Transcription
Chapter 6Managing Small Business Start-Ups
Starting a New Business Since the 1970, the number of businesses inthe U.S. economy has been growing fasterthan the labor force The annual number of business launchescontinues to increaseManager’s Challenge: IntermedicsCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.2
Entrepreneurship Process of initiating a businessventureOrganizing the necessaryresourcesAssumes associated risks andrewardsCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.3
Five types of Small BusinessOwnersRewarded by chance towork on something newand creativeIdealists24%Get personal satisfactionfrom being a businessownerThrive on the challenge ofbuilding a larger, moreprofitable businessOptimizers21%HardWorkers20%Enjoy chance to balancework and personal lifeJugglers20%High energy people who enjoyhandling every detail of their ownbusinessSOURCE: Study conducted by Yankelovish Partners, reported in Mark Henricks, “The-Cast,” Entrepreneur (March 2000), 14-16.Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.4Sustainers15%
Entrepreneurship and the Environment Turbulence in the technology sector and the demiseof many dot-com start-ups heightened concernsabout small companies competing against bigbusiness Entrepreneurship and small business–are vital, dynamic increasing important parts of U.S.economy–are booming in other countriesCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.5
Why Small Business Today?Economic changesGlobalizationIncreased competitionAdvancing technologyNew market nichesCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.6
Definition of Small Business Definition used by SBA detailed and complex,Independently owned and operatedNot dominant in its field of operationNumber of employees, depending on theindustryAnnual sales consideration, depending on theindustryCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.7
General Types of Small Business Most entrepreneurs start.––– RetailManufacturingServiceAdditional Real estateCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.8
Impact of Entrepreneurial Companies ImpactThe 5.7million U.S. business that have fewer than 100employees generate 40% of the nation’s outputApproximately 600,000 new businesses each yearOnly 16,000 businesses employ more than 500 peopleJob CreationThe 23 million small businesses created 2 million jobsbetween October 2000 – March 2004InnovationNew and smaller firms have been responsible for 55% of theinnovations in 362 different industries and 95% of all radicalinnovationsFast-growing businesses produce twice as many innovationsper employeeCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.9
Who Are Entrepreneurs? Diversity of Entrepreneurs–Often have distinguishing backgrounds anddemographics – 1st born, children of immigrants–Emerging growth companies of the next decade Women-owned businesses: 1997-2002 grew 11%(twice rate of all privately-owned businesses)Minority-owned businesses: growing 17% per year withAfrican American growing the fastestCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.10
Characteristics of EntrepreneursInternal Locus of ControlHigh Energy LevelTolerance for AmbiguityEntrepreneurial Awareness of Passing TimePersonalityNeed to AchieveSelf-ConfidenceSource: Adapted from Charles R. Kuehl and Peggy A. Lambing, Small Business: Planning and Management (Ft. Worth: The Dryden Press, 1994),45.Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.11
Sources of Entrepreneurial Motivationand New-Business IdeasSource of New-Business IdeasReasons for Starting a Business41%36%27%25%In-depth Understandingof Industry/ProfessionMarket Niche SpottedJoined Family37%BusinessTo Control My Future 36%To Be My Own BossTo Fulfill a Dream5% Downsized/Laid Off7% Brainstorming4 Copying Someone Else4 Hobby11%OtherSource: “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.Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.12
Starting an Entrepreneurial Firm Starts with a viable business idea Develop a business plan Select a legal form of business Determine financial resources Tactics to become ownerCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.13
Business Plan Document specifying the business detailsprepared by an entrepreneur prior to openinga new businessClear visionRealistic financialprojectionsTarget marketIndustry and competitorsManagement teamCritical risks that couldthreaten successCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.14Sources & uses ofstart-up funds &operating funds
Becoming A Business Owner3 Basic Legal Forms Sole Proprietorship unincorporated businessowned by an individual for profit Partnership unincorporated business ownedby two or more people Corporation artificial entity created by thestate and existing apart from its owners.Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.15
Financing Resources Crucial concern for entrepreneursDebt Financing –money to be repaid at alater dateEquity Financing –funds invested inexchange for ownershipin the companyCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.16
TacticsWays to Become a Business Owner Start a New Business–– Advantage – develop and design own wayDisadvantage – long time to get off ground and tomake profitableBuy an Existing Business––Advantage – shorter time and existing track recordDisadvantage – need to pay for goodwillCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.17
TacticsWays to Become a Business Owner Buy a Franchise an agreement to sell aproduct or service of another–– Advantage – management help is provided byownerDisadvantage – lack of controlParticipate in a Business Incubator sharedoffice space, management, support services,management adviceCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.18
Launching a High-Tech Start-Up High-tech start-ups represent a special case– Costs and risks are typically extremely high– Venture capital bottomed out every year 2000-2003(dot-coms crash & sharp decline in technologystocks)– Recent years – revival of high-tech startups– Internet companies are making a comback High-tech start-ups face many of the same challenges– some unique issues and problemsCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.19
Launching a High-Tech Start-Up Have a viable ideaWrite a business planAcquire initial financingBuilding and Testing the Product or ServiceLaunch companyBe prepared to obtain additional financingDevelop partnershipsConsider going publicCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.20
Writing the Business PlanHigh-Tech Start-up Business Plan Basic Points Description of the business and why it is unique Profile of potential customers and market needs Key ingredient of the business that will attractmillions of customers Why customers will buy from this company ratherthan competitors What the company has accomplished so far,including partnerships or early customer relationshipsCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.21
Writing the Business PlanHigh-Tech Start-up Business Plan Basic Points Entrepreneur’s background and role in the company Specific data about where the company is located,key management people, and contact information Essential information about funding received so far,funding and staffing needs, and expectations forgrowth of the business over the next yearEthical Dilemma: Closing the DealCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.22
Five Stages of Growth For anEntrepreneurial CompanyCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.23
Managing a Growing Business Planning––– Defining goals and deciding on the tasks and useof resources needed to attain themAs organization grows, formal planning usually isnot instituted until around the success stageBusiness plan must be living documentPlanning concern – small businesses need tobe Web-savvyCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.24
Managing a Growing Business Organizing–––– 1st two stages typically very informalAt 3rd stage, success, functional managers arehiredRules and regulations, procedural manualsLatter stages, delegationOutsourcing – organizing approachCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.25
Managing a Growing Business Leading––– Early stages – leader’s visionBy success stage, must learn to motivateemployees or bring in managers who canNeed for active communicationLeadership is important because many smallfirms have a hard time hiring qualifiedemployeesCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.26
Managing a Growing Business Controlling––– Financial control – important in each stageInitial stages – exercised by simple accountingrecords and by personal supervisionBy 3rd stage, operational budgets are in place;structured control systemsControl Techniques become moresophisticated as the firm maturesCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.27
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
