Chapter 6:Entrepreneurship and

Small Business

BOH4MI

Business Leadership

Discussion Question

What are the advantages to owning your own business?

What are the disadvantages to owning your own

business? 2

Day 1 - The Nature of Leadership

Today’s dynamic environment demands that organizations and their managers adapt and renew themselves continually over time to succeed

Success in a highly competitive business environment depends on entrepreneurship

___________________ is strategic thinking and risk-taking behavior that results in the creation of new opportunities for individuals and/or organizations

Entrepreneurship

Who are the Entrepreneurs?

__________________ are risk-taking individuals who take actions to pursue opportunities and situations others may fail to recognize or may view as problems or threats

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

Entrepreneurs

Characteristics of Entrepreneurs

Entrepreneurs tend to share certain attitudes and personal characteristics seen below;

_________________________ – entrepreneurs believe that they are in control of their own destiny; they are self-directing and like autonomy

_______________________ – entrepreneurs are persistent, hard working, and willing to exert extraordinary efforts to succeed

____________________________– entrepreneurs are motivated to accomplish challenging goals; they thrive on performance feedback

Internal Locus of Control

High Energy Level

High Need for Achievement

Characteristics of Entrepreneurs Con’t

________________________ – entrepreneurs are risk takers; they tolerate situations with high degrees of uncertainty

_______________ – entrepreneurs feel competent, believe in themselves, and are willing to make decisions

___________________________ – entrepreneurs try to act ahead of problems; they want to get things done and not waste valuable time

Tolerance for Ambiguity

Self-Confidence

Passion and Action-Orientation

Characteristics of Entrepreneurs Con’t

___________________________________ – entrepreneurs want independence; they are self reliant they want to be their own boss and not work for others

_____________ – entrepreneurs are willing to admit problems and errors, and to change a course of action when plans aren’t working

Self Reliance and Desire for Independence

Flexibility

Personality Traits and Characteristics of Entrepreneurs

Backgrounds and Experiences

Typical entrepreneurial backgrounds and experiences include: 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

Challenging the Myths about Entrepreneurs

Entrepreneurs are born, not made Not True! Talent gained and enhanced by

experience is a foundation for entrepreneurial success

Entrepreneurs are gamblersNot true! Entrepreneurs are risk takers, but the

risks are informed and calculatedMoney is the key to entrepreneurial success

Not true! Money is no guarantee of success: many entrepreneurs start with very little

Challenging the Myths about Entrepreneurs

You have to be young to be an entrepreneurNot true! Age is no barrier to entrepreneurship;

with age often comes experience, contacts, and other useful resources

You have to have a degree in business to be an entrepreneurNot true! You may not need a degree at all;

although a degree is not necessary, it helps to study and understand business fundamentals

Diversity and Entrepreneurship

In comparison with other countries, women in Canada

make up a larger share of the self employed population

with over one third of the self employed Canadians in

2002 being women

Reasons many women become entrepreneurs:

– Being motivated by a new idea

– Doing for themselves what they were already doing for other

employers

– Seeking a pathway to opportunity

Entrepreneurship and Small Business

Small businesses …– Have 100 or fewer employees– Are independently owned and operated– 50 percent of the private labour force work in or for a

small business

Small businesses are established by:– Starting a new business– Buying an existing business– Buying and running a franchise

Entrepreneurship and Small Business

A _____________ is when one business owner sells to another the right to operate the same business in another location

What motivates someone to become an entrepreneur?Wanting to be your own boss and controlling

your futureGoing to work for a family owned businessSeeking to fulfill a dream

Franchise

Entrepreneurship and the Internet

The Internet offers numerous entrepreneurial opportunities– Online buying and selling– Dot-com businesses

Businesses today are limited only by personal creativity

Business-to-Business (B2B) ventures are possible; using the Internet to link buyers and sellers

International Business Entrepreneurship

Provides strategic opportunities for small businesses

Expanded markets

Additional financing

Access to quality and lower cost resources

Access to labour and technical expertise

Locations for low-cost manufacturing

Creates exporting and importing opportunities

Supported through appropriate governmental and non-

governmental organizations

Family Businesses

Family businesses are owned and financially controlled by family members

Family businesses makeup the largest percentage of businesses worldwide

Problems unique to family businesses:– ________________________ – members of the family get into

disagreements about work responsibilities, business strategy, operating approaches, finances, and other members

