Business Growth

Looking Ahead
After studying this chapter, you should be able to:
1. Discuss the availability of entrepreneurial opportunities and give examples of
highly successful businesses started by entrepreneurs.
2. Explain the entrepreneurial challenges presented by e-commerce and global
changes.
3. Explain the nature of entrepreneurship and how it is related to small business.
4. Identify three motivators or rewards of entrepreneurial careers.
Looking Ahead (cont’d)
5. Describe the various types of entrepreneurs and entrepreneurial ventures.
6. Identify ways to gain a potential competitive edge for small entrepreneurial
firms.
7. Discuss factors related to readiness for entrepreneurship and getting started in
an entrepreneurial career.
8. Identify how a size of business might be measured.
9. Evaluate the methods of business growth.
Entrepreneurial Opportunities
• Entrepreneurial Opportunity
• A value creating innovation with market potential
• A desirable and timely innovation that creates value for interested buyers and
end users.
• Success stories
• Marketplace Holdings
• Auntie Anne’s
• RotoZip® Tool Corporation
• Apple
Who Are Entrepreneurs?
• Entrepreneurs are:
• Persons who starts and/or operates a business.
• Individuals who discover market needs and launch new firms to meet those
needs.
• Risk takers who provide an impetus for change, innovation, and progress.
• All active owner-managers (founders and/or managers of small businesses).
Entrepreneurial Challenges
• E-Commerce
• An outgrowth and part of the Information Age that is producing the new
economy.
• Globalization
• The trend toward a global
economy creates new
competition and opportunities.
What Is a Small Business?
• Criteria for Defining Smallness in Business
• Financing supplied by one person or small group
• Localized business operations (except marketing)
• Business’ size small relative to larger competitors
• Fewer than 100 employees
Entrepreneurial Incentives
Rewards of Entrepreneurship

Profit Independence Personal Fulfillment

Freedom from the limits Freedom from supervision Freedom to achieve a

of standardized pay for and rules of bureaucratic satisfying way of life
standardized work organizations
Escape from an Escape from routine
oppressive culture and unchallenging work

Make Be Your Enjoy a

Money Own Boss Satisfying Life

Fig. 1.2
Entrepreneurial Refugees
• Foreign refugee
• Corporate refugee
• Parental refugee
• Feminist refugee
• Housewife refugee
• Society refugee
• Educational refugee
Varieties of Entrepreneurship
• Founder (“Pure” Entrepreneur)
• A person who brings a new firm into existence.
• Administrative Entrepreneur
• An entrepreneur who overseas the operations of a ongoing business
• Franchisee
• An entrepreneur whose power is limited by the contractual relationship with
a franchising organization.
• Entrepreneurial Team
• Two or more people who work together as entrepreneurs.
Small Businesses, Growth, and Profits
• High-Potential Venture (Gazelle)
• A small firm that has great prospects for growth.
• Attractive Small Firm
• A small firm that provides
substantial profits to its owner.
• Microbusiness
• A small firm that provides
minimal profits to its owner.
Characteristics of
Artisan Entrepreneurs
• Technical training
• Paternalistic approach
• Reluctance to delegate
• Narrow view of strategy
• Personal sales effort
• Short planning horizon
• Simple record keeping
Characteristics of
Opportunistic Entrepreneurs
• Broad-based education
• Scientific approach to problems
• Willing to delegate
• Broad view of strategy
• Diversified marketing approach
• Longer planning horizon
• Sophisticated accounting
and financial control
Women Entrepreneurs
• More Women Entrepreneurs
• Women own 38% of all U.S. businesses.
• Employment at female-owned firms has grown 108% since 1992.
• Women are moving into nontraditional industries.
• Problems Facing Female Entrepreneurs
• Newness of entrepreneurial role
• Lack of access to credit
• Lack of personal networking
connections in the established
business community
Competitive Advantages of
Entrepreneurial Firms
• Customer Focus • Innovation
• Lack of bureaucracy • Small firms are the
leading source of
• Quality Performance innovation.
• Quality is not limited
to large firms • Low-Cost Production
• Sound management can
• Integrity and lead to lower operating
Responsibility costs.
• A solid reputation builds
loyal customers
Age Concerns in Starting a Business

Early Career Concerns Late Career Concerns

1. Getting an education 1. Fulfilling family
responsibilities
2. Gaining work experience
2. Attaining seniority
3. Acquiring financial in employment
resources 3. Earning investment in
a retirement program

20 25 35 45
Age

Fig 1.3
Characteristics of
Successful Entrepreneurs
• Strong commitment to the business
(tenacity)
• Strong internal locus of control
(self-reliant)
• Moderate risk takers
(financial, career, psychic risks)
Types of Entrepreneurial
Career Opportunities

