Managing Small Business Start-Ups


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Managing Small Business Start-Ups

  1. 1. Managing Small Business Start-Ups CHAPTER 6 0
  2. 2. Learning Objectives <ul><li>Describe the importance of entrepreneurship to the U.S. economy. </li></ul><ul><li>Define the personality characteristics of a typical entrepreneur. </li></ul><ul><li>Explain social entrepreneurship as a vital part of today’s small business environment. </li></ul><ul><li>Outline the planning necessary to launch an entrepreneurial start-up. </li></ul>0
  3. 3. Learning Objectives (contd.) <ul><li>Describe the five stages of growth for an entrepreneurial company. </li></ul><ul><li>Explain how the management functions of planning, organizing, leading, and controlling apply to a growing entrepreneurial company. </li></ul>0
  4. 4. Entrepreneurship <ul><li>Process of initiating a business venture </li></ul><ul><li>Organizing the necessary resources </li></ul><ul><li>Assumes associated risks and rewards </li></ul>0
  5. 5. Five types of Small Business Owners Idealists 24% Optimizers 21% Hard Workers 20% Jugglers 20% Sustainers 15% Rewarded by chance to work on something new and creative Thrive on the challenge of building a larger, more profitable business Enjoy chance to balance work and personal life Get personal satisfaction from being a business owner High energy people who enjoy handling every detail of their own business SOURCE: Study conducted by Yankelovish Partners, reported in Mark Henricks, “The-Cast,” Entrepreneur (March 2000), 14-16. Exhibit 6.1 0
  6. 6. Entrepreneurship and the Environment <ul><li>Turbulence in the technology sector and the demise of many dot-com start-ups = heightened concerns about small companies competing against big business </li></ul><ul><li>Entrepreneurship and small business </li></ul><ul><ul><li>are vital, dynamic increasing important parts of U.S. economy </li></ul></ul><ul><ul><li>are booming in other countries </li></ul></ul>0
  7. 7. Why Small Business Today? Economic changes Globalization Advancing technology Increased competition New market niches 0
  8. 8. Definition of Small Business <ul><li>Definition used by SBA detailed and complex </li></ul><ul><li>Independently owned and operated </li></ul><ul><li>Not dominant in its field of operation </li></ul><ul><li>Definition in the process of being revised </li></ul>0
  9. 9. Examples of SBA Definition of Small Firms Exhibit 6.3 0
  10. 10. Impact of Entrepreneurial Companies <ul><li>Generate over 50 percent of nonfarm GDP </li></ul><ul><li>97 percent of U.S. exports </li></ul><ul><li>2.6 percent of export value </li></ul><ul><li>Employ over 50 percent of nonfarm private sector </li></ul><ul><li>Businesses with fewer than 500 employees represent 99.7 percent of all the firms with employees in the U.S. </li></ul>0
  11. 11. Who Are Entrepreneurs? <ul><li>Diversity of Entrepreneurs </li></ul><ul><ul><li>Often have distinguishing backgrounds and demographics – 1 st born, children of immigrants </li></ul></ul><ul><ul><li>Emerging growth companies of the next decade </li></ul></ul><ul><ul><ul><li>Women-owned businesses: in 2005, 6.5 million businesses that generated $950.6 in revenues and employ over 7 million </li></ul></ul></ul><ul><ul><ul><li>Minority-owned businesses: growing 17% per year with African American growing the fastest </li></ul></ul></ul>0
  12. 12. Characteristics of Entrepreneurs Awareness of Passing Time High Energy Level Need to Achieve Tolerance for Ambiguity Self-Confidence Entrepreneurial Personality Source: Adapted from Charles R. Kuehl and Peggy A. Lambing, Small Business: Planning and Management (Ft. Worth: The Dryden Press, 1994),45. Internal Locus of Control Exhibit 6.5 0
  13. 13. Hours Worked per Week by Owners of New Businesses 0 5 10 15 20 25 30 Less than 50 50-59 60-69 70-79 More than 80 Percent % of New Business Owners SOURCE: National Federation of Independent Business, Reported in Mark Robichaux, “Business First, Family Second,” The Wall Street Journal, May 12, 1989,B1. Exhibit 6.6 0
