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Strategic Issues in Entrepreneurial and Small Businesses By Roula Abou Samra
Importance of Small Business and Entrepreneurial Ventures 95% of business in the US are small businesses. During the 1990s, 85% of new jobs in the US were created by small firms and 70% of these by the fastest growing entrepreneurial firms.
Perhaps the most significant policy contribution over the last 30 years to U.S. entrepreneurship has been the creation of a vibrant capital market to finance Entrepreneurial growth companies.
Small companies are responsible for a HIGH proportion of INNOVATIONS in products and services
Rule of thumb 50% of businesses founded in any 1 year are Not in business 5 years later
Inadequate accounting system Inability to cope with growth Inability to plan a strategy to reach the customer Failure to develop a system of control to keep track of performance
Small business firm Independently owned and operated Not dominant in its field Does NOT engage in entrepreneurial activities Employees < 500 and Sales < $ 20 million annually Entrepreneurial venture
Any business whose primary goals are Profitability and Growth and that can be characterized by Innovative Strategic Practices.
“ Most firms start with just a single product. Those oriented toward growth immediately start looking for another one. It’s the planning approach that separates the entrepreneur from the small business owner”
Who is the entrepreneur? A person who organizes and manages a business undertaking and who assumes risk for the sake of profit => He is the ultimate strategist. “Entrepreneurs are strategic planners without realizing it”
Entrepreneurial CharacteristicsA key to a new venture's success
Lack of strategic planning in many small-business firms are due to the following: Not Enough time Unfamiliar with strategic planning Lack of skills Lack of trust and openness
Degree of Formality Research concluded that : strategic planning process can be far more informal in small companies than it is in large companies. As an entrepreneurial firm matures, its strategic planning process tends to be more formal.
Informal Questions to Begin the strategic management process in a small company or entrepreneurial venture Formal Informal Define mission What do we stand for? Set objectives What are we trying to achieve? Formulate strategy How are we going to get there? Determine policy What sort of ground rules do we follow to make the job done right? Establish programs How should we organize this operation with lowest cost and highest quality possible? Prepare pro forma budgets How much is it costing us and where to get cash from? Specify procedures In how much detail do we have to lay things out so everyone knows what to do? Determine performance measures What are those few keys to determine if we can make it? How can we keep track of them?
Modified version of strategic decision-making process for entrepreneurial ventures 2a. Scan Environment: - Social trends - Industry potential 2b. Locate Opportunities & Threats 8. Evaluate performance against projections Evaluation & Control: Step 8 Strategy implementation: Step 7 7. Implement Business plan: Action plans & Procedures 1. Develop Basic Business Idea:
Cisco Systems now one of the top providers of Internet routers and servers was initially financed from the personal savings and borrowings of its two founders.
Reasons why family businesses may fail to successfully transfer ownership to the next generation are: Inherited wealth destroys entrepreneurial drive The entrepreneur does not allow for a changing firm Emphasis on business means family is neglected The business’s financial growth can’t keep up with the rising family lifestyles Family members are not prepared to run a business Business becomes an arena for family conflicts Ignoring succession plan
Issues in evaluation and control for a small privately owned company
“All people are entrepreneurs, but many don't have the opportunity to find that out.”Muhammad Yunus Famous for being known as the banker to the poor with his pioneering efforts in Microcredit or Microfinance where the poorest people of society are encouraged rise above poverty. Yunus was also awarded the Nobel Peace Prize in 2006.