Small Business

ItsOpportunities and Rewards

Chapter 01

McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives
LO1 Understand the scope of small business in the U.S.
LO2 Learn the differences between small business and
high-growth ventures
LO3 Discover the rewards entrepreneurs can achieve
through their businesses
LO4 Be able to dispel key myths about small businesses
LO5 Identify actions key to becoming a small business
owner
LO6 Understand howsmall businesses are important to
our economy and your community

1-2
Starting an Entrepreneurial
Small Business: Four Key Ideas
• Believe that you can do this:
• belief in yourself is called self-efficacy
• Those who believe in themselves and in the passion of
their beliefs are more likely to keep at it until they
succeed
Starting an Entrepreneurial
Small Business: Four Key Ideas
• Planning + Action = Success
• A plan without action is futile. Actions without plans
are usually wasted. Success comes from having the
right sort of plan to get you to the right actions as
quickly as possible.
Starting an Entrepreneurial
Small Business: Four Key Ideas
• Help Helps:
Successful entrepreneurs learn—from other
entrepreneurs, from experts in their chosen field, from
potential customers
Starting an Entrepreneurial
Small Business: Four Key Ideas
• Do well, Do Good:
• In the long run, you will depend on partners, investors,
employees, customers, and neighbors. If you always
remember to do good for others as you try to do well in
your business, you’ll feel better about your business and
life, and those around you will too
 Starting an Entrepreneurial
Small Business
Small Business
– involves 1-50 people and has its owner
managing the business on a day-to-day
basis
Entrepreneur
– a person who owns or starts an
organization, such as a business

1-7
 Starting an Entrepreneurial
Small Business
Firsthurdle is in action
Second hurdle is taking the right
actions
– What you need to do and how to do it

1-8
 Starting an Entrepreneurial
Small Business
Small Business Administration
– a part of U.S. government which provides
support and advocacy for small business

1-9
 Starting an Entrepreneurial
Small Business
• Small BusinessDevelopment Center
• – offices co-sponsored by states and the
federal government that offer free or low-
cost help to existing or potential small
business

1-10
 Question
What is the facility which offers subsidized
space and business advice to companies in
their earliest stages of operation?
A.Incubator
B.Small Business Development Center
C.SBA
D.Red Hat

1-11
Starting an Entrepreneurial
Small Business
Incubators
– a facility which offers subsidized space
and business advice to companies in their
earliest stages of operation

1-12
 Defining a Small Business
SBA defines a small business as one
with fewer than 500employees
SMEs
– Small enterprise –1-50 people
– Medium enterprise –51-500 people

1-13
Small Business Owners and
Entrepreneurs
Entrepreneur
– anyone who owns a business
– Self-employed, founder, heir, franchise
Owner-manager
– individual who owns and runs a business

1-14
The Many Types of
Entrepreneurial Smal Businesses
small and medium enterprise (SME)
• The international term for small businesses
independent small business
• A business owned by an individual or small group
owner-managed firm
• A business run by the individual who owns it
serial entrepreneur
• A person who opens multiple businesses throughout
his or her career.
 high-growth venture
• A firm started with the intent of eventually going
public, following the pattern of growth and opera-tions
of a big business
Differences between SmallBusinesses
and High-Growth Ventures

1-17
 Dynamic Capitalism

• A process of wealth creation.

• This process is characterized by the dynamics

of new ,creative firms forming and growing
while old and large firms are declaiming and
failing.
Dynamic Capitalism Topology

Figure 1.1

1-19
Rewards for Starting a Small
Business
Innovativeness
– refers to how important a role new ideas,
products, services, processes, or markets
play in an organization
Potential for growth
– refers to the potential market size

1-20
Rewards for Starting a Small
Business
Growth rewards
– what people get from facing and beating
challenges
Income rewards
– money made by owning one’s own
business
Flexibility rewards
– ability of business owners to structure life in
the way thatsuits their needs
1-21
 Rewards New EntrepreneursSeek
Through Small Business
Figure 1.2

1-22
Myths about SmallBusinesses

Not enough financing

You can’t start a business during a
recession
To make profits, you need to make
something
Ifyou fail, you can never try again
Students don’t have the skils to start a
business

1-23
BRIE Model

Figure 1.3
1-24
BRIE Model
BRIE Model
BRIE Model
BRIE Model
 Small Business and the
Economy
New Jobs
Innovations
New opportunities

