Entrepreneurship

Prof. Rania Shamah

Chapter One
Starting Your
Small Business
 Define Define what is meant by the term business.

Name some of the unique contributions of

Name small business.
Learning
Objectives
Explain Explain some of the current problems’ small
businesses face.

Discuss some of the current trends challenging

Discuss entrepreneurs and small business owners.
 It Is an Interesting Time to Be Studying
Small Business

The following are some reasons for the increased interest in small business:
A. The number of small businesses is growing rapidly.
B. Small firms generate most new private employment.
C. The public favors small business.
D. There is a growing trend toward self-employment.
E. Entrepreneurship is attractive to people of all ages.
 It Is an Interesting Time to Be Studying Small
Business
A. The number of small businesses is growing rapidly.
• The development of small business in the United States is truly an amazing story.
B. Small firms generate most new private employment.
• The value of goods and services they produce and the new jobs they generate make
the small business sector one of the greatest economic powers in the world, accounting
for trillions of dollars’ worth of commerce annually.
C. The public favors small business.
• Generally, small business owners and managers believe in the free enterprise system,
with its emphasis on individual freedom, risk taking, initiative, thrift, frugality, and
hard work.
• Indications of interest in small business and entrepreneurship can be explained by the
large number of magazines aimed at that market
It Is an Interesting Time to Be Studying Small
Business
D. There is a growing trend toward self-employment.
• The growth rate for self-employment is usually greater than the growth
rate of the general workforce
• Working for oneself is a dream come true for many. Technology is
available to help so many of us own and operate our businesses.
E. Entrepreneurship is attractive to people of all ages.
• Entrepreneurship knows no age limits! From the very young to the very old,
people are starting new businesses at a rapid rate.
• Particularly heartening is the large number of young people who are
entrepreneurs
 Real-World Example 1.1
o Age is not a requirement for success in starting small businesses. Megan Crump is a good
example of a young entrepreneur. At age seven she found an exciting way to make money.

o After a successful evening of trick-or-treating, Megan took all her candy to school and sold it
to her schoolmates for a handsome profit of $3 the first day and $1 the second day.

o She later held a yard sale where, among other things, she sold her sister’s used bicycle for $9.

o The resourcefulness of youngsters such as Megan should continue to stimulate our economy well
into the twenty-first century.
 Defining Small Business—No Easy Task
Now that we have seen how much interest there is in small business, what is small business?
There is no simple definition, but let’s look at some definitions that are frequently used
What Is Small?

At first, this question appears easy to answer.

Many places of business that you patronize -such as independent

neighborhood grocery stores, fast-food restaurants, hair stylists, dry
cleaners, video or music shops, and the veterinarian- are examples of
small businesses.

Qualitative factors are also important in describing small businesses.

To be classified as “small,” a small business must have at
least two of the following features:
Management is independent, because the manager usually owns the
business.
Capital is supplied and ownership is held by an individual or a few
individuals.
The area of operations is primarily local, although the market is not
necessarily local.

The business is small in comparison with the larger competitors in its industry
To be classified as “small,” a small business must have at
least two of the following features:

Perhaps the best definition of small business is the one used by Congress
in the Small Business Act of 1953, which states that;

• a small business is one that is independently owned and operated and

is not dominant in its field of operation
Table 1.2 Classification of Business by Size According to SBA
Under 20 employess Very Small
20 - 99 Small
100 -499 Medium
500 or more Large
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 From Creativity
to
Entrepreneurship
Distinguishing between
Entrepreneurial
Ventures and
Small Businesses
 Entrepreneurial Venture Small Business

• is one in which the principal objectives of • Sometimes called a micro business, on the
the entrepreneur are profitability and other hand, is any business that is
growth. independently owned and operated and
• Thus, the business is characterized by is not dominant in its field.
innovative strategic practices and/or • It may never grow large, and the owners
products. may not want it to, as they prefer a more
• The entrepreneurs and their financial relaxed and less aggressive approach to
backers are usually seeking rapid growth, running the business.
immediate—and high—profits, and a • They manage their business in a normal
quick sellout with (possibly) large capital way, expecting normal sales, profits, and
gains growth.
• In other words, they seek a certain degree
of freedom and—ideally—a certain
degree of financial independence.
• By 2010 micro-business had created a
net of 5.5 million jobs
(getbusymedia.com).
 Who Is an
Entrepreneur?
 As indicated throughout this chapter, small firms
differ from their larger competitors.

