Entrepreneurship and New Venture creation(Np gandhi)

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


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.


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.


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.


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.



• 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.


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



• 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.


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.


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.


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


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.


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.


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.


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.


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?


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.


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.


Sources of Management AdviceSources of Management Advice

Advisory BoardsAdvisory Boards

ManagementManagementConsultantsConsultants

The Small BusinessThe Small BusinessAdministrationAdministration

NetworkingNetworking


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.


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.


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.


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.


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


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


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.

Entrepreneurship and New Venture creation(Np gandhi)

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