– _______________________ – transferring leadership from one generation to the next. Business advisors recommend a succession plan: a formal statement that describes how the leadership transition and related financial matters will be handled when the time for changeover arrives

Family Business Feud

Succession Problem

Why Many Small Businesses Fail

__________________ – not having sufficient know how to run a business in the chosen market or area

_________________ – not having expertise in the essentials of business; including finance, purchasing, selling and production

______________________________________ – not taking time to craft a vision and mission, or formulate and properly implement strategy

Lack of Experience

Lack of Expertise

Lack of Strategy and Strategic Leadership

Why Many Small Businesses Fail

_______________________ – not keeping track of the numbers and failure to control business finances

__________________ – not taking time to consolidate a position, fine tune the organization, and systematically meet the challenges of growth

________________________ – not devoting enough time to the requirements of running a competitive business

________________ – falling prey to temptations of fraud, deception and embezzlement

Poor Financial Control

Growing Too Fast

Insufficient Commitment

Ethical Failure

Eight Reasons Why Many Small Businesses Fail

Day 1 Assigned Work

Read the Why Small Businesses Fail article (posted on ClassNet) and answer the questions on the handout provided

Discussion Question

Based on your previous knowledge, what stage of the

business life cycle (birth, breakthrough or maturity) do you

believe is the most challenging for a new business? Why?

22

Day 2 – New Venture Creation

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 _____________________ by being the

first to exploit a niche or enter a market?First Mover Advantage

Questions that Keep a New Venture Focused on it’s Customers

Who is your customer? How will you reach key customer market segments? What determines customer choices to buy or not buy your

product/service? Why is your product/service a compelling choice for the

customer? How will you price your product/service for the customer? How much does it cost to make and deliver your

product/service? How much does it cost to attract a customer? How much does it cost to support and retain a customer?

Life Cycles of Entrepreneurial Firms

Stage 1: ________________ The entrepreneur struggles to get the new venture established

and survive long enough to test the viability of the underlying business model in the market place

Stage 2: _______________________ The business model begins to work well, growth is experienced,

and the complexity of managing the business operation expands significantly

Stage 3: _____________________ The entrepreneur experiences the advantages of market success

and financial stability, while facing the continuous challenge of remaining competitive in a changing environment

Birth Stage

Breakthrough Stage

Maturity Stage

Stages in the Life Cycle of an Entrepreneurial Firm

Writing a Business Plan

When people start a new business, they can greatly benefit from a good _____________: this is a plan that describes the direction for the new business and the financing needed to operate it

Bankers and investors will want to see the business plan before they loan money or invest in a new venture

“If you fail to plan, you plan to fail”

Business Plan

Business Plan: Items to Include

__________________ – overview of the business purpose and highlights key elements of the plan

__________________ – nature of the industry, including economic trends, legal and regulatory issues and potential issues

____________________ – mission, owners and legal form of ownership

__________________________ – explanation of goods and/or services, with a special focus on uniqueness, as compared to the competition

Executive Summary

Industry Analysis

Company Description

Product/Service Descriptions

Business Plan: Items to Include

__________________ – size of market, competitor strengths and weaknesses, 5 year sales goals

__________________ – product characteristics, distribution, promotion, pricing and market research

_____________________ – manufacturing or service methods, supplies and suppliers, and control procedures

___________________ – management and staffing skills needed, compensation, human resource system

Market Description

Marketing Strategy

Operations Description

Staffing Description

Business Plan: Items to Include

____________________ – cash flow projections for one to five years, break-even points, and phased investment capital

_______________ – amount of funds needed to run the business, amount available, amount requested from new sources

___________ – a timetable of dates showing when key stages of the new venture will be completed

Financial Projection

Capital Needs

Milestones

Choosing the Form of Ownership

1. ___________________

An individual pursuing business for a profit

Advantages: easy to start, run and terminate

Disadvantages: the business owner is personally

liable for business debts and claims

E.g. Tina Lopez Designs, Dr. Stephen Morrison,

Dentist, etc.

