Managing Small

Business Start-Ups
CHAPTER 6
 Learning Objectives
 Describe the importance of
entrepreneurship
 Define the personality characteristics of a
typical entrepreneur.
 Explain social entrepreneurship as a vital
part of today’s small business
environment.
 Outline the planning necessary to launch
an entrepreneurial start-up.

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 Learning Objectives (contd.)
 Describe the five stages of growth for an
entrepreneurial company.
 Explain how the management functions of
planning, organizing, leading, and controlling
apply to a growing entrepreneurial company.

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 Entrepreneurship
● Process of initiating a business venture
● Organizing the necessary resources
● Assumes associated risks and rewards

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 Five types of Small Business Exhibit 6.1

Owners
Rewarded by chance to Thrive on the challenge of Enjoy chance to balance
work on something new building a larger, more work and personal life
and creative profitable business

Idealists Optimizers Hard Jugglers Sustainers

24% 21% Workers 20% 15%
20%

Get personal satisfaction High energy people who enjoy

from being a business handling every detail of their own
owner business

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

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 Entrepreneurship and the
Environment
 Turbulence in the technology sector and the
demise of many dot-com start-ups =
heightened concerns about small
companies competing against big business
 Entrepreneurship and small business
 are vital, dynamic increasing important parts of
U.S. economy
 are booming in other countries

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 Why Small Business Today?
Economic changes

Globalization

Increased competition

Advancing technology

New market niches

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 Definition 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
Firms

Exhibit 6.3

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 Who Are Entrepreneurs?
 Diversity of Entrepreneurs
 Often have distinguishing backgrounds and
demographics – 1st born, children of
immigrants
 Emerging growth companies of the next
decade
 Women-owned businesses: in 2005, 6.5 million
businesses that generated $950.6 in revenues and
employ over 7 million
 Minority-owned businesses: growing 17% per year
with African American growing the fastest

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 Characteristics of
Entrepreneurs Exhibit 6.5

Internal Locus of Control Tolerance for Ambiguity

High Energy Level Entrepreneurial Awareness of Passing Time

Personality

Need to Achieve Self-Confidence

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

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 Review of Successful Entrepreneur in
Today’s environment are :

• Realism
• Flexibility
• Passion

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Social Entrepreneurship
• Leaders who are committed to both good
business and positive social change

• they create new business models that

meet critical human needs and solve
important problems

• combines creativity, business smarts, passion

and hardwork
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• Social entrepreneur have a primary goal
of improving society rather than
maximizing
profits

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 Hours Worked per Week by
Owners of New BusinessesExhibit 6.6
30

25

20
Percent % of New
Business Owners

15

10

0
Less than 50 50-59 60-69 70-79 More than 80
SOURCE: National Federation of Independent Business, Reported in Mark Robichaux, “Business First, Family
Second,” The Wall Street Journal, May 12, 1989,B1.

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 Sources of Entrepreneurial Motivation
and New-Business Ideas Exhibit 6.7

Reasons for Starting a Business Source of New-Business Ideas

Joined Family In-depth Understanding

41% Business 37% of Industry/Profession
36% To Control My Future 36% Market Niche Spotted
27% To Be My Own Boss 7% Brainstorming
25% To Fulfill a Dream 4 Copying Someone Else
5% Downsized/Laid Off 4 Hobby

11% Other

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

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 Business Plan
 Document specifying the
business details prepared by
an entrepreneur prior to
opening a new business

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Successful business plans generally share
several characteristics:

• Demonstrate a clear vision

• Provide clear and realistic financial projections

• Profile of potential customers and target

Market

• Include detailed information about the industry

and competitors
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• Provide evidence of an effective
entrepreneurial management team

• Pay attention to good formatting and clear

writing

• Keep the plan short – no more than 50

pages

• Highlight critical risks

• Spell out sources and uses of start up funds

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 • Capture the reader’s interest
with a killer summary

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 Becoming A Business
Owner
3 Basic Legal Forms

● Sole Proprietorship = unincorporated

business owned by an individual for profit
● Partnership = unincorporated business
owned by two or more people
● Corporation = artificial entity created by the
state and existing apart from its owners.

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Sole Proprietorship

• Has total ownership and control

• Owner has unlimited liability

• Financing is harder to obtain

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Partnership

• Wise to draw up and sign a formal

partnership agreement

• The agreement will specify how partners

are to share responsibility and resources and
they will contribute their expertise

• the disadvantages are unlimited liability and

Disagreement that always occur among
strong minded people
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Corporation
• as a separate legal entity, corporation is
Liable for its actions and must pay taxes on its
Income

• it has a legal life of its own and continues to

Exist

• corporation and not the owners are sued

In case of liability

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 Financing Resources
● Crucial concern for entrepreneurs
Debt Financing – money to be repaid at
a later date

Equity Financing – funds invested in

exchange for ownership in the company

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 Tactics
Ways to Become a Business Owner

 Start a New Business

 Advantage – develop and design own way
 Disadvantage – long time to get off ground and to
make profitable

 Buy an Existing Business

 Advantage – shorter time and existing track record
 Disadvantage – need to pay for goodwill

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 Tactics
Ways to Become a Business Owner
 Buy a Franchise = an agreement to sell a
product or service with help from the owner
 Advantage – management help is provided by
owner
 Disadvantage – lack of control

 Participate in a Business Incubator =

shared office space, management, support
services, management advice

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 Five Stages of Growth For an
Entrepreneurial Company
Exhibit 6.10

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Managing a Growing Business

-Need to adjust to growing

business
In order to survive.

- There are five stages of growth

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1. Start Up

• main problem are producing the product

or
Service and obtaining customers
QUESTIONS??
• can we get enough customers?
• Will we survive?
• Do we have enough money?

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2. Survival

• at this stage, the business demonstrates

that
It is a workable business

• Produces a product or service and has

Sufficient customers

• Concern here is about finances and making

Sure revenues exceed expenses
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3. Success

• The company is solidly based and profitable

• Systems and procedures are in place to
allow
the owner to slow down if desired
• Owner can stay involved or consider turning
The business to professional managers

4. Takeoff
• Key problem is how to grow rapidly and
Finance the growth
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• Owner must learn to delegate and the
company must find sufficient capital to invest
in major growth

5. Resource Maturity
• Here the company’s substantial financial
gain may come at the cost of losing its
advantages of small size

• at this stage the company can start

planning
process
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 Managing 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
is not instituted until around the success stage
 Business plan must be living document

 Planning concern – small businesses need

to be Web-savvy

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 Managing a Growing Business
 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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 Managing a Growing Business
 Leading
 Early stages – leader’s 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 hiring
qualified employees

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 Managing a Growing Business
 Controlling
 Financial control – important in each stage
 Initial stages – exercised by simple accounting
records and by personal supervision
 By 3rd stage, operational budgets are in place;
structured control systems

 Control Techniques become more

sophisticated as the firm matures

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