Chapter 5 PPP by U6SJEYO6


									  Chapter 5
Entrepreneurship and
    New Venture
Learning Objectives

After studying this chapter, you should be able to:
  1.   Discuss the nature of entrepreneurship.
  2.   Describe the roles of entrepreneurship in society.
  3.   Understand the major issues involved in choosing
       strategies for small firms and the role of international
       management in entrepreneurship.
  4.   Discuss the structural challenges unique to small firms.
  5.   Understand the determinants of the performance of
       entrepreneurial firms.
Chapter Outline

     The Nature of Entrepreneurship
     The Role of Entrepreneurship in Society
         Job Creation
         Innovation
         Importance to Large Businesses
     Strategy for Entrepreneurial Organizations
         Choosing an Industry
         Emphasizing Distinctive Competencies
         Writing a Business Plan
         Entrepreneurship and International Management
Chapter Outline (cont’d)

      Structure of Entrepreneurial Organizations
          Starting the New Business
          Financing the New Business
          Sources of Management Advice
          Franchising
      The Performance of Entrepreneurial
          Trends in Small-Business Start-ups
          Reasons for Failure
          Reasons for Success
The Nature of Entrepreneurship

     Entrepreneurship
         The process of planning, organizing,
          operating, and assuming the risk of a
          business venture.
     Entrepreneur
         Someone who engages in
     Small Business
         A business that is privately owned by one
          individual or a small group of individuals.
         It has sales and assets that are not large
          enough to influence its environment.
                 The Role of
         Entrepreneurship in Society

   Research Findings:
       Most new businesses fail within the first few years of
        being founded. Those that survive often do so because
        the entrepreneur works for little income.
       Most (more than 99%) U.S. businesses are small with
        fewer than 100 employees.
       Most U.S. workers work for small businesses.
       The majority of small businesses are owner-operated.
       Small business is a strong presence in both mature and
        emerging economies. It has a strong effect on job
        creation, innovation, and is important to big businesses.
The Importance of Small Business
      in the United States
Representative Jobs Created and Lost
    by Big Business (1996-2005)
          The Role of
Entrepreneurship in Society (cont’d)

     Innovation
         Historically, major innovations are as likely to
          come from small businesses as from large firms.
         Much of what is created in the high-technology
          sectors comes from start-up companies.
          The Role of
Entrepreneurship in Society (cont’d)

   Importance to Large Business
       Most products made by large
        manufacturers are sold to
        customers by small businesses.
       Small businesses as suppliers
        provide large firms with essential
        services, supplies, and raw
       Large businesses outsource many
        routine business operations such as
        packaging, delivery, and distribution
        to small businesses.
        Strategy for
Entrepreneurial Organizations

   Three Basic Strategic Challenges
       Choosing an industry in which to compete.
       Emphasizing distinctive competencies.
       Writing a business plan.
Small Businesses (Businesses with Less
Than Twenty Employees) by Industry
  Economies of Scale in
Small Business Organizations
        Strategy for Entrepreneurial
            Organizations (cont’d)

   Emphasizing Distinctive Competencies
       Identifying a niche in an established market
           Finding part of a market not currently being

            exploited that offers a competitive advantage to
            small businesses.
       Identifying New Markets
           Using the transfer of an existing product/service

            to a new market, entrepreneurs can create new
            industries, products, or services.
       First-Mover Advantage
           Exploiting an opportunity before any other

            firm does.
        Strategy for Entrepreneurial
            Organizations (cont’d)

   Writing a Business Plan
       A business plan is a document
        that summarizes the business
        strategy and structure.
       The plan should include:
           business goals and

           strategies used to achieve

            these goals and objectives.
           a plan of how the

            entrepreneur will
            implement these strategies.
Strategy for Entrepreneurial
Organizations (cont’d)

   Entrepreneurship and
    International Management
       There is potential for expansion
        and growth in foreign markets.
       While there are risks, entering
        a foreign country’s market can
        be a real catalyst for success.
         Structure of Entrepreneurial

   Starting a New Business
       Buying an Existing Business
            Business has a proven ability to draw
             customers and make a profit.
            Networks (e.g., customers and suppliers)
             are already established.
            Negative: New owners inherit any existing
       Starting from Scratch
            Avoids problems associated with previous
            Allows freedom to choose suppliers,
             equipment, location, and workers.
            Negative: More business risk and uncertainty.
      Structure of Entrepreneurial
          Organizations (cont’d)
            Identifying a Genuine Business
             Opportunity       Where are they?
 Who are my

                                         At what price
                                        will they buy my
  In what                                    product?
quantities will
 they buy?
                                       How will my
                                    product differ from
Who are my                              those of my
competitors?                           competitors?
Financing the New Business
                                       Lenders
                                           Obtaining funding from
     Personal Resources                    traditional lenders (e.g.,
        Using your own money               banks, independent investors,
         and money borrowed from            and government loans).
         friends and relatives to
                                      Venture Capital Companies
         finance the business.
                                         Groups of small investors who
     Strategic Alliances                 provide capital funds to small,
        Partnering with established      high-growth potential start-up
         firms, such as suppliers in      firms in exchange for an
         a mutually beneficial            equity position (stock) in the
         relationship.                    firms.
Financing the New Business (cont’d)

     Small-Business Investment Companies
         SBICs are investor-owned companies that borrow
          money from the SBA and, in turn, loan it to small
          business with high growth potential.
         Minority Enterprise Small-Business Investment
          Companies (MESBICs) specialize in financing
          businesses owned by minorities.
     SBA Financial Programs
         The Small Business Administration has several
          financing programs (e.g., SBA-guaranteed loans)
          for small businesses that are unable to get private
          financing at reasonable terms.

   Franchising Agreement
       Operation of the franchised
        business by the entrepreneur
        (the franchisee) under a license
        by a parent company (the
       The entrepreneur pays the
        parent company for use of
        trademarks, products, formulas,
        and business plans.
         Franchising (cont’d)

   Advantages of Franchising
       Reduced financial risk of new business success
        through experience provided by franchiser.
       Training, financial, and management support by
   Disadvantages
       Start-up fees to purchase franchise.
       Limitations of franchise (market area, product,
       Imposed operational controls of franchiser.
Business Start-Up Successes and
        The Performance of
Entrepreneurial Organizations (cont’d)

   Trends in New Business Start-Ups
       The emergence of E-commerce
          Internet-based business

       Crossovers to small business by former large-
        business employees
       Increased entrepreneurial opportunities for
        and women
       Better survival rates for small businesses
     The Growth
of On-Line Commerce
Where Women Entrepreneurs Come From
 and What They Like About Their Work

           Source: Wall Street Journal, May 24, 1999, p. R12.
The Performance of Entrepreneurial
       Organizations (cont’d)

      Reasons for Failure                  Reasons for Success
          Managerial                           Hard work, drive, and
           incompetence/                         dedication by the
           inexperience of the                   entrepreneur.
           entrepreneur.                        Careful analysis of market
          Neglect in not devoting               conditions provides
           sufficient time and effort            insights about business
           to the business.                      conditions.
          Weak control systems                 Managerial competence
           that do not warn of                   through training and
           impending problems.                   experience contributes to
          Insufficient capital to               success.
           sustain the business until           Luck sometimes plays a
           it starts to turn a profit.           role.

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