Sole Proprietorship

Choosing the Form of Ownership

2. ____________

Formed when two or more people agree to

contribute resources to start and operate a

business together

A business partnership is typically backed by a

legal and written partnership agreement where the

partners agree upon the contribution of resources

and skills to the new venture and the sharing of

profits and losses

Partnership

Choosing the Form of Ownership

2. Partnership continued There are main 3 types of partnership:

A. _______________________ The simplest and most common form where the

partners also share the management responsibilitiesB. _______________________ Consists of a general partner and one or more

“limited” partners who do not participate in the day to day management

C. _______________________________ Common among professionals such as accountants Limits the liability of the one partner from the neglect

of the other

General Partnership

Limited Partnership

Limited Liability Partnerships

Choosing the Form of Ownership

3. ___________________

A legal entity that that exists separately from its owners

Commonly identified by the “Inc.” in the name

The corporation can be for profit, e.g. Microsoft, or not for profit, e.g.

Canadian Red Cross Society

Advantages:

It grants the organization certain legal rights (e.g. to enter into contracts)

The corporation becomes responsible for its own liabilities. This separates the

owners from personal liability and gives the firm a life of its own that can be

extended beyond that of its owners

Disadvantages:

Costly to incorporate

Complexity of documentation to be completed

Corporation

Choosing the Form of Ownership

4. _________________________________

A hybrid business form combining advantages of the

sole, partnership and corporation

For liability purposes it functions like a corporation,

protecting the assets of owners against claims made

against the company

For tax purposes it functions as a partnership in the case

of multiple owners and as a sole proprietor in the case of

a single owner

Limited Liability Corporation (LLC)

Financing the New Venture

Starting a new venture takes money and that money must often be raised, as the cost of start-up will most likely exceed the amount available from personal sources

The two major ways that entrepreneurs can obtain financing are …– ___________________ – involves borrowing money that must be

repaid over time with interest

– ___________________ – involves exchanging ownership shares for outside investment money. This money doesn’t need to be paid back and the investor assumes the risk for potential gains and losses

Debt Financing

Equity Financing

Financing the New Venture

Equity Financing Alternatives _______________________ are companies that pool capital and make

investments in new ventures in return for equity stake in the company They make large investments and usually take a management role in order

to grow the business and add value as soon as possible

An _______________________ is when shares of stock in the business are first sold to the public and then begin trading on a major stock exchange

An __________________ is a wealthy individual willing to make an investment in return for equity in the new business The presence of angel investors can help raise the confidence and interest

of other venture capitalists and attract additional funding

Venture Capitalists

Initial Public Offering

Angel Investor

Entrepreneurship in Large Organizations

____________________ is entrepreneurial behaviour displayed

by people or subunits within a larger organization Through the efforts of intrapreneurs organizations are able to turn new

ideas into profitable new products, services and business ventures

Managers often find that gaining a competitive advantage and

success through intrapreneurship depends on the ability of large

organizations to act like small ones. To do this they often create

small subunits called ________________; in which teams are

allowed to work together in a unique setting that is highly

creative and free from operating restrictions

Intrapreneurship

Skunkworks

Business Incubation

Individual entrepreneurs who start their own business face many challenges

One way that motivation towards entrepreneurship can be maintained is through the support of a ____________________ This is special facility that offers space, a variety of

administrative services, and management advice to help small businesses get started

Incubators share the common goal of helping to build successful new businesses that create jobs and improve economic development

They nurture businesses in incubators to help them grow quickly and become healthy enough to survive on their own

Business Incubator

Small Business Development Centres

With small businesses playing such an important economic role, a variety of resources are available to promote their development

________________________________________ offer guidance to entrepreneurs and small business owners – actual and prospective – in how to set up and successfully run business operationsOften these centres are associated with universities or

collegesThey offer opportunities for students to become

involved as consultants and learn first hand the nature of small business and entrepreneurship

Small Business Development Centres (SBDCs)

Day 2 Assigned Work

MC Questions #1 – 15 on pages 165 & 166

Complete Self-Assessment #10: Entrepreneurship Orientation on page W89