1-29
 Small Business and the
Economy
Smal business is the engine of job
creation, generating 75%of the3.4
million new jobs
Smal businesses employ more thanhalf
of all Americans

1-30
New Jobs

• Since the 1970s big business has cut tens of millions

of jobs.
• In the meantime, small business has added tens of
millions of jobs.
• In the latest statistics, small businesses created 63
percent of the new jobs created since 1994.
• When the Census Bureau looked more closely at the
figures, it concluded that small business start-ups in
the first two years of operation accounted for virtually
all the net new jobs in America.
New Jobs

• Small business is the engine of job generation, but it

is important for existing jobs, too. Small businesses
employ more than half of all Americans, providing
wages, salaries, and the taxes those working people
pay the government.
• One reason small businesses are a key employer is
because they are more willing than most large
businesses to offer jobs to people with different work
histories or needs, like people new to the workforce,
people with uneven employment histories, and
people looking for part-timework.
• These employment issues are at the core of what
makes small business attractive to local and
state governments
Innovation

• Small business is a key element of every nation’s

economy because it offers a very special environment in
which the new can come into being.
• This process creative destruction.
• Creative Destruction
• – the way that newly created goods,
services, or firms can hurt existing
competitors
 Innovation

IBM PCs and the personal computer

explosion.
That explosion redrew the lines of the entire
computer industry, but it also created
tremendous new wealth, utility, and
innovation.
Big business often has trouble
with innovations that would eat away at
existing business, but small businesses are
more likely to see new revenues in
innovations. 1-34
Innovation

• Small Business Administration reports that among firms

that hold one or more patents, small businesses
generate 16 times the number of patents per employee
than do big businesses.
New opportunities

• People who own their own business are presented with

tremendous opportunities not only to improve their life
and wealth, but also to help them move into and
upward in the economy and society.
• Small businesses offer communities another type of
opportunity—the opportunity to enjoy goods and
services.
New opportunities

• Imagine a neighborhood or town without a grocery

store or pharmacy. In important ways, the town would
not seem like a real community. A small grocery,
drugstore, hardware store, or gas station might be able
to use its low overhead and capacity to adapt to local
needs (e.g., a grocery store stocking a lot of fishing
supplies to appeal to visiting fishing enthusiasts) to
make a profit where larger chain stores could not.
• For a small town or a neighborhood to be able to stand
on its own, it needs a variety of businesses
New opportunities

• Out sourcing.
• In addition, big business depends on small business as
a source of key ideas for new products
Two aspects of global
Entrepreneurship
• In nations where there is little manufacturing, most
industry relates to farming and extracting raw
materials, such as mining and forestry. In these factor-
driven economies
• Such as Pakistan, Jamaica, and Venezuela,
entrepreneurship is essential to helping build personal
wealth and breaking the cycle of low-wage jobs, and
entrepreneurship levels are every high.
 Global Entrepreneurship

Factor driven economies

– Entrepreneurship is essential to helping
build personal wealth and breaking the
cycle of low-wage jobs
– Entrepreneurship levels are high

1-40
• As economies develop and go beyond basic
manufacturing to a more industrialized economy as is
seen in countries such as Russia, Brazil, and China, it is
called an efficiency-driven economy
• In these nations, entrepreneurship becomes a key way
to build the middle class, and a growing retail and
wholesale sector grows alongside businesses serving
the needs of large industrial concerns.
• Entrepreneurship levels in such economies are in the
middle range
 Global Entrepreneurship

Efficiency-driven economies
– entrepreneurship becomes a key way to
build a middle class
– Entrepreneurship levels are in themiddle
range

1-42
Innovation-driven economies

• Focused on high-value-added manufacturing but are

marked by a very large service sector providing high-
end services to not only the resident population but
also for export.
• Examples of such countries include Germany, the
Republic of Korea, and the United States.
Entrepreneurship levels in these countries average the
lowest of the three types of economies
 Efficiency-driven economy

Innovation-driven economies
– focused on high-value-added
manufacturing, but marked by very large
service sector
– Entrepreneurship levels are lowest

1-44
Opportunity vs necessity driven
entrepreneurship
• One type is based on entrepreneurs who are going into
business to improve themselves financially, or to launch
an improved product or service into the market. This is
called opportunity-driven entrepreneurship.

