2. describe the role of entrepreneurship in society. · 2018-11-15 · entrepreneurship’s role in...
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5–2© 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
1. Discuss the nature of entrepreneurship.
2. Describe the role of entrepreneurship in society.
3. Understand the major issues involved in choosing
strategies for small firms and the role of international
management in entrepreneurship.
4. Discuss the structural challenges unique to
entrepreneurial firms.
5. Understand the determinants of the performance of
small firms.
Learning OutcomesAfter studying this chapter you should be able to:
The Nature of Entrepreneurship
• Entrepreneurship
–The process of planning, organizing, operating, and
assuming the risk of a business venture.
• Entrepreneur
–Someone who engages in entrepreneurship.
• Small Business
–A business that is privately owned by one individual
or a small group of individuals.
–It has sales and assets that are not large enough to
influence its environment.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5–3
The Role of Entrepreneurship in Society
• Research Findings:
–Most new businesses fail within the first few years of
being founded.
–86 percent of U.S. firms employ fewer than 20 people.
–Most U.S. workers work for small businesses.
–The majority of small businesses are owner-operated.
–Small business is a strong presence in both mature
and emerging economies.
–Small business has a strong effect on job creation,
innovation, and is important to big businesses.
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FIGURE 5.1 The Importance of Small Business in the United States
Approximately 86 percent of all U.S. businesses employ fewer
than 20 people; another 11.7 percent employ between 20 and
99 people. In contrast, only about 2.1 percent employ between
100 and 400 workers, and another 0.2 percent employ 500 or
more.
24.5 percent of all U.S. workers are employed by firms with
fewer than 20 people; another 29.6 percent work in firms that
employ between 20 and 99 people. 25.5 percent of U.S.
workers are employed by firms with 100–499 employees, and
another 20.3 percent work for businesses that employ 500 or
more total employees.
Entrepreneurship’s Role in Society
• Small Businesses’ Role in Job Creation
–Create many of the new jobs in the U.S.
–Dominate sectors that have added the most jobs.
–Represent 33.5% of all U.S. exporters.
• Innovation
–Major innovations are as likely to come from small
businesses as from large firms.
–Much of what is created in the high-technology sectors
comes from start-up companies.
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FIGURE 5.2 Representative Jobs Created and Lost in 2013
Barclays
Merck & Co.
JP Morgan
Wells Fargo
Bank of America
IBM
Aetna
Eli Lilly
AIG
–12,000
–8,500
–8,000
–6,000
–4,200
–3,020
–3,000
–1,600
–1,500
Kroger
Toys R Us
Caterpillar
AT&T
Amazon.com
Motorola
CarMax
Ford
Nissan
+7,000
+6,750
+2,000
+1,200
+3,000
+2,500
+3,500
+1,200
+1,000
JOB LOSSES
JOB GAINS
Entrepreneurship’s Importance
to Big Business
• Most products made by large manufacturers
are sold to customers by small businesses.
• Small businesses as suppliers provide large
firms with services, supplies, and raw materials.
• Large businesses outsource many routine
business operations such as packaging,
delivery, and distribution to small businesses.
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Strategy for Entrepreneurial Organizations
5–9
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Emphasizing
distinctive
competencies
Gaining
first mover
advantage
Choosing an
industry in which
to compete
Basic Strategic
Challenges
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FIGURE 5.3 Small Business (Businesses with Fewer than 20 employees)
by Industry
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FIGURE 5.4 Economies of Scale in Small-Business Organizations
Strategically Utilizing
Distinctive Competencies
Identifying new
markets
Taking first-mover
advantage
Identifying niches
in current markets
Seeking Competitive
Advantage
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Emphasizing Distinctive Competencies
• Identifying niches in an established market
–Finding part of a market not currently being exploited
can offer a competitive advantage.
• Identifying new markets
–Transferring an existing product/service to a new
market can create new industries/products/services.
• Taking first-mover advantage
–Exploiting a market opportunity before any other firm
does can result in a competitive advantage.
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Management Challenge Question
• What would you caution an entrepreneur about
the dangers of taking first-mover advantage?
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Writing a Business Plan
• Business Plan
–Is a document that summarizes
business strategy and structure.
