Introduction to management 13th schemerhorn bachrach chapter 06

John R Schermerhorn, Jr Daniel G Bachrach Introduction to Management th 13 edition Chapter Entrepreneurship and Small Business Management Planning Ahead – Key Takeaways  Define entrepreneurship and identify entrepreneurs  Describe how small businesses get started and common problems they face  Explain how entrepreneurs plan, legally structure, and fund new business ventures Copyright ©2015 John Wiley & Sons, Inc Chapter Outline The Nature of Entrepreneurship Who are the entrepreneurs? Characteristics of entrepreneurs Women and minority entrepreneurs Social entrepreneurship Entrepreneurship and Small Business Why and how small businesses get started Why small businesses fail Family-owned small businesses Copyright ©2015 John Wiley & Sons, Inc Chapter Outline New Venture Creation Life cycles of entrepreneurial firms Writing a business plan Choosing the form of ownership Financing the new venture Copyright ©2015 John Wiley & Sons, Inc The Nature of Entrepreneurship Entrepreneurship • Risk-taking behavior that results in new opportunities Classic entrepreneur • Pursues opportunities others view as problems Serial entrepreneur • Starts and runs business and nonprofits over and over again First-mover advantage • First to exploit a niche or enter a market Copyright ©2015 John Wiley & Sons, Inc The Nature of Entrepreneurship Intrapreneurs  Display entrepreneurial behavior as employees of larger firms Copyright ©2015 John Wiley & Sons, Inc Figure 6.1 Personality traits and characteristics of entrepreneurs Copyright ©2015 John Wiley & Sons, Inc The Nature of Entrepreneurship  Female and minority entrepreneurs are growing in numbers  Necessity-based entrepreneurship  People start a business because no other employment opportunities exist Copyright ©2015 John Wiley & Sons, Inc The Nature of Entrepreneurship Social entrepreneurship – Unique form of ethical entrepreneurship that seeks new ways to solve pressing social problems – Social entrepreneurs • Take risks to find new ways to solve pressing social problems such as poverty, literacy, illness, homelessness Copyright ©2015 John Wiley & Sons, Inc Entrepreneurship and Small Business A small business has fewer than 500 employees Copyright ©2015 John Wiley & Sons, Inc Entrepreneurship and Small Business Starting a small business – Franchise • One business owner sells to another the right to operate the same business in another location – Business model • Plan for making a profit by generating revenues that are greater than costs – Startup • New and temporary venture that is trying to establish a profitable business model – Lean startups • Use open source software and free web services to contain costs while staying small and keeping operations simple Copyright ©2015 John Wiley & Sons, Inc Entrepreneurship and Small Business Why small businesses fail – SBA reports that about 50% of new businesses fail in first five years – Reasons why small businesses fail - Insufficient financing - Lack of experience - Lack of commitment - Lack of strategy and strategic leadership - Ethical failure - Lack of expertise - Growing too fast - Poor financial control Copyright ©2015 John Wiley & Sons, Inc Figure 6.2 Eight reasons why many small businesses fail Copyright ©2015 John Wiley & Sons, Inc Entrepreneurship and Small Business Family-owned small businesses – – – – Account for 78% of new jobs created in the U.S Provide 60% of the nation’s employment Feuds result when family members disagree over how the business is run Possible succession problems • Who will run the business when the current head leaves? • Succession plan outlines leadership transition and financial matters Copyright ©2015 John Wiley & Sons, Inc Entrepreneurship and Small Business Small business development  Business incubator  Offers space, shared services and advice to get small businesses started  Small Business Development Centers  Founded with U.S Small Business Administration to provide advice to new and existing small businesses Copyright ©2015 John Wiley & Sons, Inc Figure 6.3 Stages in the life cycle of an entrepreneurial firm Copyright ©2015 John Wiley & Sons, Inc New Venture Creation Business plan  Describes the direction for a new business and the financing needed to operate it  Banks want to see a well-developed business plan before loaning money Copyright ©2015 John Wiley & Sons, Inc New Venture Creation Sample Business Plan Outline:  Executive summary  Industry analysis  Company description  Products and services description  Market description  Marketing strategy  Operations description  Staffing description  Financial projection  Capital needs  Milestones Copyright ©2015 John Wiley & Sons, Inc New Venture Creation Forms of ownership  Sole Proprietorship  An individual or married couple pursuing business for a profit This does not involve incorporation Copyright ©2015 John Wiley & Sons, Inc New Venture Creation Forms of ownership – Partnership • Two or more people agree to contribute resources to start and operate a business together Copyright ©2015 John Wiley & Sons, Inc New Venture Creation Forms of ownership – Corporation • A legal entity that exists separately from its owners – Benefit Corporation (B Corp) • Corporate form for businesses whose stated goals are to combine making a profit with benefiting society and the environment combination of sole proprietorship, partnership, and corporation Copyright ©2015 John Wiley & Sons, Inc New Venture Creation Forms of ownership – Limited Liability Corporation (LLC) • A combination of sole proprietorship, partnership, and corporation – Protects owners against personal loss other than what is invested in the company – Treated as a proprietorship or partnership for tax purposes Copyright ©2015 John Wiley & Sons, Inc New Venture Creation Financing – Debt Financing • Involves borrowing money from another person, a bank, or a financial institution – Equity Financing • Involves exchanging ownership shares for outside investment monies – Venture Capitalists • Involves making large investments in new ventures in return for an equity stake in the business Copyright ©2015 John Wiley & Sons, Inc New Venture Creation Financing – Angel Investor • A wealthy individual willing to invest in return for equity in a new venture – Crowdfunding • Entrepreneurs starting new ventures go online to get startup financing from crowds of investors Copyright ©2015 John Wiley & Sons, Inc  ... incubator  Offers space, shared services and advice to get small businesses started  Small Business Development Centers  Founded with U.S Small Business Administration to provide advice to new... form of ethical entrepreneurship that seeks new ways to solve pressing social problems – Social entrepreneurs • Take risks to find new ways to solve pressing social problems such as poverty, literacy,... Creation Forms of ownership – Partnership • Two or more people agree to contribute resources to start and operate a business together Copyright ©2015 John Wiley & Sons, Inc New Venture Creation