managing small business start-ups

Managing Small Business Start-Ups

Managing Small Business Start-Ups

CHAPTER 6CHAPTER 6

2 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Learning ObjectivesLearning 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.


Learning Objectives (contd.)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.


EntrepreneurshipEntrepreneurship

● Process of initiating a business venture● Organizing the necessary resources● Assumes associated risks and rewards


Five types of Small Business OwnersFive types of Small Business Owners

Idealists24%

Optimizers21%

Hard Workers

20%

Jugglers20%

Sustainers15%

Rewarded by chance to work on something new and creative

Thrive on the challenge of building a larger, more profitable business

Enjoy chance to balance work and personal life

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.

Exhibit 6.1


Entrepreneurship and the EnvironmentEntrepreneurship 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


Why Small Business Today?Why Small Business Today?

Economic changes

Globalization

Advancing technology

Increased competition

New market niches


Definition of Small BusinessDefinition 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


Examples of SBA Definition of Small FirmsExamples of SBA Definition of Small Firms

Exhibit 6.3


Impact of Entrepreneurial CompaniesImpact 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.


Who Are Entrepreneurs?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


Characteristics of EntrepreneursCharacteristics of Entrepreneurs

Awareness of Passing Time High Energy Level

Need to Achieve

Tolerance for Ambiguity

Self-Confidence

EntrepreneurialPersonality

Source: Adapted from Charles R. Kuehl and Peggy A. Lambing, Small Business: Planning and Management (Ft. Worth: The Dryden Press, 1994),45.

Internal Locus of Control

Exhibit 6.5


Hours Worked per Week byOwners of New BusinessesHours Worked per Week byOwners of New Businesses

0

5

10

15

20

25

30

Less than 50 50-59 60-69 70-79 More than 80

Per

cent

% o

f N

ew

Bus

ines

s O

wne

rs

SOURCE: National Federation of Independent Business, Reported in Mark Robichaux, “Business First, Family Second,” The Wall Street Journal, May 12, 1989,B1.

Exhibit 6.6


Sources of Entrepreneurial Motivation and New-Business Ideas

Sources of Entrepreneurial Motivation and New-Business Ideas

To Control My Future

To Fulfill a Dream

To Be My Own Boss

Downsized/Laid Off

Reasons for Starting a Business

In-depth Understandingof Industry/Profession

Market Niche Spotted

Brainstorming

Copying Someone Else

Hobby

Other

37%

36%

7%

44

Source of New-Business Ideas

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.

Joined Family Business41%

36%

27%

25%

5%

11%

Exhibit 6.7


Business PlanBusiness Plan

Document specifying the business details prepared by an entrepreneur prior to opening a new business

Clear visionRealistic financial projectionsTarget marketIndustry and competitorsManagement teamCritical risks that could threaten success

Sources & uses of start-up funds & operating funds


Becoming A Business OwnerBecoming A Business Owner

● 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.

3 Basic Legal Forms


Financing ResourcesFinancing 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


TacticsTactics

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

Ways to Become a Business Owner


TacticsTactics

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

Ways to Become a Business Owner


Five Stages of Growth For an Entrepreneurial Company

Five Stages of Growth For an Entrepreneurial Company

Exhibit 6.10


Managing a Growing BusinessManaging 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



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



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



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

managing small business start-ups

Documents

division of thomson

university of tampacopyright

learning objectivesdescribe

small companies

learning objectives

business ventureorganizing

entrepreneurial startup

planning necessary