Appendix A Homework Leading The Driving Force The Early Stages

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APPENDIX A

MANAGING SMALL BUSINESS START-UPS

APPENDIX OUTLINE

I. Do You Think Like an Entrepreneur?

II. What Is Entrepreneurship?

III. Entrepreneurship Today

A. Definition of Small Business

B. Impact of Entrepreneurial Companies

IV. Who Are Entrepreneurs?

A. Diversity of Entrepreneurs

B. Personality Traits

V. Social Entrepreneurship: An Innovative Approach to Small Business

VI. Launching an Entrepreneurial Tech Start-Up

A. Starting with the Idea

B. Writing the Business Plan

C. Choosing a Legal Structure

D. Arranging Financing

E. Tactics for Becoming a Business Owner

F. Starting an Online Business

VII. Managing a Growing Business

A. Stages of Growth

B. Planning

C. Organizing

D. Leading

E. Controlling

LECTURE OUTLINE

I. DO YOU THINK LIKE AN ENTREPRENEUR?

Entrepreneurs face many demands. Improvisation is a correlate of entrepreneurial intentions.

Entrepreneurial improvisation consists of three elements: the ability to produce novel solutions

under constrained conditions; the ability to excel under pressure-filled circumstances; and the

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II. WHAT IS ENTREPRENEURSHIP?

Exhibit A.1: Five Types of Small-Business Owners

Entrepreneurship is the process of initiating a business venture, organizing the necessary

resources, and assuming the associated risks and rewards. An entrepreneur recognizes a viable

idea for a business product or service and carries it out by finding and assembling the necessary

resources—money, people, machinery, and location—to undertake the business venture.

Entrepreneurs have many different motivations and measure rewards in different ways. They

can be classified into five categories.

• Idealists who like the idea of working on something new, creative, and personally

meaningful

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III. ENTREPRENEURSHIP TODAY

Exhibit A.2: Entrepreneurial Countries Around the World

The turbulence in the technology sector and the demise of many dot-com start-ups heightened

concerns in recent years about whether small companies could compete with big business. Yet,

high-tech start-ups are vital, dynamic, and increasingly important parts of the U.S. economy.

Small businesses represent 99.7 percent of all firms and employ about half of all private sector

employees.

1. The Small Business Administration’s (SBA) definition of small business is detailed

and complex, but in general a small business is considered to be “one that is

Exhibit A.3: Examples of SBA Definitions of Small Business

B. Impact of Entrepreneurial Companies

1. The impact of entrepreneurial companies is astonishing. Businesses with fewer than

500 employees represent 99.7 percent of all firms with employees in the United

2. Entrepreneurship and small business in the United States is an engine for:

a. Job Creation. Virtually all of the net new jobs have come from new companies,

which include not only small companies but new branches of huge, multinational

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IV. WHO ARE ENTREPRENEURS?

The heroes of American business—Henry Ford, Steve Jobs, Sam Walton, Bill Gates, Michael

Dell, Oprah Winfrey, Larry Page, and Sergey Brin—are almost always entrepreneurs, but the

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A. Diversity of Entrepreneurs

1. Entrepreneurs often have backgrounds and demographic characteristics that

distinguish them from other people. They are likely to be first-born, children of

Exhibit A.4: A Glimpse of Tomorrow’s Entrepreneurs

Discussion Question #3: Why would small business ownership have great appeal to immigrants,

women, and minorities?

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B. Personality Traits

1. In general, entrepreneurs seem to want something different from life than do

traditional managers. Six personality traits associated with entrepreneurship have

special importance.

a. Internal locus of control. The task of starting and running a new business requires

the belief that you can make things come out the way you want.

Exhibit A.5: Characteristics of Entrepreneurs

b. High energy level. Most entrepreneurs report struggle and hardship, but they

persist and work incredibly hard despite traumas and obstacles. Half of new

c. Need to achieve. The need to achieve is a human quality linked to

entrepreneurship that means people are motivated to excel and pick situations in

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d. Self-confidence. People who start and run a business must act decisively and

need confidence about their ability to master the day-to-day tasks of the business.

e. Awareness of passing time. Entrepreneurs tend to be impatient. They want

things moving immediately and seldom procrastinate. Entrepreneurs seize the

moment.

f. Tolerance for ambiguity. Tolerance for ambiguity is the psychological

Discussion Question #4: Consider the six personality characteristics of entrepreneurs. Which

two traits do you think are most like those of managers in large companies? Which two are least

like those of managers in large companies?

