Principles of Management

1. Principles of Management hapter The Environment of Entrepreneurship and Small Business Management 1

2. BMGT – Principles of Management Entrepreneurship • Process of initiating a business venture • Organizing the necessary resources • Assuming the associated risks and rewards • Downsizing forced many to consider other options • Women and minorities are seeing entrepreneurship as the way to go • Women are starting businesses today at twice the rate of men 2

3. BMGT – Principles of Management Entrepreneurship andthe Environment • Approximately 23 million small businesses in the United States • Account for nearly half the sales of all goods and services • 20 million Americans earn their living as “solo professionals” • Reasons for movement toward small business • economic changes • globalization and increased competition • technology • new opportunities and market niches Apple 3

4. BMGT – Principles of Management Definition of Small Business • Definition used by SBA is detailed and complex, 37 pages of SBA regulations • Independently owned and operated • Minor player in its field • Depending on the industry the number of employees • Annual sales consideration, depends on the industry 4

5. Impact of Entrepreneurial Companies • Job Creation • Produced about 64% of the 2.5 million new jobs during 1996 • 600,000 new businesses each year • Approximately 21 million businesses exist • Only 15,000 employ more than 500 people • More than half of all U.S. Businesses employ fewer than 5 people • Innovation • Generate more than half of the nation’s GDP • Diversity • 1997 there were 6.4 million women-owned businesses • Women now own 34% of all businesses in the United States • Minority-owned businesses represent 8.9% of all businesses U.S. Department Of Labor

6. Characteristics of Entrepreneurs Tolerance for Ambiguity Internal Locus of Control Entrepreneurial Personality High Energy Level Awareness of Passing Time Need to Achieve Self-Confidence

7. Reasons for Starting a Business Source of New-Business Ideas In-depth Understanding of Industry/Profession To Create Something New 29% 37% 24% To Control My Life 36% Market Niche Spotted 14% Brainstorming 7% To Make Money 14% Copying Someone Else To Be My Own Boss 4 10% Hobby To Prove I Could Do It 4 8% Other Frustration at Large Company 11% Other Sources of Entrepreneurial Motivation and New-Business Ideas Source: Based on Leslie Brokaw, “How To Start an Inc. 500 Company,” Inc. 500, 1994, 51-65.

8. BMGT – Principles of Management Starting an Entrepreneurial Firm • New business idea • Develop a business plan • Legal form of the business • Proprietorship, business that is owned by an individual for profit • Partnership, business owned by two or more people • Corporation, artificial entity created by the state and existing apart from its owners. 8

9. BMGT – Principles of Management Sole Proprietorship Advantages Disadvantages • Retention of all profits • Ease of formation • Ease of dissolution • Ownership flexibility • Unlimited liability • Financing limitations • Lack of continuity • Management deficiencies 9

10. BMGT – Principles of Management Partnerships Advantages Disadvantages • Ease of formation • Complementary skills • Expanded financial capacity • Unlimited liability • Interpersonal conflicts • Lack of continuity • Complex dissolution 10

11. BMGT – Principles of Management Corporations Advantages Disadvantages • Limited liability • Specialized management skills • Expanded financial capacity • Economies of larger-scale • Costly to establish • Difficult to establish • Tax disadvantage • Legal restrictions • Complex dissolution 11

12. BMGT – Principles of Management Franchising Advantages Disadvantages • Established name • Tested management program • Business training • Posted performance record • Franchise fees are high • Franchise is judged based on others • Franchise operating polices 12

13. BMGT – Principles of Management Business Plan • Business Plans Characteristics: • Demonstrate a clear, compelling vision • Understand the target market • Include detailed information about the industry and competitors • Provide evidence of an effective entrepreneurial team • Keep the plan short • Highlight critical risks • Spell out the sources and uses of funds • Provide clear and realistic financial projections • Capture the reader’s interest with a killer summary 13

14. BMGT – Principles of Management Financial Resources • One-third were started on less than $10,000 • One-third needed from $10,000 to $50,000 • One-third needed more than $50,000 • Debt Financing • borrowing that has to be repaid at a later date • banks provide some 25% of all financing • Equity Financing • money invested by owners • funds that are invested in exchange for ownership 14

15. Becoming a Business Owner start a new business buy an existing business buy a franchise business incubator spin-off globalization

16. Important Help To Consider National Association for the Self-Employed SBA has a Web Find a good accountant Find a good attorney

17. Entrepreneurship The process of recognizing the need for innovation and promoting it within an organization Developing Entrepreneurship: • Encourage action • Use informal meetings • Tolerate failure • Be persistent • Reward innovation • Encourage clever bootlegging • Organize people into small teams • Strip away rigid procedures • Reward and/or promote innovative personnel