Opportunity Level of Risk

Starting a business High risk
Buying a business Medium risk
Opening a franchised business Medium risk
Entering a family business Variable risk
Taking the Plunge
• Precipitating Event
• An event, such as losing
a job, that moves an
individual to become
an entrepreneur.
Measuring The Size of A Business
• What is the difference between a large and a small business??
• When does a small business becomes large??
Measuring The Size of A Business
1. Turnover
• The sales revenue or turnover of a business could be used to measure size of
business.
• Small businesses will have much lower sales revenue because they have less
products available for sale and less customers.
• Large businesses will have much larger earnings from selling products.
• Using sales revenue as a business measurement is a good way when
comparing two or more businesses involved in conducting the same business
activity.
• For example, two car producers such as Nissan and Toyota. It is because they
both produce the same kind of output at the same stage of production.
Measuring The Size of A Business
2. The number of employees
• A small shop run by just a sole trader and his family is considered a small
business.
• A multinational company employing many staff is likely to be a large business.
• Larger businesses usually employ many more employees than smaller
businesses in the same industry, for example a local convenience store and a
large national supermarket.
• Also, large businesses will also have more departments and managers while
small businesses may not even have all basic business functions.
Measuring The Size of A Business
3. The amount of capital employed
• Capital employed is the amount of money invested in a business.
• Usually, the larger the business, the more capital employed the business will have.
• A small business will invest less capital in the long-term than a large business in the
same industry.
• Smaller companies simply cannot afford to employ a huge amount of capital in their
operations as it is difficult for a small business with less assets to take a huge bank
loan, and no investors want to invest in a tiny unpopular business.
• For example, a small restaurant selling hamburgers will only need one shop, one pan
and one oven to prepare burgers, and small inventory of raw materials like bread
bums, beef, chicken and vegetables. A large donut manufacturer will need
production lines, industrial mixers, large ovens and a large inventory of raw
materials.
Methods of Business Growth
• Business growth is quite straightforward.
• Businesses can grow in two different ways,
1. Internal Growth (also known as organic growth)
2. External Growth (also known as integration)
Internal Growth (Organic)
• Although Internal Growth is often quite slow, it is considered safer.
• The business is using its own capabilities and resources, such as
retained profits and employees, to expand.
Internal Growth (Organic)
Internal Growth occurs when a business expands by:
• Developing new products for its current customers;
• Finding new customers for its current products;
• Increasing production capacity to produce more goods, e.g. by
buying more equipment, or replacing old machines with faster
ones;
• Entering into new markets by opening more shops where it
previously had none;
• Hiring more workers such as sales people, or new workers who
are more productive.
External Growth (Integration)
• External Growth occurs through dealings with outside organizations.
• It happens through integration such as mergers, acquisitions and
takeovers, or forming agreements with other companies such Joint
Ventures (JV) or Strategic Alliances (SA).
• External Growth offers a faster way to grow, but is considered riskier
as external funding is often needed to buy another business and
cultural conflicts may emerge after merging with another business.
External Growth (Integration)
• A merger is an agreement that unites two existing companies into
one completely new company.
• An acquisition is quite similar to a takeover in that one company will
purchase the other; however, usually on a preplanned and orderly
manner in which both parties strongly agree, if beneficial to both
firms.
• A takeover is usually a hostile act, where the acquirer will surpass the
target company’s Board of Directors (BOD) and will purchase more
than 50% of the shares to obtain a controlling stake in the firm.
• For example, Kraft Foods has sealed its takeover of Cadbury after
over 70% of shareholders
Types of Business Integration
1. Horizontal Integration
• Horizontal integration is when two companies at the same stage of the
production process merge or take over each other.
• In other words, two businesses that are similar, become one company.
• Example: If Ford Motor Company merged with Toyota Motor Company that
would be an example of horizontal integration.
Types of Business Integration
2. Vertical Integration
• Vertical integration occurs when firms at different stages of the production
process merge together. There are two types called:

• Forward vertical integration – when a business takes over a company at a

later stage in the production process for example a customer such as a
retail outlet for selling goods.
• Backward vertical integration – when the business takes over a company
at an earlier stage in the production process for example its
supplier/source of goods and materials
Types of Business Integration
3. Diversification
• Diversification is when firms move into new markets that are different from
their core business.

• Conglomerate integration – when a business moves into an entirely

different market for example a grocery store merging with a bank, or a
company like Ford (car manufacturing) merging with Nokia (technology
and communications)
• Lateral integration – when a business moves into a different market but
within a related industry for example a hairdresser merging with a beauty
therapist
THANK YOU