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Chapter
Entrepreneurship
and Starting a
Small Business
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Entrepreneurship
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Entrepreneurship
• Definition: Accepting the risk of
starting and running a business
• Why take the entrepreneurial
challenge?
– Opportunity
– Profit
– Independence
– Challenge
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Entrepreneurial Attributes - What
does it take to be an Entrepreneur?
• Self-Directed & Self-Disciplined – You have to be thoroughly
comfortable and thoroughly self-disciplined even though you are
your own boss. You will be responsible for your success or
possible failures.
• Self-Nurturing – You must believe your idea even when no one
else does and must be able to replenish your own enthusiasm.
• Action-Oriented – Great business ideas are not enough. The
most important thing is the desire to realize, actualize and build
your dream into reality.
• Highly Energetic – It’s your business and you must be
emotionally, mentally and physically be able to work long and
hard.
• Tolerant of Uncertainty – Successful entrepreneurs take only
calculated risks. Still, they must be able to take some risks.
Entrepreneurship is not for anyone who is afraid of taking risks.
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Entrepreneurship
• Entrepreneurial Teams: A group of experienced people from different
areas of business who join together to form a managerial team with the
skills needed to develop, make and market a new product.
– A team may be better than an individual entrepreneur because team
members can combine creative skills with production and marketing skills
right from the start.
– Having a team also can ensure more cooperation and coordination among
functions.
– E.g. Compaq Computers: started by three senior managers at Texas
Instruments.
• Micropreneurs and Home-Based Businesses: Entrepreneurs willing
to accept the risk of starting and managing the type of business that
remains small, lets them do the kind of work they want to do, and offer
them a balanced lifestyle.
– Many micropreneurs are home-based business owners.
– Micropreneurs include writers, consultants, video producers, architects,
bookkeepers and such.
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Please read the following scenario!
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Reasons for Growth of
Home-Based Businesses
In addition to helping business owners balance work and family,
other reasons for the growth of home-based business include the
following:
• Technology – Computer technology has leveled the
competitive playing field, allowing home-based businesses to
look and act as big as their corporate competitors.
Technologies are so affordable that setting up a business takes
a much smaller initial investment than it used to.
• Downsizing – Corporate downsizing has made workers aware
that there is no such thing as job security, leading many to
venture out on their own.
• Social Attitudes – have changed.
• Tax Advantages – new tax laws have loosened the restrictions
regarding deductions for home offices.
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Home-Based Business
In setting up a home-based business, you could expect the following
major challenges:
– Getting New Customers- Getting the word out can be difficult.
– Time Management – you same time by not commuting, but it takes
self-discipline to use that time wisely.
– Work vs. Family – Often it is difficult to separate work and family
tasks. Again, it takes self discipline.
– Abiding by City Ordinances – Govt. ordinances restrict such things
as the type of businesses that are allowed in certain parts of the
community and how much traffic a home-based business can
attract to the neighborhood.
– Managing Risk – Home-based entrepreneurs should review their
homeowner’s insurance policy since not all policies cover business-
related claims.
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Web-based business
• Affiliate Marketing - An Internet-based
marketing strategy in which a business rewards
individuals or other businesses for each visitor
or customer the affiliate sends to its website.
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Intrapreneurship
• Entrepreneurship within firms.
• Creative people who work as entrepreneurs within
corporations.
– The idea is to use a company’s existing resources
– human, financial and physical – to launch new
products and generate new profits.
– E.g.. 3M – Managers are expected to devote 15
percent of their work time to thinking up new
products or services.
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What is Small Business?
• Independently Owned and
operated
• Not Dominant in Its Field
• Meet Certain Standards
set by (Small Business
Administration) of Size
(Employees, Annual
Receipts)
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Small Business – Importance
• Providing employment opportunity
• They offer other advantages that larger
companies do not
– Their greatest advantage over big companies
are their more personal customer service
and their ability to respond quickly to
opportunities.
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Small Business –
Major Causes of Failure
• Plunging in without first • Expanding credit too freely
testing and rapidly
• Under/over pricing • Incomplete and/or
• Too little capital inaccurate records
• Little/no experience • Not understanding business
• Borrowing money without cycles
planning • Forgetting about taxes,
• Trying to do too much with insurances, etc.
too little • Owner working or not,
• Buying too much on credit accordingly.
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Small Business –
Situations for Success
• Personal attention • Unattractive
• Products not easily neighborhood
made by mass • Franchising
production • Paying attention to new
• Sales are not large competitors
enough for a large firm • The business is in a
growth industry
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Learning about Small Business
Operations
• Learn from Others – Investigate your local colleges for
classes on small business and entrepreneurship; talk
to and work for successful local entrepreneurs.
• Get Some Experience – Gain three years experience
in the field; then start a part-time small business.
• Take Over a Successful Firm – Serve as an apprentice
and eventually take over once the owner steps down.
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Managing a small business
• According to Small Business Administration, one
of the major causes for small business failure is
poor management.
• Poor management could mean – poor planning,
record keeping, inventory control, promotion or
employee relations. Also, poor capitalization.
• The primary concerns when starting your own
business are – planning and financing.
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Managing a small business
• Begin with planning
• Writing business plan
• Getting money to fund the business
• Knowing your customers
• Managing employees
• Keeping records
• Looking for help
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Business Plan
• A detailed written statement that describes the
nature of the business, the target market, the
advantages the business will have over competition,
and the resources and owners’ qualifications.
• A business plan forces potential owners to be
specific about what they will offer.
• A business plan is mandatory for talking with
bankers or investors.
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Sources of Fund/Capital
• Personal savings
• Relatives
• Former employers
• Banks & finance companies
• Government agencies
• Angel investors
• Venture capitalists
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Sources of Fund/Capital
• Angel investors – Private individuals who invest their own money
in potentially hot new companies before they go public.
• Venture capitalists - Individuals or companies that invest in new
businesses in exchange for partial ownership.
– One difference between venture capitalists and angel investors is what
money they use to invest.
– A venture capitalist is a person or firm that invests in small companies,
generally using money pooled from investment companies, large
corporations, and pension funds. Typically, VCs do not use their own
money to invest in companies.
– An angel investor is an accredited investor who uses their own money to
invest in small businesses. They are required to have a minimum net worth
of $1 million and an annual income of at least $200,000 to be considered
an accredited investor. Many angel investors are small business owners’
family and friends.
• Source: Source: [Link]
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