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Managing Small Business Start-

Ups
CHAPTER 6
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Learning Objectives

 Describe the importance of entrepreneurship to

the U.S. economy.
 Define the personality characteristics of a
typical entrepreneur.
 Explain social entrepreneurship as a vital part
of today’s small business environment.
 Outline the planning necessary to launch an
entrepreneurial start-up.

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Learning Objectives (contd.)

 Describe the five stages of growth for an

entrepreneurial company.
 Explain how the management functions of
planning, organizing, leading, and controlling
apply to a growing entrepreneurial company.

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Entrepreneurship

● Process of initiating a business venture

● Organizing the necessary resources
● Assumes associated risks and rewards

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Five types of Small Business Owners

Exhibit 6.1

Rewarded by chance to Thrive on the challenge of Enjoy chance to balance

work on something new building a larger, more work and personal life
and creative profitable business

Idealists Optimizers Hard Jugglers Sustainers

24% 21% Workers 20% 15%
20%

Get personal satisfaction High energy people who enjoy

from being a business handling every detail of their own
owner business

SOURCE: Study conducted by Yankelovish Partners, reported in Mark Henricks, “The-Cast,” Entrepreneur (March 2000), 14-16.

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Entrepreneurship and the Environment

 Turbulence in the technology sector and

the demise of many dot-com start-ups =
heightened concerns about small
companies competing against big
business
 Entrepreneurship and small business
– are vital, dynamic increasing important parts
of U.S. economy
– are booming in other countries

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Why Small Business Today?

Economic changes

Globalization

Increased competition

Advancing technology

New market niches

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Definition of Small Business

● Definition used by SBA detailed and complex

● Independently owned and operated
● Not dominant in its field of operation
● Definition in the process of being revised

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Examples of SBA Definition of Small Firms

Exhibit 6.3

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Impact of Entrepreneurial Companies

 Generate over 50 percent of nonfarm GDP
 97 percent of U.S. exports
 2.6 percent of export value
 Employ over 50 percent of nonfarm private sector
 Businesses with fewer than 500 employees represent
99.7 percent of all the firms with employees in the U.S.

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Who Are Entrepreneurs?

 Diversity of Entrepreneurs
– Often have distinguishing backgrounds and
demographics – 1st born, children of
immigrants
– Emerging growth companies of the next
decade
 Women-owned businesses: in 2005, 6.5 million
businesses that generated $950.6 in revenues
and employ over 7 million
 Minority-owned businesses: growing 17% per
year with African American growing the fastest

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Characteristics of Entrepreneurs
Exhibit 6.5

Internal Locus of Control Tolerance for Ambiguity

High Energy Level Entrepreneurial Awareness of Passing Time

Personality

Need to Achieve Self-Confidence

Source: Adapted from Charles R. Kuehl and Peggy A. Lambing, Small Business: Planning and Management (Ft. Worth: The Dryden Press, 1994),45.

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Hours Worked per Week by
Owners of New Businesses
Exhibit 6.6

30

25

20
Percent % of New
Business Owners

15

10

0
Less than 50 50-59 60-69 70-79 More than 80
SOURCE: National Federation of Independent Business, Reported in Mark Robichaux, “Business First, Family
Second,” The Wall Street Journal, May 12, 1989,B1.

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Sources of Entrepreneurial Motivation
and New-Business Ideas
Exhibit 6.7

Reasons for Starting a Business Source of New-Business Ideas

Joined Family In-depth Understanding

41% Business 37% of Industry/Profession
36% To Control My Future 36% Market Niche Spotted
27% To Be My Own Boss 7% Brainstorming
25% To Fulfill a Dream 4 Copying Someone Else
5% Downsized/Laid Off 4 Hobby

11% Other

Source: “The Rewards,” Inc. State of Small Business, 2001, May 29 2001, 50-51; and Leslie Brokaw, “How To
Start an Inc. 500 Company,” Inc. 500, 1994, 51-65.

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Business Plan
 Document specifying the business
details prepared by an entrepreneur
prior to opening a new business

Clear vision Sources & uses of

Realistic financial start-up funds &
projections operating funds
Target market
Industry and competitors
Management team
Critical risks that could
threaten success

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Becoming A Business Owner

3 Basic Legal Forms

● Sole Proprietorship = unincorporated business

owned by an individual for profit
● Partnership = unincorporated business owned
by two or more people
● Corporation = artificial entity created by the
state and existing apart from its owners.

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Financing Resources

● Crucial concern for entrepreneurs

Debt Financing –
money to be repaid at a
later date

Equity Financing –
funds invested in
exchange for ownership
in the company

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Tactics
Ways to Become a Business Owner

 Start a New Business

– Advantage – develop and design own way
– Disadvantage – long time to get off ground and to
make profitable

 Buy an Existing Business

– Advantage – shorter time and existing track record
– Disadvantage – need to pay for goodwill

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Tactics
Ways to Become a Business Owner

 Buy a Franchise = an agreement to sell

a product or service with help from the
owner
– Advantage – management help is provided
by owner
– Disadvantage – lack of control

 Participate in a Business Incubator =

shared office space, management,
support services, management advice

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Five Stages of Growth For an Entrepreneurial
Company
Exhibit 6.10

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Managing a Growing Business

 Planning
– Defining goals and deciding on the tasks and use
of resources needed to attain them
– As organization grows, formal planning usually is
not instituted until around the success stage
– Business plan must be living document

 Planning
concern – small businesses need to
be Web-savvy

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Managing a Growing Business

 Organizing
– 1st two stages typically very informal
– At 3rd stage, success, functional managers are
hired
– Rules and regulations, procedural manuals
– Latter stages, delegation
 Outsourcing – organizing approach

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Managing a Growing Business

 Leading
– Early stages – leader’s vision
– By success stage, must learn to motivate
employees or bring in managers who can
– Need for active communication

 Leadership is important because many

small firms have a hard time hiring
qualified employees

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Managing a Growing Business

 Controlling
– Financial control – important in each stage
– Initial stages – exercised by simple
accounting records and by personal
supervision
– By 3rd stage, operational budgets are in
place; structured control systems

 Control Techniques become more

sophisticated as the firm matures

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