–Should include:
• Business goals and objectives.
• Strategies used to achieve these
goals and objectives.
• A plan of how the entrepreneur
will implement these strategies.
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Entrepreneurship and
International Management
• There is potential for
expansion and growth in
foreign markets.
• While there are risks, entering
a foreign country’s market can
be a real catalyst for success.
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Starting a New Business
• Buying an Existing Business
–Business has a proven ability to draw customers and
make a profit.
–Networks are already established.
–Negative: New owners inherit existing problems.
• Starting from Scratch
–Avoids problems associated with previous owners.
–Allows freedom to choose suppliers, equipment,
location, and workers.
–Negative: More business risk and uncertainty.
5–17
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Identifying a Business Opportunity
Who are my
customers?
Where are they?
At what price
will they buy my
product?In what
quantities will
they buy?
Who are my
competitors?
How will my
product differ from
those of my
competitors?
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Financing the New Business
Venture Capital
Companies
Small-Business
Investment
Companies
SBA Financial
Programs
Sources of
New Business
Financing
Personal
Resources
Strategic
Alliances
Lenders
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Financing the New Business
• Personal Resources
– Using own money and
money borrowed from
friends and relatives to
finance the business.
• Strategic Alliances
– Partnering with established
firms such as suppliers in a
mutually beneficial
relationship.
• Lenders
– Obtaining funding from
traditional lenders
(e.g., banks, independent
investors, and government
loans).
• Venture Capital
Companies
– Groups of small investors
who provide capital funds to
small high-growth potential
start-up firms in exchange
for an equity position (stock)
in the firms.
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Financing the New Business (cont’d)
• Small-Business Investment Companies (SBICs)
–Are investor-owned companies that borrow money
from the SBA to loan to small business with high
growth potential.
–Minority Enterprise Small-Business Investment
Companies (MESBICs) specialize in financing
businesses owned by minorities.
• SBA Financial Programs
–Provide assistance (e.g., SBA-guaranteed loans) for
small businesses unable to get private financing at
reasonable terms.
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Seeking New Business Advice
Advisory Boards
Management Consultants
Small Business Administration
Networking with Others
Sources of
Management
Advice
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5–22
Sources of Help for Entrepreneurs
• Boards of directors
• Management consultants
• SBA
• Trade associations
• Small-business networks
• Pooling
• Accountants
• Bankers
• Lawyers
• Insurance agents
• Computer consultants
Management Help Professional Help
Outside Help
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Franchising
• Franchising Agreement
–Operation of the franchised business
by the entrepreneur (the franchisee)
under a license by a parent firm (the
franchiser).
–The entrepreneur pays the parent firm
for use of trademarks, products,
formulas, and business plans.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5–24
Franchising (cont’d)
• Advantages
–Reduced financial risk
of new business
success through
experience provided by
franchiser.
–Training, financial, and
management support
by franchiser.
• Disadvantages
–Start-up fees to
purchase franchise.
–Limitations of franchise
(market area, product,
customers).
–Loss of independence
due to imposed
operational controls of
franchiser.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5–25
Management Challenge Questions
• “Business is about relationships”
–What personal characteristics of a franchisee would
an entrepreneur/franchisor likely find most attractive?
most unattractive?
–What personal characteristics of a franchisor would an
entrepreneur/potential franchisee likely find most
attractive? most unattractive?
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FIGURE 5.5 Business Start-Up Successes and Failures
The Performance of
Entrepreneurial Organizations
Crossovers to small business
by former large-business
employees
The emergence
of E-commerce
Trends in New Business Start-Ups
Better survival rates for
small businesses
Increased entrepreneurial
opportunities for minorities
and women
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Entrepreneurial Success and Failure
• Reasons for Failure
– Managerial incompetence/
inexperience of the
entrepreneur.
– Neglect in not devoting
sufficient time and effort to
the business.
– Weak control systems that
do not warn of impending
problems.
– Insufficient capital to sustain
the business until it starts to
turn a profit.
• Reasons for Success
– Hard work, drive, and
dedication by the
entrepreneur.
– Careful analysis of market
conditions provides insights
about business conditions.
– Managerial competence
through training and
experience contributes to
success.
– Luck sometimes plays a
role.
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