CHAPTER 23:

1. CHAPTER 23: ETHICAL POWER AND POLITICS

2. What is entrepreneurship? • Entrepreneurship is the process of initiating a business venture, organizing the necessary resources, and assuming the associated risks and rewards. An entrepreneur is someone who engages in entrepreneurship. An entrepreneur recognizes a viable idea for a business product or service and carries it out by finding and assembling the necessary resources—money, people, machinery, location—to undertake the business venture. Entrepreneurs also assume the risks and reap the rewards of the business. They assume the financial and legal risks of ownership and receive the business’s profits.

3. Example • A good example of entrepreneurship is Andra Rush, who quit her nursing job to start a trucking company in 1984. using her savings and a loan from her parents, Rush bought two used trucks and a new one and maxed out her credit cards to start the business. She couldn’t afford a cell phone or an office manager, so she forwarded calls to her grandmother’s house while she was out drumming up business. She learned how to do her own truck repairs and made an impression on customers by specializing in emergency shipping, even if she had to get up at 2 A.M. to deliver the load herself. The early days were rough, and Rush made a lot of sacrifices to succeed, but today Rush Trucking has 350 full-time employees and makes 1,400 shipments a day with 1,000 trucks. The company generated $132 million in revenue in 2003. Rush was willing to take the risks and is now reaping the rewards of entrepreneurship. • Five types of small business owners

4. Example • Successful entrepreneurs have many different motivations, and they measure rewards in different ways. One study classified small business owners in five different categories. Some people are idealists, who like the idea of working on something that is new, creative, or personally meaningful. Optimizers are rewarded by the personal satisfaction of being business owners. Entrepreneurs in the sustainer category like the chance to balance work and personal life and often don’t want the business to grow too large, while hard workers enjoy putting in the long hours and dedication to build a larger, more profitable business. The juggler category include entrepreneurs who like the chance a small business gives them to handle everything themselves. These high-energy people thrive on the pressure of paying bills, meeting deadlines, and making payroll.

5. Question • Are you interested in becoming a new manager by starting your own business?

6. Entrepreneurship today • Small business is such a dynamic part of today’s economy for a number of reasons, including economic changes, globalization and increased competition, advancing technology, and new market inches.

7. Economic changes • Today’s economy is fertile soil for entrepreneurs. The economy changes constantly, providing opportunities for new business. The demand for services is booming, and 97 percent of service firms are small, with fewer than 100 employees. Landscaping, for example, is one of spurred by a surge in housing and office construction. The trend toward outsourcing work to companies that can do it cheaper has also given entrepreneurs new openings.

8. Example • Ogio, a small company based in Bluffdale, Utah, engineers and manufactures innovative golf bags for Callaway, helping the smaller firm’s sales skyrocket from $8 million to $47 million in five years.

9. Globalization and increased competition • Even the largest of companies can no longer dominate their industry in a fast-changing global marketplace. Globalization demands entrepreneurial behavior and gives an advantage to the flexibility and fast response that small business can offer rather than to huge companies with economies of scale. Rather than being hurt by the globalization of today’s business world, many entrepreneurs are finding new opportunities.

10. Technology • Rapid advances and dropping prices in computer technology spawned whole new industries, as well as entirely new methods of producing goods and delivering services. Unlike technological progress of the past, these advances are within the reach of companies of all sizes. The explosive growth of the Internet created tremendous opportunities for entrepreneurs. For every story of a failed dot-com business, numerous other small companies are successfully using the Web to sell products and services, to improve productivity, communications, and customer service, or to obtain information and market their services. • Other technological advances also provide opportunities for small business. Biotechnology, aided by recent work in genomics, is a growing field for small businesses.

11. Definition of small business • The full definition of small business used by the U.S. Small Business Administration is detailed and complex, including 37 different benchmarks that define 1,151 industries and 13 sub industries across the US. In general, a small business is considered to be “one that is independently owned and operated and which is not dominant in its field of operation”. However, the definition of small business is currently under revision in response to concerns from small business owners. After nationwide public hearings in 2005, the SBA determined that standards should be changed in light of shifting economic and industry conditions. Redefining small business size standards is a daunting task, but SBA leaders agree that the standards need to be more flexible in today’s world. The SBA’s definition has been revised a number of times over the years to reflect changing economic conditions.

12. Functions of small business • Job Creation • Researchers disagree over what percentage of new jobs is created by small business. Research indicates that the age of a company, more than its size, determines the number of jobs it creates. That is, virtually all new jobs in recent years have come from new companies, which include not only small companies but also new branches of huge, multinational organizations. However, small companies still are thought to create a large percentage of new jobs in the US. The SBA reports that small businesses create 65 percent or more of America’s new jobs. Jobs created by small businesses give the US an economic vitality no other country can claim.