  14. 14. Sources of Entrepreneurial Motivation and New-Business Ideas To Control My Future To Fulfill a Dream To Be My Own Boss Downsized/Laid Off Reasons for Starting a Business In-depth Understanding of Industry/Profession Market Niche Spotted Brainstorming Copying Someone Else Hobby Other 37% 36% 7% 4 4 Source of New-Business Ideas 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. Joined Family Business 41% 36% 27% 25% 5% 11% Exhibit 6.7 0
  15. 15. Business Plan <ul><li>Document specifying the business details prepared by an entrepreneur prior to opening a new business </li></ul><ul><ul><li>Clear vision </li></ul></ul><ul><ul><li>Realistic financial projections </li></ul></ul><ul><ul><li>Target market </li></ul></ul><ul><ul><li>Industry and competitors </li></ul></ul><ul><ul><li>Management team </li></ul></ul><ul><ul><li>Critical risks that could threaten success </li></ul></ul>Sources & uses of start-up funds & operating funds 0
  16. 16. Becoming A Business Owner <ul><li>Sole Proprietorship = unincorporated business owned by an individual for profit </li></ul><ul><li>Partnership = unincorporated business owned by two or more people </li></ul><ul><li>Corporation = artificial entity created by the state and existing apart from its owners. </li></ul>3 Basic Legal Forms 0
  17. 17. Financing Resources <ul><li>Crucial concern for entrepreneurs </li></ul><ul><li>Debt Financing – money to be repaid at a later date </li></ul>Equity Financing – funds invested in exchange for ownership in the company 0
  18. 18. Tactics <ul><li>Start a New Business </li></ul><ul><ul><li>Advantage – develop and design own way </li></ul></ul><ul><ul><li>Disadvantage – long time to get off ground and to make profitable </li></ul></ul><ul><li>Buy an Existing Business </li></ul><ul><ul><li>Advantage – shorter time and existing track record </li></ul></ul><ul><ul><li>Disadvantage – need to pay for goodwill </li></ul></ul>Ways to Become a Business Owner 0
  19. 19. Tactics <ul><li>Buy a Franchise = an agreement to sell a product or service with help from the owner </li></ul><ul><ul><li>Advantage – management help is provided by owner </li></ul></ul><ul><ul><li>Disadvantage – lack of control </li></ul></ul><ul><li>Participate in a Business Incubator = shared office space, management, support services, management advice </li></ul>Ways to Become a Business Owner 0
  20. 20. Five Stages of Growth For an Entrepreneurial Company Exhibit 6.10 0
  21. 21. Managing a Growing Business <ul><li>Planning </li></ul><ul><ul><li>Defining goals and deciding on the tasks and use of resources needed to attain them </li></ul></ul><ul><ul><li>As organization grows, formal planning usually is not instituted until around the success stage </li></ul></ul><ul><ul><li>Business plan must be living document </li></ul></ul><ul><li>Planning concern – small businesses need to be Web-savvy </li></ul>0
  22. 22. Managing a Growing Business <ul><li>Organizing </li></ul><ul><ul><li>1 st two stages typically very informal </li></ul></ul><ul><ul><li>At 3 rd stage, success, functional managers are hired </li></ul></ul><ul><ul><li>Rules and regulations, procedural manuals </li></ul></ul><ul><ul><li>Latter stages, delegation </li></ul></ul><ul><li>Outsourcing – organizing approach </li></ul>0
  23. 23. Managing a Growing Business <ul><li>Leading </li></ul><ul><ul><li>Early stages – leader’s vision </li></ul></ul><ul><ul><li>By success stage, must learn to motivate employees or bring in managers who can </li></ul></ul><ul><ul><li>Need for active communication </li></ul></ul><ul><li>Leadership is important because many small firms have a hard time hiring qualified employees </li></ul>0
  24. 24. Managing a Growing Business <ul><li>Controlling </li></ul><ul><ul><li>Financial control – important in each stage </li></ul></ul><ul><ul><li>Initial stages – exercised by simple accounting records and by personal supervision </li></ul></ul><ul><ul><li>By 3 rd stage, operational budgets are in place; structured control systems </li></ul></ul><ul><li>Control Techniques become more sophisticated as the firm matures </li></ul>0
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