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ENREPRENEURSHIP
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PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI
Entrepreneurship and New Venture Management
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI 5–2
Chapter OutlineChapter Outline
• The Nature of Entrepreneurship• The Role of Entrepreneurship
–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
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–3
Chapter Outline (cont’d)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 Organizations–Trends in New Business Start-ups–Reasons for Failure–Reason for Success
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI 5–4
Learning ObjectivesLearning Objectives
• After studying this chapter, you should be able to:–Discuss the nature of entrepreneurship.–Describe the roles of entrepreneurs in society.–Understand the major issues involved in choosing
strategies for small firms and the role of international management in entrepreneurship.
–Discuss the structural challenges unique to entrepreneurial firms.
–Understand the determinants of the performance of entrepreneurial firms.
Copyright © by Houghton Mifflin Company. All rights reserved. 5–5
The Nature of EntrepreneurshipThe Nature of Entrepreneurship
• Entrepreneurship–The process of planning, organizing, operating, and
assuming the risk of a business.
• Entrepreneur–Someone who engages in entrepreneurship.
• 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.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI 5–6
The Role of Entrepreneurship in SocietyThe Role of Entrepreneurship in Society
• Research Findings:–Most new businesses fail within the 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.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI 5–7
The Importance of Small BusinessThe Importance of Small Businessin the United Statesin the United States
80
40
20
60
90
50
30
10
70
100
0
Under20
100–499 500–99920–99
Number of Employees
1,000or more
(a)
Pe
rce
nta
ge
of
Bu
sin
es
se
s 80
40
20
60
90
50
30
10
70
100
0
Under20
100–499 500–99920–99
Number of Employees
1,000or more
Pe
rce
nta
ge
of
All
U.S
. W
ork
ers
(b)
Figure 5.1Source: U.S. Census Bureau, Statistical Abstract of the United States: 1999 (119th Edition) Washington, D.C., 1999.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–8
The Role of Entrepreneurship in SocietyThe Role of Entrepreneurship in Society(cont’d)(cont’d)
• 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-technology sectors and for 96% of all U.S. exporters.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–9
The Role of Entrepreneurship in SocietyThe Role of Entrepreneurship in Society(cont’d)(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.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–10
JOB LOSSES
–116,000PepsiCo
–92,153IBM
–86,578GeneralMills
–86,475Kmart
–181,100
–3,400
–16,340QuakerOats
–21,100NationalSemi-
Conductor
GeneralMotors
Toys “ ”Us
+100,000
+ 639,000
+45,000
+36,270
+29,000
+22,900
+21,631
+12,100
JOB GAINS
AmericaOnline
Conagra
DellCorporation
Wal-Mart
Barnesand
Noble
CircuitCity
Albertson’s
DaytonHudson
Representative Jobs Created and Lost byRepresentative Jobs Created and Lost byBig Business, 1990Big Business, 1990–1999–1999
Figure 5.2
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–11
The Role of Entrepreneurship in SocietyThe Role of Entrepreneurship in Society(cont’d)(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 materials.
–Large businesses outsource many routine business operations such as packaging, delivery, and distribution to small businesses.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI
5–12
Strategy for Strategy for Entrepreneurial OrganizationsEntrepreneurial Organizations
• Three Basic Strategic Challenges–Choosing an industry in which to compete.–Emphasizing distinctive competencies.–Writing a business plan.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–13
Construction
Transportation
Wholesale
Financialand
Insurance
Manufacturing
Other
Services
Retailing
10% 22.7%
37.6%
1.7
5%
10%
8%
5%
Small Businesses (Businesses with Less Than Small Businesses (Businesses with Less Than Twenty Employees) by IndustryTwenty Employees) by Industry
Figure 5.3
Services are the fastest growing segment of small-business enterprise.
Source: U.S. Census Bureau, Statistical Abstract of the United States: 1999 (119th Edition) Washington, D.C., 1999.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–14
Economies of Scale inEconomies of Scale inSmall Business OrganizationsSmall Business Organizations
Number of units produced
(a) Standard economies-of-scale curve
Co
st
of
pro
du
cti
on
pe
r u
nit
($)
B
Number of units produced
(b) Change in technology that shifts economies ofscale and may make small business productionpossible
A
Original economies of scale
New economies of scale
Co
st
of
pro
du
cti
on
pe
r u
nit
($)
Figure 5.4
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–15
Strategy for Entrepreneurial OrganizationsStrategy for Entrepreneurial Organizations
• 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 a
new market entrepreneurs can create new industries, products, or services.
• First-Mover Advantage–Exploiting an opportunity before any other firm does.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–16
Strategy for Entrepreneurial Organizations Strategy for Entrepreneurial Organizations (cont’d)(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 objectives.