• The other type is where the person becomes an

entrepreneur because he or she does not see any
workable prospects for getting employed by someone
else. This is called necessity-driven entrepreneurship.
• As economies move from a factor-driven basis to an
innovation-driven basis, the proportion of opportunity-
driven entrepreneurship generally increases
Two aspects of global
Entrepreneurship
• The other aspect of global business relates to exporting.
Originally, small business was equal with local business.
The vast majority of firms sold in their
home communities, and it was a very rare firm that
sold nationally.
• Through the beginning of the twentieth century, it was
rare for small businesses to sell in any other country
virtual instant global
entrepreneurship (VIGE)
• VIGE depends on using websites like eBay for products)
or Upwork (for services) to quickly establish a global
presence.
• Many of these VIGE sites offer procedures, services,
and web page templates that incorporate best practices
for global trading.
virtual instant global
entrepreneurship (VIGE)
• For example, eBay leads new sellers through the
creation of seller and product descriptions found to be
the most effective.
• eBay and Up work also organize the sellers 'accounts to
handle international payments, shipping, insurance,
and basic customer service is-sues.
• VIGE sites provide the assurance of honesty on the part
of buyers and sellers, using rules, warrantees, and most
of all, mutual ratings of buyers and seller.
 Global Entrepreneurship
• Virtual InstantGlobal
Entrepreneurship
• (VIGE)
– entrepreneurial approach using
• ecommerce to handle global trade
– Depends on using websites like eBay or
eLance to quickly establish a global
presence

1-49
Early Stage Entrepreneurial
Activity for 43Nations

Figure 1.4 1-35

Beyond Small Business: CSI
Entrepreneurship
• The primary focus of Entrepreneurial Small Business
is on people who plan to start business of their own.
• These people are independent entrepreneurs, but they
aren’t the only type.
• Founders of social ventures are called social
entrepreneurs.
• while entrepreneurs employed by others in existing
companies are often called corporate entrepreneurs.
• Together, the three represent what might be called CSI
entrepreneurship
 Beyond Small Business

The three forms differ in which aspect of entrepreneurship they

focus on

Creation Customer-focus
– focus which looks – focus which refers
at the making of to being in tune
new entities with one’s market

1-52
 Beyond Small Business

Efficiency Innovation
– focus which refers – focus which looks
to doing themost at a new thing or
work with the a new way of
fewest resources doing things

1-53
 Beyond Small Business

Independent entrepreneurship
– form of entrepreneurship in which a person
or group own their own for-profit business.

• In independent entrepreneurship (what we have discussed as

small business), all four focuses of entrepreneurship are
essential, and that is what makes small business so important as
the role model for the other forms.

1-54
• Public entrepreneurship
– form of entrepreneurship that involves revitalizing
government agencies
 Beyond Small Business
• Corporate entrepreneurship
• – form of entrepreneurship which takes
place in existing businesses around new
products, services or markets.
• In corporate entrepreneurship , the focus is typically on
customer-focus, efficiency, and innovation, bringing new
products or services to market, or opening up new markets
to your firm.
• Famous examples of corporate entrepreneurship include the
creation of new brands like Apple's iPhone

1-56
 Beyond Small Business
• Social entrepreneurship
• – form of entrepreneurship involving the
creation of self-sustaining charitable and
civic organizations, or for-profit
organizations which invest significant
profits in charitable activities.
• There are also organizations that are social because of a focus
on saving the environment, often described as sustainable
entrepreneurship or green entrepreneurship
• In social entrepreneurship, the key focuses involve creation,
efficiency, and customer-focus because few social ventures
have a lot of funding.
1-57
Relation of the three forms of
entrepreneurship to the four
different focuses
 Question
What is the degree of attention to which your
target market pays to your idea or
organization?
A.Mind-box
B.Viral share
C.Mindshare
D.Brain share

1-59
 Beyond Small Business

Mindshare
– degree of attention to which your target
market pays to your idea or organization

1-60
 Beyond Small Business

• You might notice that profit or wealth is not mentioned

as a focus.
• That is because the goal of any type of
entrepreneurship is to achieve some sort of gain, and
those gains are not always measured entirely using
money.
• For example, innovation-driven entrepreneurs are often
as interested in having their idea used or known—called
mindshare as makingmoney.
 Beyond Small Business

• Customer-focused entrepreneurs often will accept

lower profits if it means keeping customers happy.
• Often creation-driven entrepreneurs will sacrifice
profits by rein-vesting them to keep the creation going.
• So while achievement of some kind of outcome is
essential to an entrepreneur, it is often balanced
against one or more of the four focuses
of entrepreneurship
Projects – Complete
Business plan
Projects - Complete
Business plan
Projects - Complete
Business plan

Direct Drive Motor