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V. SOCIAL ENTREPRENEURSHIP: AN INNOVATIVE APPROACH TO SMALL

BUSINESS

Social entrepreneurs are people who are committed to both good business and positive social

change. They create new business models that meet critical human needs and solve important

VI. LAUNCHING AN ENTREPRENEURIAL START-UP

A. Starting With the Idea

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Exhibit A.6: Sources of Entrepreneurial Motivation and New Business Ideas

1. Some people are inspired to entrepreneurship by exciting ideas. Others decide to start

their own businesses and go looking for an idea. The trick for entrepreneurs is to

1. A business plan is a document specifying the business details prepared by an

entrepreneur prior to opening a new business. Planning forces the entrepreneur to

carefully think through the issues and problems associated with starting and

developing the business. Small businesses with a carefully thought out, written

business plan are much more likely to succeed than those without one. The details

may vary, but successful business plans generally share several characteristics.

a. Demonstrate a clear, compelling vision that creates an air of excitement.

b. Provide clear and realistic financial projections.

c. Profile potential customers and the target market.

Discussion Question #6: Many entrepreneurs say they did little planning, perhaps scratching

notes on a legal pad. How is it possible for them to succeed?

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C. Choosing a Legal Structure

1. Sole Proprietorship

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a. A sole proprietorship is an unincorporated business owned by an individual for

profit. Proprietorships make up the majority of the all businesses in the United

2. Partnership

a. A partnership is an unincorporated business owned by two or more people.

3. Corporation

a. A corporation is an artificial entity created by the state that exists apart from its

1. Debt financing

a. Borrowing money that has to be repaid at a later date to start a business is referred

Exhibit A.7: Sources of Start-up Capital for Entrepreneurs

b. Angel financing refers to financing from wealthy individuals who believe in the

2. Equity financing

a. Equity financing consists of funds that are invested in exchange for ownership in

the company either by owners or those who buy stock in the company.

b. A venture capital firm is a group of companies or individuals that invests money

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E. Tactics for Becoming a Business Owner

1. Start a New Business

a. This approach is exciting to an entrepreneur who sees a need for a product or

2. Buy an Existing Business

a. Purchasing an existing business offers the advantage of a shorter time to get

3. Buy a Franchise

a. Franchising is perhaps the most rapidly growing path to entrepreneurship.

Franchising is an arrangement in which the owner of a product or service allows

Exhibit A.8: Top 10 Fastest-Growing Franchises for 2008

Exhibit A.9: Sample Questions for Choosing a Franchise

Discussion Question #5: How would you go about deciding whether you wanted to start a

business from scratch, buy and existing business, or buy into a franchise? What information

would you collect and analyze?

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NOTES________________________________________________________________________

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4. Participate in a Business Incubator

a. A business incubator typically provides shared office space, management

support services, and management advice to entrepreneurs. Incubators also give

1. Many entrepreneurs are turning to the Internet to expand their small businesses or

launch new ventures. Anyone with an idea, a personal computer, access to the

Internet, and the tools to create a Web site can start an online business. Two

incentives for starting an online business include low overhead and the ability to work

from home or any location. Several steps required to start an online business are

highlighted below.

a. Find a market niche. To succeed in the competitive online market, aspiring

VII. MANAGING A GROWING BUSINESS

A. Stages of Growth

Exhibit A.10: Five Stages of Growth for an Entrepreneurial Company

1. Businesses go through distinct stages of growth, with each stage requiring different

management skills.

a. Start-up. In the initial stage, the main problems are producing the product or

service and obtaining customers. Key issues are attracting enough customers and

money to survive.

b. Survival. In this stage, the business has demonstrated that it is a workable

B. Planning

1. In the early start-up stage, formal planning tends to be nonexistent except for the

C. Organizing

1. In the first two stages of growth, the organization’s structure is very informal with all

employees reporting to the owner. At about the success stage, functional managers

1. The driving force in the early stages of a firm’s development is the founder’s vision.

This vision and the founder’s personality shape the corporate culture on values of

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E. Controlling

1. Financial control is important in each stage of a firm’s growth. In the existence and

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Suggested Answers to End–Of-Chapter Discussion Questions

1. You are interested in being your own boss and have the chance to buy a franchise office

supply store that is for sale in your city. You will need outside investors to help pay the

franchise fees and other start up costs. How will you determine if this is a good

entrepreneurial opportunity and make your decision about buying the store?

