Chapter 3

Entrepreneurship and Small

Business Management
 Planning Ahead —Study Questions

 What is entrepreneurship?

 What is special about small businesses?

 How does one start a new venture?

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 Study Question 1: What is entrepreneurship?

 Entrepreneurship
– Strategic thinking and risk-taking behavior that
results in the creation of new opportunities for
individuals and/or organizations.
 Entrepreneurs
– Risk-taking individuals who take actions to
pursue opportunities and situations others may
fail to recognize or may view as problems or
threats.

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 Study Question 1: What is entrepreneurship?

 Entrepreneurs are …
– Founders of businesses that become large-scale
enterprises.
– People who:
• Buy a local franchise outlet
• Open a small retail shop
• Operate a self-employed service business
– People who introduce a new product or
operational change in an existing organization.

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 Study Question 1: What is entrepreneurship?

 Typical characteristics of entrepreneurs:

– High energy level
– High need for achievement
– Tolerance for ambiguity
– Self-confidence
– Passion and action-orientation
– Self-reliance and desire for independence
– Flexibility

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 Study Question 1: What is entrepreneurship?

 Typical entrepreneurial backgrounds and experiences:

– Parents were entrepreneurs or self-employed.
– Families encouraged responsibility, initiative, and
independence.
– Have tried more than one business venture.
– Have relevant personal or career experience.
– Become entrepreneurs between 22 and 45 years of age.
– Have strong interests in creative production and
enterprise control.
– Seek independence and sense of mastery.

Management 9/e - Chapter 6 6

 Study Question 1: What is entrepreneurship?

 Changing face of entrepreneurship

– Necessity-based entrepreneurship
• Driven by absolute need.
• Few to no employment or career options elsewhere.
– Social entrepreneurship
• Seeks novel ways to solve social problems at home and
abroad.
• May include job training for homeless, improving
literacy among disadvantaged youth, providing start-up
capital for minority-owned businesses.

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 Study Question 1: What is entrepreneurship?

 Reasons for women becoming entrepreneurs:

– Being motivated by a new idea.
– Doing for themselves what they were already
doing for other employers.
– Seeking a pathway to opportunity.

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 Study Question 1: What is entrepreneurship?

 Common myths about entrepreneurs:

– Entrepreneurs are born, not made.
– Entrepreneurs are gamblers.
– Money is the key to entrepreneurial success.
– You have to be young to be an entrepreneur.
– You must have a degree in business to be an
entrepreneur.

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 Study Question 2: What is special about small businesses?

 Small businesses …
– Ones with 500 or fewer employees.
– Independently owned and operated.
– Constitute 99 percent of American businesses.
– Are established by:
• Starting a new business.
• Buying an existing business.
• Buying and running a franchise.

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Study Question 2: What is special about small businesses?

 Entrepreneurship and the Internet …

– The Internet offers numerous entrepreneurial
opportunities.
• Online buying and selling
• Dot-com businesses
– Businesses are limited only by personal
creativity.

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 Study Question 2: What is special about small businesses?

 Family businesses …
– Owned and financially controlled by family
members.
– Largest percentage of businesses worldwide.
– Can provide an ideal business situation.
– Problems unique to family businesses:
• Family business feud
• Succession problem

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Eight reasons why many small businesses fail.

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 Study Question 3: How does one start a new venture?
 Important issues in new venture creation:
– Does the entrepreneur have good ideas and the courage to give
them a chance?
– Is the entrepreneur prepared to meet and master the test of
strategy and competitive advantage?
– Can the entrepreneur identify a market niche that is being missed
by other established firms?
– Can the entrepreneur identify a new market that has not yet been
discovered by existing firms?
– Can the entrepreneur generate first-mover advantage by
exploiting a niche or entering a market before competitors?

Management 9/e - Chapter 6 14

 Stages in the life cycle of an entrepreneurial firm.

Each stage poses different managerial challenges and

requires different managerial competencies.

