Page 181 - Introduction to Business

CHAPTER 4 Small Business and Entrepreneurship 155

Summary

LEARNING OBJECTIVE 1 ingredient to building a prosperous small business
Explain why small business is important. sector.

Small businesses are vital to any country as catalysts
LEARNING OBJECTIVE 4
for dynamic change in the business sector. New firms
List and briefly define each of the essential compo-
arise in a competitive business environment to replace
nents of a business plan.
old, outdated firms in the process of creative destruc-
tion. Small firms play a central role in the invention Developing a business plan is a crucial step in starting a
and innovation of new products and services new enterprise. Some of the components of this plan are
demanded by customers. What they give up in efficient the vision statement, goals, strategies, and products and
production due to a lack of scale economies compared services, as well as marketing, management, operating,
to large firms, small firms gain back in terms of experi- and financial plans. Business ideas should be backed up
mentation, flexibility, diversity, and change, which with marketing research to gauge customer demand.
enable them to thrive in market niches. The small busi- Seed money is needed to begin initial production and
ness sector is large in most developed countries, keep the firm going for one to two years. Venture
accounting for over 50 percent of employment in the capitalists (including angels), banks, and the government
United States as well as most new job creation. Tech- are common sources of start-up funding. To create value,
nology and globalization of the business world are a business must contribute to its customers, employees,
lending themselves to more family businesses, greater and investors. Leadership by the owner-manager is a
market access, and increased networking of small necessary factor in creating value in any firm.
firms.
LEARNING OBJECTIVE 5
LEARNING OBJECTIVE 2
Compare the different small business organizational
Discuss the ways government can support small forms, including sole proprietorships, partnerships,
business enterprises. corporations, and franchises.
In recognition of the importance of the small business Different forms of business organizations exist. The
to national business development, governments in sole proprietorship and partnership are most often
many countries offer a variety of forms of assistance to used at the early stage of a firm’s development. As firms
entrepreneurs. Information on how to start a business, grow, they should consider the corporate and franchise
business plans, financing, and so on is available on a forms of organization. These forms allow greater access
number of government websites and at local govern- to capital and faster growth. Each form has its advan-
ment offices in many communities. tages and disadvantages, which should be evaluated by
the small business entrepreneur. Differences among
LEARNING OBJECTIVE 3 these organizational forms are evident with respect to
Describe the personal qualities and training needed direct versus indirect control, manager versus firm
to be a successful entrepreneur, including the cases liability, personal versus corporate taxation, and the
of women and minorities in small business. book value versus the market value of stock.

Entrepreneurs can be anyone with a business idea
about something people want. Rather than working for LEARNING OBJECTIVE 6
an established firm for a regular wage, entrepreneurs Evaluate key small business management decisions,
set out to own and operate their own business. Some including hiring employees, ethics issues, family
business benefits and costs, going public versus
advantages are being your own boss, directly receiving
staying private, and controlling internal and
the rewards of your labor, working at home or in a
external business risks.
family business, and lifestyle benefits. Entrepreneurs
tend to be people who have a commitment to make the Key small business management decisions must be
business profitable, desire independence, have self- made about hiring employees, ethics in entrepreneur-
confidence in their personal ability, and are risk takers ship, running a family business, going public versus
to some degree. Education and training are important staying private, and controlling business risks. In small
in reducing the risk of failure. Interestingly, women and firms each employee is relatively more important and
ethnic groups hold a prominent place in the small more expensive to train than in large firms. Small firms
business sector due to the fact that diversity is a key offer employees a chance to gain experience and get

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