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Managing Small Business Start-Ups

0. Managing Small Business Start-Ups. CHAPTER 6. 0. Learning Objectives. Describe the importance of entrepreneurship to the U.S. economy. Define the personality characteristics of a typical entrepreneur. Explain social entrepreneurship as a vital part of today’s small business environment.

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Managing Small Business Start-Ups

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  1. 0 Managing Small Business Start-Ups CHAPTER 6

  2. 0 Learning Objectives • Describe the importance of entrepreneurship to the U.S. economy. • Define the personality characteristics of a typical entrepreneur. • Explain social entrepreneurship as a vital part of today’s small business environment. • Outline the planning necessary to launch an entrepreneurial start-up.

  3. 0 Learning Objectives (contd.) • Describe the five stages of growth for an entrepreneurial company. • Explain how the management functions of planning, organizing, leading, and controlling apply to a growing entrepreneurial company.

  4. 0 Entrepreneurship • Process of initiating a business venture • Organizing the necessary resources • Assumes associated risks and rewards

  5. 0 Five types of Small Business Owners Exhibit 6.1 Enjoy chance to balance work and personal life Rewarded by chance to work on something new and creative Thrive on the challenge of building a larger, more profitable business Idealists24% Optimizers21% Hard Workers20% Sustainers15% Jugglers20% 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.

  6. 0 Entrepreneurship and the Environment • Turbulence in the technology sector and the demise of many dot-com start-ups = heightened concerns about small companies competing against big business • Entrepreneurship and small business • are vital, dynamic increasing important parts of U.S. economy • are booming in other countries

  7. 0 Why Small Business Today? Economic changes Globalization Increased competition Advancing technology New market niches

  8. 0 Definition of Small Business • Definition used by SBA detailed and complex • Independently owned and operated • Not dominant in its field of operation • Definition in the process of being revised

  9. 0 Examples of SBA Definition of Small Firms Exhibit 6.3

  10. 0 Impact of Entrepreneurial Companies • Generate over 50 percent of nonfarm GDP • 97 percent of U.S. exports • 2.6 percent of export value • Employ over 50 percent of nonfarm private sector • Businesses with fewer than 500 employees represent 99.7 percent of all the firms with employees in the U.S.

  11. 0 Who Are Entrepreneurs? • Diversity of Entrepreneurs • Often have distinguishing backgrounds and demographics – 1st born, children of immigrants • Emerging growth companies of the next decade • Women-owned businesses: in 2005, 6.5 million businesses that generated $950.6 in revenues and employ over 7 million • Minority-owned businesses: growing 17% per year with African American growing the fastest

  12. 0 Characteristics of Entrepreneurs Exhibit 6.5 Tolerance for Ambiguity Internal Locus of Control Entrepreneurial Personality High Energy Level Awareness of Passing Time Need to Achieve Self-Confidence Source: Adapted from Charles R. Kuehl and Peggy A. Lambing, Small Business: Planning and Management (Ft. Worth: The Dryden Press, 1994),45.

  13. 0 Hours Worked per Week byOwners of New Businesses Exhibit 6.6 30 25 20 Percent % of New Business Owners 15 10 5 0 Less than 50 50-59 60-69 70-79 More than 80 SOURCE: National Federation of Independent Business, Reported in Mark Robichaux, “Business First, Family Second,” The Wall Street Journal, May 12, 1989,B1.

  14. 0 Sources of Entrepreneurial Motivation and New-Business Ideas Exhibit 6.7 Source of New-Business Ideas Reasons for Starting a Business In-depth Understanding of Industry/Profession Joined Family Business 37% 41% 36% To Control My Future 36% Market Niche Spotted 27% 7% To Be My Own Boss Brainstorming 25% To Fulfill a Dream Copying Someone Else 4 4 5% Downsized/Laid Off Hobby 11% Other 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.

  15. 0 Business Plan • Document specifying the business details prepared by an entrepreneur prior to opening a new business • Clear vision • Realistic financial projections • Target market • Industry and competitors • Management team • Critical risks that could threaten success • Sources & uses of start-up funds & operating funds

  16. 0 Becoming A Business Owner 3 Basic Legal Forms • Sole Proprietorship = unincorporated business owned by an individual for profit • Partnership = unincorporated business owned by two or more people • Corporation = artificial entity created by the state and existing apart from its owners.

  17. 0 Financing Resources • Crucial concern for entrepreneurs • Debt Financing – money to be repaid at a later date Equity Financing – funds invested in exchange for ownership in the company

  18. 0 Tactics Ways to Become a Business Owner • Start a New Business • Advantage – develop and design own way • Disadvantage – long time to get off ground and to make profitable • Buy an Existing Business • Advantage – shorter time and existing track record • Disadvantage – need to pay for goodwill

  19. 0 Tactics Ways to Become a Business Owner • Buy a Franchise = an agreement to sell a product or service with help from the owner • Advantage – management help is provided by owner • Disadvantage – lack of control • Participate in a Business Incubator = shared office space, management, support services, management advice

  20. 0 Five Stages of Growth For an Entrepreneurial Company Exhibit 6.10

  21. 0 Managing a Growing Business • Planning • Defining goals and deciding on the tasks and use of resources needed to attain them • As organization grows, formal planning usually is not instituted until around the success stage • Business plan must be living document • Planning concern – small businesses need to be Web-savvy

  22. 0 Managing a Growing Business • Organizing • 1st two stages typically very informal • At 3rd stage, success, functional managers are hired • Rules and regulations, procedural manuals • Latter stages, delegation • Outsourcing – organizing approach

  23. 0 Managing a Growing Business • Leading • Early stages – leader’s vision • By success stage, must learn to motivate employees or bring in managers who can • Need for active communication • Leadership is important because many small firms have a hard time hiring qualified employees

  24. 0 Managing a Growing Business • Controlling • Financial control – important in each stage • Initial stages – exercised by simple accounting records and by personal supervision • By 3rd stage, operational budgets are in place; structured control systems • Control Techniques become more sophisticated as the firm matures

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