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 Role of Business

• Business plays several key roles in the Economy:

– To make and distribute products and services needed
by consumers, government, and other businesses
– Provide employment for millions of people
– Businesses pay taxes
 Impact on a Community
• When a new business opens, it pays wages to its
workers
• It also buys goods and services from other
businesses in the area.
– The money spent may result in the need for more
employees in the community
• When a large business opens in an area, other
businesses will often locate there to support.
 Business Activities
Although there are many types and sizes of businesses, all
firms perform 6 basic activities:
1.Generating Ideas
A business begins with a new idea
Continue to improve and develop ideas in order to
remain successful
2.Raising Capital
Businesses need financial resources to operate
 Business Activities
3. Employing and Training Personnel
– Businesses need human resources
– Businesses have procedures for recruiting, hiring, and
training employees.
4. Buying Goods and Services
– Businesses use many of the purchases for their own
operations
 Business Activities

5. Marketing Goods and Services

– Marketing refers to the activities directed at providing
the goods and services wanted by business’s customers
6. Maintaining Business Records
– Owners and mangers need records to keep track
performance and make decisions
 Types of Businesses
 Producers
• Create products and services used by individuals and
other businesses.
• A business that takes resources from nature for direct
consumption or for the use in developing other products
is an extractor
• Farmers cultivate land and use other natural resources
to grow crops and raise livestock for consumption
• Manufacturers get supplies from other producers and
convert them into products
 Types of Businesses
 Intermediaries
– Businesses involved in selling the goods and services of
producers to consumers and other businesses.
– Retailors and wholesalers

 Service Businesses
– Carries out activities that are consumed by its customers
– Dentists, physicians, lawyers
 Business Ownership
• Proprietorship – A business owned and run by just
one person.
– There a very few legal requirements regarding the
business ownership or capital needs that must be
met.
– Sole control over all business decisions
– Owner receives all profits
– Responsible for all debts
• Choosing a Proprietorship
– Most businesses begin as a proprietorship
– Just have to begin buying and selling as a business
– Account for income and expenses and pay taxes on
the profits of the business
– Provides a tax advantage for the owner
– All income is taxed as part of your personal income
 Business Ownership

• Partnership – A business owned and controlled by

two or more people who have entered into an
agreement
– The owners are both responsible for key business
decisions and functions.
– Partners share both investments and profits based
on the terms of the partnership agreement
– Each partner is liable for all debts of the business
• Choosing a Partnership
– Partnership Agreement – a written agreement among all
owners
– Identifies the business name, the investments, and other
contributions of each partner.
– Two or more people can contribute to the investment
needed to start the business as well as the expertise
required to run a business.
– There is no protection for the personal assets of any
partner
 Business Ownership
• Corporation – a separate legal entity formed by
documents filed with a state.
– Owned by one or more shareholders and managed by a
board of directors.
– Meet more legal requirements
– Not all owners have direct involvement in decision-making
about business functions
– Corporations protect the liability of stockholders to only
the amount of money they have invested
Choosing a Corporation
Most popular form of ownership for large businesses
Subjected to many more laws and more difficult to form than other
forms of ownership
Articles of Incorporation – a written legal document that defines
ownership and operating procedures and conditions for the business
Corporate bylaws – operating procedures for the corporation
Board of Directors – people who will make major policy and financial
decisions for the business
 Other Forms of Ownership
– Nonprofit Organization is a group of people who join to do some
activity that benefits the public
• Cooperatives and Franchises
– Cooperative is owned by members, serves their needs, and is
managed in their interest.
– Franchise - is a written contract granting permission to operate a
business to sell products and services in a set way.
• Franchiser
• Franchisee
 Study Question 3: How does one start a new venture?
 Basic items that should be included in a business plan:
– Executive summary
– Industry analysis
– Company description
– Product and services description
– Market description
– Marketing strategy
– Operations description
– Staffing description
– Financial projection
– Capital needs
– Milestones

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Film Showing

The Social Network is the stunning tale of a

new breed of cultural insurgent: a punk
genius who sparked a revolution and changed
the face of human interaction for a
generation, and perhaps forever. Shot
through with emotional brutality and
unexpected humor, this superbly crafted film
chronicles the formation of Facebook and the
battles over ownership that followed upon the
website's unfathomable success. The Social
Network bears witness to the birth of an idea
that rewove the fabric of society even as it
unraveled the friendship of its creators.