• strategies used to achieve these goals and objectives.
• a plan of how the entrepreneur will implement these strategies.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–17
Strategy for Entrepreneurial Organizations Strategy for Entrepreneurial Organizations (cont’d)(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.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI
5–18
Structure of Entrepreneurial OrganizationsStructure of Entrepreneurial Organizations
• 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 problems.
–Starting from Scratch• Avoids problems associated with previous owners.• Freedom to choose suppliers, equipment, location, and
workers.• Negative: More business risk and uncertainty.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI 5–19
Structure of Entrepreneurial Organizations Structure of Entrepreneurial Organizations (cont’d)(cont’d)
• Identifying a Genuine Business Opportunity
Who are my Who are my customers?customers?
Where are they?Where are they?
At what price At what price will they buy my will they buy my
product?product?In what In what quantities will quantities will
they buy?they buy?
Who are my Who are my competitors?competitors?
How will my How will my product vary from product vary from
those of my those of my competitors?competitors?
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–20
Financing the New BusinessFinancing the New Business
• Personal Resources– Using your own money and
money borrowed from friends and relatives to finance the business.
• Strategic Alliances– Partnering with established
firms such as suppliers in a mutually beneficial relationship.
• Lenders– Obtaining funding from
traditional lenders (e.g., banks, independent investors, and government loans).
• Venture Capital Companies– Groups of small investors
who provide capital funds to small high-growth potential start-up firms in exchange for an equity position (stock) in the firms.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–21
Financing the New Business (cont’d)Financing the New Business (cont’d)
• 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 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.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–22
Sources of Management AdviceSources of Management Advice
Advisory BoardsAdvisory Boards
ManagementManagementConsultantsConsultants
The Small BusinessThe Small BusinessAdministrationAdministration
NetworkingNetworking
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–23
Sources of Help for EntrepreneursSources of Help for Entrepreneurs
Source: Siropolis, Nicholas C., Small Business Management, Fifth Edition. Copyright © 1994 by Houghton Mifflin Company. Used with permission.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–24
FranchisingFranchising
• 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.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–25
Franchising (cont’d)Franchising (cont’d)
• Advantages of franchising–Reduced financial risk of new business success
through experience provided by franchiser.–Training, financial, and management support by
franchiser.
• Disadvantages–Start-up fees to purchase franchise.–Limitations of franchise (market area, product,
customers).–Imposed operational controls of franchiser.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–26
The Performance of The Performance of Entrepreneurial OrganizationsEntrepreneurial Organizations
• Business Start-Up Successes and Failures
0
50,000
100,000
50,000
100,000
150,000
200,000
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Year
Bu
sin
es
s S
tart
-Up
sB
us
ine
ss
Clo
su
res
Figure 5.5Source: U.S. Census Bureau, Statistical Abstract of the United States: 1999 (119th Edition) Washington, D.C., 1999.
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–27
The Performance of Entrepreneurial The Performance of Entrepreneurial Organizations (cont’d)Organizations (cont’d)
• Trends in New Business Start-Ups– The emergence of E-commerce– Crossovers to small business by former large-
business employees– Increased entrepreneurial opportunities for minorities
and women– Better survival rates for small businesses
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–28
Where Women Entrepreneurs Come FromWhere Women Entrepreneurs Come Fromand What They Like About Workand What They Like About Work
Management
25%
Accounting/
Finance
18%
Sales
21%Other
23%
Background of WomenEntrepreneurs in Previous Jobs
Marketing
6%
Human
Resources
3%
Engineering/
Manufacturing
4%
*Multiple responses allowed
Decision making
15%
Achieving goals
10%
Being her
own boss
20%
Setting own
hours
17%Control-
ling destiny
17%
Pleasing
customers
16%
Independence
16%
What Women Entrepreneurs Say TheyLike Best About Business Ownership*
Source: Wall Street Journal, May 24, 1999, p. R12. Figure 5.6
PRESENDED BY: NAYAN PRAKASH GANDHIPRESENDED BY: NAYAN PRAKASH GANDHI5–29
The Performance of Entrepreneurial The Performance of Entrepreneurial Organizations (cont’d)Organizations (cont’d)
• Reasons for Failure– Managerial
incompetence/inexperience of the entrepreneur.
– Neglect in not devoting sufficient time and effort to the business.
– Weak control systems that do not warn of impending problems.
– Insufficient capital to sustain the business until it starts to turn a profit.
• Reasons for Success– Hard work, drive, and
dedication by the entrepreneur.
– Careful analysis of market conditions provides insights about business conditions.
– Managerial competence through training and experience contributes to success.
– Luck sometimes plays a role.