Whether or not this is a good opportunity depends on several factors. One major factor is the

availability of outside investor funding for this venture. Of course, it would also be critical to

2. Over the past 20 years, entrepreneurship has been the fastest-growing course of study on

campuses throughout the country. However, debate continues about whether you can teach

someone to be an entrepreneur. Do you think entrepreneurship can be taught? Why or why

not?

Students’ opinions will differ. Some people seem to have a knack for entrepreneurship, much

3. Why would small-business ownership have great appeal to immigrants, women, and

minorities?

Many established corporations have informal barriers to top management for these groups. It is

4. Consider the six personality characteristics of entrepreneurs. Which two traits do you think

are most like those of managers in large companies? Which two are least like those of

managers in large companies?

5. How would you go about deciding whether you wanted to start a business from scratch, buy

an existing business, or buy into a franchise? What information would you collect and

analyze?

Starting a new business from scratch takes a long time, a great deal of effort, and perhaps

substantial financing. There is no established clientele, and people often learn by the mistakes

6. Many entrepreneurs say they did little planning, perhaps scratching notes on a legal pad.

How is it possible for them to succeed?

If an entrepreneur comes up with a product or service that is needed and not being supplied, this

7. What personal skills do you need to keep your financial backers feeling confident in your

new business? Which skills are most useful when you’re dealing with more informal sources

such as family and friends versus receiving funds from stockholders, a bank, or a venture

capital firm? Would these considerations affect your financing strategy?

Communication skills and persuasion skills would be very important in maintaining financial

backers’ confidence. You would need good communication skills to keep them informed of your

8. Many people who are successful at the start-up stage of a business are not the right people to

carry the venture forward. How do you decide whether you’re better suited to be a serial

entrepreneur (start the business and then move on to start another) or whether you can guide

the venture as it grows and matures?

The early stages of a new business require tremendous energy as the owner handles nearly all of

the tasks by himself or herself. Even as the company begins to grow somewhat and hire a few

9. How does starting an online business differ from starting a small business such as a local

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auto repair shop or delicatessen? Is it really possible for businesses that operate totally in

cyberspace to build close customer relationships? Discuss.

Starting an Internet business requires lower start-up capital because the initial “bricks and

mortar” investment can be nonexistent. At the beginning, it may only require Web space and

10. Do you think entrepreneurs who launched a new business after deciding to leave a job on

their own versus those who have been forced to leave a job as a result of downsizing are

likely to have different traits? Which group is more likely to succeed? Why?

There is no simple answer to this question because there may be any number of reasons that

either facilitate people leaving a job on their own or prevent them from doing so that have little

TEACHING NOTE FOR LEARNING EXERCISE

What’s Your Entrepreneurial IQ?

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TEACHING NOTE FOR ETHICAL DILEMMA

Closing the Deal

1. Say nothing about the false numbers. Of course, the company will miss the projections and

have to come up with a good explanation, but after all, isn’t that par for the course among

fledgling high-tech companies? Chances are the whole thing will blow over without a

problem.

2. Go ahead and close the deal, but come clean later. Explain that the controller had been on

an extended leave of absence and, because you had been on the job only a few days, you had

not had time to personally do an analysis of the numbers.

3. Take swift action to notify the venture capitalists of the truth of the situation—and start

cleaning house to get rid of people who would knowingly lie to close a deal.

This is the only option there is to avoid potential legal issues later. Chuck Campbell should

CASE FOR CRITICAL ANALYSIS

Emma’s Parlor

1. At what business stage is Emma’s Parlor? At what stage is her Web-based organic tea

business? What synergies exist between the two businesses? How critical do you think those

synergies are to the success of each business?

2. How does Emma Lathbury fit the profile of the typical entrepreneur? Which of those traits

are likely to serve her well, and which might be counterproductive at this stage of her

business?

Emma is a high-energy person with strong self-confidence and an internal locus of control who

3. After listing the pros and cons for each of Emma’s options and considering her personality,

which course of action would you recommend?

Emma is beginning to experience burnout again, so leaving things the way they are is not a

viable option. Selling the Web-based business would probably be a better option than selling the