13. Functions of small business • Innovation • According to Cognetics, Inc., a research firm run by David Birch that traces the employment and sales records of some 9 million companies, new and smaller firms have been responsible for 55 percent of the innovations in 362 different industries and 95 percent of all radical innovations. In addition, fast-growing businesses, which Birch calls gazelles, produce twice as many product innovations per employee as do larger firms.

14. Functions of small business • Personality Traits • A number of studies investigated the personality characteristics of entrepreneurs and how they differ from successful managers in established organizations. Some suggest that entrepreneurs in general want something different from life than do traditional managers. Entrepreneurs seem to place high importance on being free to achieve and maximize their potential. Some 40 traits are identified as associated with entrepreneurship, but 6 have special importance.

15. Functions of small business • Internal locus of control • The task of starting and running a new business requires the belief that you can make things come out the way you want. The entrepreneur not only has a vision but also must be able to plan to achieve that vision and believe it will happen. An internal locus of control is the belief by individuals that their future is within their control and that external forces have little influence. For entrepreneurs, reaching the future is seen as being in the hands of the individual. Many people, however, feel that the world is highly uncertain and that they are unable to make things come out the way they want. An external locus of control is the belief by individuals that their future is not within their control but rather is influenced by external forces. Entrepreneurs are individuals who are convinced they can make the difference between success and failure; hence, they are motivated to take the steps needed to achieve the goal of setting up and running a new business.

16. Functions of small business • High energy level • A business start-up requires great effort. Most entrepreneurs report struggles and hardship. They persist and work incredibly hard despite traumas and obstacles. A survey of business owners reported that half worked 60 hours or more pr week. Another reported that entrepreneurs worked long hours, but that beyond 70 hours little benefit was gained.

17. Functions of small business • Need to achieve • Another human quality closely linked to entrepreneurship is the need to achieve, which means that people are motivated to excel and pick situations in which success is likely. People who have high achievement needs like to set their own goals, which are moderately difficult. Easy goals present no challenge; unrealistically difficult goals cannot be achieved. Intermediate goals are challenging and provide great satisfaction when achieved. High achievers also like to pursue goals for which they can obtain feedback about their success.

18. Functions of small business • Self-confidence • People who start and run a business must act decisively. They need confidence about their ability to master the day-to-day tasks of the business. They must feel sure about their ability to win customers, handle the technical details, and keep the business moving. Entrepreneurs also have a general feeling of confidence that they can deal with anything in the future; complex, unanticipated problems can be handled as they arise.

19. Functions of small business • Awareness of passing time • Entrepreneurs tend to be impatient; they feel a sense of urgency. They want things to progress as if there is no tomorrow. They want things moving immediately and seldom procrastinate. Entrepreneurs seize the moment.

20. Functions of small business • Tolerance for ambiguity • Many people need work situations characterized by clear structure, specific instructions, and complete information. Tolerance for ambiguity is the psychological characteristic that allows a person to be untroubled by disorder and uncertainty. This trait is important, because few situations present more uncertainty than starting a new business. Decisions are made without clear understanding of options or certainty about which option will succeed.

21. How to start a new business • Whether one starts a socially oriented company or a traditional for-profit small business, the first step in pursuing an entrepreneurial dream is to come up with a viable idea and then plan like crazy. Once someone has a new idea in mind, a business plan must be drawn and decisions must be made about legal structure, financing, and basic tactics, such as whether to start the business from scratch and whether to pursue international opportunities from the start.

22. Starting with the idea • To some people, the idea for a new business is the easy part. They do not even consider entrepreneurship until they are inspired by an exciting idea. Other people decide they want to run their own business and set about looking for an idea or opportunity. The trick for entrepreneurs is to blend their own skills and experience with a need in the marketplace. Acting strictly on one’s own skills may produce something no one wants to buy. On the other hand, finding a market niche that one does not have the ability to fill doesn’t work either. Both personal skill and market need typically must be present.

23. Writing the Business Plan • Once an entrepreneur is inspired by a new business idea, careful planning is crucial. A business plan is a document specifying the business details prepared by an entrepreneur prior to opening a new business. Planning forces the entrepreneur to carefully think through the issues and problems associated with starting and developing the business. Most entrepreneurs have to borrow money, and a business plan is absolutely critical for persuading lenders and investors to participate in the business. Studies show that small businesses with a carefully thought-out, written business plan are much more likely to succeed than those without one. To attract the interest of venture capitalists or other potential investors, the entrepreneurs should keep the plan crisp and compelling.

24. Characteristics of a business plan • Demonstrate a clear, compelling vision that creates an air of excitement. • Provide clear and realistic financial projections. • Profile potential customers and the target market. • Include detailed information about the industry and competitors. • Provide evidence of an effective entrepreneurial management team. • Pay attention to good formatting and clear writing. • Keep the plan short-no more than 50 pages. • Highlight critical risks that may threaten business success. • Spell out the sources and uses of start-up funds an operating funds. • Capture the reader’s interest with a killer summary. • Tactics for becoming a Business Owner