SMALL BUSINESS MANAGEMENT

Chapter 2The Small Business Decision

American ApparelJava Nook

Pet Safe IdeasBright Lights

CHAPTER OBJECTIVES

1. To discuss the advantages and disadvantages of small business ownership as a starting point in making the small business decision.

2. To review the personal and organizational attributes of a successful small business owner.

3. To explain the reasons some businesses succeed and others fail.

4. To discuss entrepreneurial development in large business.

5. To identify the differences between an entrepreneur and a manager.

The Small Business Decision

Personal Evaluation Self evaluation exercise

Pg 43

Advantages of Small Business Ownership

More personal contacts with people Customers, suppliers, employees etc

Independence But must answer to ………..

Skill Development Potential Financial Rewards Challenge Enjoyment

Rewards of Entrepreneurship

Disadvantages of Small Business Ownership

Risk Stress Need for Many Abilities Limited Financial Rewards People Conflicts Time Demands

Java nook

Entrepreneur Defined

A person who starts and/or operates a business.

All active owner-managers and second generation members of family owned firms and owner-managers which buy out founders of existing firms.

Also includes salaried managers of larger corporations who have a flair for innovation and risk.

Demographic Characteristics of Entrepreneurs

Parents owned business – Foreign parents – High school degree or less – College or more – Age 31 and under – Age 40 or more –

Personality Characteristics Required by Successful Entrepreneurs

Achievement Orientation Risk Taking Independence, Self Confidence, Self

Assurance Innovativeness Strong Verbal and Numerical Skills Selling Skills

Personality Characteristics Required by Successful Entrepreneurs (cont)

Problem Solving Abilities Strategic Planning Perseverance

American Apparel

The Small Business Decision

Organizational Evaluation Small Business Successes Small Business Failures

Small Business Successes

Alertness to Change –

Ability to Attract and Hold Competent Employees –

Staying Close to the Consumer --

Small Business Successes

Thoroughness with Operating Details

Ability to Obtain Needed Capital

Effective Handling of Laws, Rules, and Regulations

Small Business Failures

Bankruptcies – 11,000/year

Business just closing doors Many more

Why the failure Life cycles

55% operate after 3 years External - Internal – finance etc

0% 10% 20% 30% 40% 50% 60% 70%

economic downturn

competition

customer difficulties

change of market condition

govt regulation

unforseen circumstances

supplier difficulties

Technological change

employee fraud

labor legislation

external factors contributing to bankruptcy

Internal Factors contributing to bankruptcy

0% 10% 20% 30% 40% 50% 60% 70% 80%

general management

financial management

Marketing capabilities

Production oroperations

Inovative strategy

HR capabilities

Entrepreneurial Success in a Large Business

Ten Commandments for Intrapreneur Success

Do any job needed Share credit wisely Ask forgiveness – its easier than permission Ask advice before resourses Build good team Build quiet coalition Never bet on race unless you are running Be true to goals but realistic Honor your sponsor

Pet safe ideas

Entrepreneurialship and Small Business Management

Entrepreneurial Skills Characteristics

creativity, innovativeness, independence, risk-taking, idea oriented

Situations generating ideas and solutions to

problems starting a new business, expanding or

opening new products

Characteristics ofArtisan EntrepreneursCharacteristics ofArtisan Entrepreneurs

Technical trainingPaternalistic approachReluctance to delegateNarrow view of

strategyPersonal sales effortShort planning horizonSimple record keeping

Characteristics ofOpportunistic ( Promoter) EntrepreneursCharacteristics ofOpportunistic ( Promoter) Entrepreneurs

Broad-based educationScientific approach to problemsWilling to delegateBroad view of strategyDiversified marketing approachLonger planning horizonSophisticated accounting

and financial control

Entrepreneurialship and Small Business Management

Managerial Skills Characteristics

develops strategy and goal setting, prefers to know outcomes of actions or

activities, team player, works through others, skills in finance, marketing, personnel,

operations Situations

reaching performance objectives, maintaining control of operations

Bright light

Entrepreneur vs Manager

Barman Java nook American Apparel Breadman PET SAFE

Bright Lights, Deep Waters Discuss the difference between an

entrepreneur and a manager using David Green and Carmanah Lights as examples.

What dangers of obtaining equity financing are illustrated in this example?

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Java Nook" CBC Venture

What does this example illustrate about the advantages and disadvantages of starting a small business?

Evaluate Annette and John's backgrounds and preparation for starting a small business. What could they have done to better prepare for small business ownership?

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PET SAFE

Which of the Ten Commandments for Intrapreneur Success do you feel that PET SAFE follows?

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Concept Checks

1. List the advantages of owning a small business.

2. List the disadvantages of owning a small business.

3. What are the characteristics of successful small business owners?

4. What are the major cases of business failure?

5. What is the difference between an entrepreneur and a manager?