage relative to other
firms in your industry.
Innovation
How the world has changed! When Bill Clinton was
president of the United States, hardly anyone with the
exception of a small number of people in the government
and academia—had e-mail. Today, billions of people send
hundreds of millions of messages, share 20 million photos,
and exchange at least $15 trillion in goods and services
every minute. 50 Innovation, both in products or services
and in competitive strategies, is within the reach of the
small business in ways that were not thought possible a
few years ago. The SBA's Office of Advocacy has a history
of funding research that documents the role, nature, and
importance of innovation and technological breakthrough
by small firms. Office of Advocacy research shows that
small businesses outperform their larger counterparts in
producing more patents per employee (a measure of
innovation). Small firm patents also outperform those of
larger firms along a number of measures, including
growth, citation, and originality. Small “patenting firms”
produce 16.5 times more patents per employee than large
firms do, and these patents are twice as likely as those
from large firms to be among the 1 percent most cited by
others in their patent applications.51 Most of the radical
inventions of the last century, such as the computer and
the pacemaker, came from small companies, not large
ones. And this will not change.
Research departments of big businesses tend to focus on
improving existing products. Creative ideas may be side
tracked because they are not related to existing product
lines or because they are unusual. But preoccupation with
an existing product can obscure new idea. In his book, The
Innovator's Dilemma, Clayton Christensen documents how
large established companies have missed major
transformations in a number of industries—computers
(mainframes to PCs), telephones (landline to mobile),
photography (film to digital), stock markets (floor trading
to online trading), and many others.52 For this reason,
more than a few large companies acquire or at least
engage in a joint venture with small technological
businesses.
Niche Markets
Almost all small businesses try to shield themselves from
competition by targeting a specific group of customers
who have an identifiable but very narrow range of product
or service interests and comprise what is called a niche
market. The niche might consist of a uniquely specialized
product or service, or it might focus on serving a particular
geographical area. Numerous small businesses are
uniquely positioned to capture these markets. Successful
entrepreneurs are not overly concerned about their ability
to compete with their larger counterparts. With few
exceptions, large corporations are bureaucracies, with
bureaucrats as managers. As already pointed out, their
R&D methods focus on the status quo. In addition, large
companies have difficulty creating effective incentives for
employees so that they will think
entrepreneurially. There is considerable evidence that
most workers in today's huge corporations are simply not
engaged in their work. Many, like Jim Halper from the
popular TV show “The Office,” would declare, “This is just
a job. ... If this were my career, I'd have to throw myself in
front of a train,"54 The bottom line is that small
companies with an entrepreneurial culture can compete
and compete well.
----------------------------------------------------------------Learning
Objective 5
Building an Entrepreneurial Legacy
When an entrepreneur decides to exit the business,
usually by selling or passing it on to the next generation,
his or her business achievements become history.
Reflecting on their lives and businesses, many
entrepreneurs come face to face with questions such as
these: Was it a good journey? What kind of meaning does
it hold for me now? Can I feel good about it? What are my
disappointments? How did I make a difference?
In anticipating this time of looking back, an entrepreneur
should think in terms of a legacy. A legacy consists of those
things passed on or left behind. In a narrow sense, it
describes material possessions bequeathed to one's heirs.
In a broader sense, it refers to everything that one leaves
behind—material items, good or bad family relationships,
and a record of integrity or greed of contribution or
exploitation. An entrepreneurial legacy includes both - Many businesses are now majority female-owned
tangible items and intangible qualities passed on not only - Movement of women into nontraditional industries
to heirs but also to the broader society. You can
• Problems Facing Female Entrepreneurs
appreciate, then, the seriousness with which the
- Discrimination and difficulties related to gender
entrepreneur needs to consider the kind of legacy he or
- Lack of access to credit
she is building.
- Lack of networking connections
- Balancing work and family life
It is easy for entrepreneurs to get caught up in activities,
working harder and harder to keep up with the busy pace
The Importance of Mentors
of life. Ultimately, such entrepreneurs may find their
• Mentors
business accomplishments overshadowed by the neglect
- Are knowledgeable persons who can offer guidance from
or sacrifice of something more important to them. It's
their experience in a given field.
possible to score points in the wrong game or win battles
- Teach entrepreneurs what and how to do.
in the wrong war.
- Show them how to avoid mistakes.
- Provide entrepreneurs encouragement when needed.
Who are Entrepreneurs??
- A person who starts and/or operates a business.
Your Motivations for Owning a Business
- Individuals who discover market needs and launch new
• Being an entrepreneur:
firms to meet those needs.
- Is extremely challenging.
- Risk takers who provide an impetus for change,
- Takes undying love and passion to keep going.
innovation, and progress.
- Can run in a family.
- All active owner-managers (founders and/or managers of
- Can help make the world a better place.
small businesses).
- Can make meaning in your life.
Varieties of Entrepreneurship
Is Owning a Small Business a Good Fit for You?
1. Founder (“Pure” Entrepreneur)
1. Am I passionate about my product or service?
- A person who brings a new firm into existence
2. What is my tolerance for risk?
2. “Second Stage” Entrepreneur
3. Am I effective in making decisions?
- An administrative entrepreneur who oversees the
4. Am I willing to take on numerous responsibilities?
operations of an ongoing business
5. Will I be able to avoid burnout?
3. Franchisee
- An entrepreneur whose power is limited by the
Why People Become Entrepreneurs
contractual relationship with a franchising organization
• Reluctant Entrepreneur
4. Entrepreneurial Team
- A person who becomes an entrepreneur as a result of
- Two or more people working together as entrepreneurs >
some severe hardship.
Is becoming more common
• Refugee
- A person who becomes an entrepreneur to escape an
New Forms of Entrepreneurship
undesirable situation,
• Social Entrepreneurship
- is entrepreneurial activity whose goal is to find innovative
• Artisan Entrepreneur
solutions to society's most pressing needs, problems, and
- A person with primarily technical skills and little business
opportunities.
knowledge who starts a business
• Social Entrepreneur • Characteristics:
- Seeks ways to solve societal and environmental - Take a paternalistic approach
- Are reluctant to delegate
problems that incorporate the triple bottom line of
- Use few sources of capital
people, profits, and the planet.
- Have a traditional marketing strategy
- Focus on personal sales effort
Women Entrepreneurs
- Have a short planning horizon
• More Women Entrepreneurs
- More women than men are starting new businesses
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

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

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.