Let’s look at some major contributions made by

small businesses that set them apart from larger
firms.
Some Unique
Contributions Smaller firms tend to:

of Small • Encourage innovation and flexibility.

• Maintain close relationships with customers
Business and the community.
• Keep larger firms competitive.
• Provide employees with comprehensive
learning experience.
• Develop risk takers.
• Generate new employment.
• Provide greater employee job satisfaction.
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Factors Affecting the
Future of an Industry
or a Business
 • gross national product (GNP), interest rates, inflation rates, stages
of the business cycle, employment levels, size and characteristics of
Economics business firms and not-for-profit organizations, and opportunities in
foreign markets.

• artificial intelligence, thinking machines, laser beams, new energy

Technology sources, amount of spending for research and development, and
issuance of patents and their protection.

• career expectations, consumer activism, health concerns, desire to

Lifestyle upgrade education and climb the socioeconomic ladder, and need
for psychological services.

• legal-antitrust regulations, environmental protection laws, foreign

trade regulations, tax changes, immigration laws, child care
Political legislation, and the attitude of governments and society toward the
particular type of industry and business.

• population growth rate, age and regional shifts, ethnic moves and
Demographics life expectancy, number and distribution of firms within the industry,
and size and character of markets.
 o The changing environment in large firms is leaving
employees frustrated and uncertain about their future.
o Thus, they leave to find a better job or—as many are now
doing—to start their own company, using the expertise
they learned at the larger firm.
o As these employees who go out on their own are aware,
owning a small business provides an excellent opportunity
Why People to satisfy personal objectives while achieving the firm’s
business objectives.
Start Small • What are the key reasons?

Businesses
•What are the
key reasons?

A.Satisfy C.Obtain E.Provide

Personal B.Achieve Additional C.Help Their Products Not
Independence Families Available
Objectives Income Elsewhere
 A. Satisfy Personal Objectives
 The personal objectives of owners of small businesses
differ from those of managers of larger firms.
Managers of large companies tend to seek security,
Why People place, power, prestige, high income, and benefits.
Start Small  By contrast, the primary objectives of small business
owners are as follows:
Businesses • Achieve independence.
• Obtain additional income.
• Help their families.
• Provide products not available elsewhere
 B. Achieve Independence
 The new business owner’s primary motive is usually independence, that
is, freedom from interference or control by superiors.
 Small business owners tend to want autonomy to exercise their initiative
and ambition; this freedom often results in innovations and leads to
greater flexibility, which is one of the virtues of small businesses.
 People who operate small firms know they are running a risk when they
Why strike out on their own, but they hope to realize their goal of
independence. In essence, owning your own business provides a feeling
People of satisfaction that may be missing if you work for someone else.

Start Small
Businesses
 C. Obtain Additional Income
 Owning a business can provide the opportunity to make a great deal of money
and to take advantage of certain tax benefits.
 Not all small business owners and managers make a lot of money, nor do they all
intend to.
D. Help Their Families
 Small business owners are probably motivated as much by personal and family
considerations as by the desire for profit.
Why  Students may return home to operate the family business so their parents can
retire or take life easier.
People  They may take over the firm on the death of a parent or form a business to help
their family financially.
Start Small  There are over 10 million women-led businesses generating in excess of $1.6
trillion in revenues.

Businesses  These companies play a big role in providing flextime, allowing mothers to be
“stay at home moms.”
E. Provide Products Not Available Elsewhere
 The saying, “Necessity is the mother of invention” applies to the beginning of
many small firms.
 In fact, most American economic development has resulted from innovations born
in small firms.
 Relative to the number of people employed, small firms produce two-and-a-half
times as many new ideas and products as large firms.