entrepreneurship and new venture
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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
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Structure of Entrepreneurial Organizations
Starting the New Business
Financing the New Business
Sources of Management Advice Franchising
The Performance of Entrepreneurial Organizations
Trends in Small-Business Start-ups
Reasons for Failure
Reason for Success
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After studying this chapter, you should beable to: Discuss the nature of entrepreneurship.
Describe the roles of entrepreneurship in society. Understand the major issues involved in choosing
strategies for small firms and the role of internationalmanagement in entrepreneurship.
Discuss the structural challenges unique to small
firms. Understand the determinants of the performance of
entrepreneurial firms.
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Entrepreneurship The process of planning, organizing, operating,
and assuming the risk of a business venture.Entrepreneur
Someone who engages in entrepreneurship.Small Business
A business that is privatelyowned by one individual or a
small group of individuals. It has sales and assets that are
not large enough to influenceits environment.
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Research Findings: Most new businesses fail within the first few years of
being founded. Those that survive often do sobecause the entrepreneur works for little income.
Most (more than 99%) U.S. businesses are small withfewer 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 jobcreation, innovation, and is important to bigbusinesses.
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Job Creation Small business creates 80% of new jobs in the
U.S.
Industry sectors dominated by small business
have added the most jobs.
Small business accounts for 38%
of all jobs in high-technologysectors and for 96% of all
U.S. exporters.
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Innovation Historically, major innovations are as likely to
come from small businesses as from large firms.
Much of what is created in the high-technologysectors comes from start-up companies.
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Three Basic Strategic Challenges Choosing an industry in which to compete.
Emphasizing distinctive competencies.
Writing a business plan.
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Emphasizing Distinctive Competencies Identifying a niche in an established 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 anew market entrepreneurs can create new industries,products, or services.
First-Mover Advantage Exploiting an opportunity before any other firm does.
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Writing a Business Plan A business plan is a document that summarizes
the business strategy and structure.
The plan should include:
business goals and objectives.
strategies used to achieve
these goals and objectives. a plan of how the entrepreneur
will implement these strategies.
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Entrepreneurship and International
Management There is potential for expansion and
growth in foreign markets.
While there are risks, entering a
foreign countrys market can
be a real catalyst for success.
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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 alreadyestablished.
Negative: New owners inherit any existing problems.
Starting from Scratch
Avoids problems associated with previous owners.Allows freedom to choose suppliers, equipment,
location, and workers.
Negative: More business risk and uncertainty.
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Identifying a Genuine Business
Opportunity
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Who are my
customers?
Where are they?
At what price
will they buy my
product?In what
quantities will
they buy?
Who are my
competitors?
How will my
product vary from
those of my
competitors?
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Personal Resources Using your own money and
money borrowed fromfriends and relatives tofinance the business.
Strategic Alliances Partnering with established
firms such as suppliers in amutually beneficialrelationship.
Lenders Obtaining funding from
traditional lenders (e.g.,banks, independentinvestors, and government
loans). Venture Capital
Companies Groups of small investors
who provide capital funds to
small high-growth potentialstart-up firms in exchangefor an equity position (stock)in the firms.
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Small-Business Investment Companies(SBICs) 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 financingbusinesses owned by minorities.
SBA Financial Programs
The Small Business Administration has severalfinancing programs (e.g., SBA-guaranteed loans) forsmall businesses that are unable to get privatefinancing at reasonable terms.
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Advisory Boards
Management
Consultants
The Small BusinessAdministration
Networking
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Franchising Agreement Operation of the franchised business by the
entrepreneur (the franchisee) under a license by a
parent company (the franchiser). The entrepreneur pays the parent company for
use of trademarks, products, formulas, and
business plans.
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Advantages of franchising Reduced financial risk of new business success
through experience provided by franchiser.
Training, financial, and management support byfranchiser.
Disadvantages Start-up fees to purchase franchise.
Limitations of franchise (market area, product,
customers).
Imposed operational controls of franchiser.
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Source:U.S. Census Bureau, Statistical Abstract of the United States: 1999 (119th Edition) Washington, D.C., 1999.
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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 forminorities
and women Better survival rates for small businesses
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Reasons for Failure Managerial incompetence/
inexperience of theentrepreneur.
Neglect in not devotingsufficient time and effort tothe business.
Weak control systems thatdo not warn of impending
problems. Insufficient capital to
sustain the business until itstarts to turn a profit.
Reasons for Success Hard work, drive, and
dedication by theentrepreneur.
Careful analysis of marketconditions provides insightsabout business conditions.
Managerial competencethrough training and
experience contributes tosuccess.
Luck sometimes plays arole.
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