3

chapt
er

Entrepreneurship, New
Ventures, and Business
Ownership
Business Essentials, 7th Edition
Ebert/Griffin

Instructor Lecture
PowerPoints
2009 Pearson Education, Inc.

PowerPoint Presentation prepared by

Carol Vollmer Pope Alverno College

Whats in It for Me?

By understanding the material

discussed in this chapter, youll be
better prepared to:
1. Understand the keys to entrepreneurial
success, including business planning
2. Discuss the reasons for success or
failure
3. Evaluate the advantages and
disadvantages of different kinds of
ownership
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What Is a Small Business?

Small Business Defined
A business that is independent (not part of a
larger business) and that has relatively little
influence in its market.

The Importance of Small Business in the

U.S. Economy
Job creation
Innovation
Contributions to big business
Suppliers of specialized services and raw materials
Sellers of larger firms products
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FIGURE 3.2: Small Business by

Industry

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Entrepreneurship
Entrepreneurship
The process of seeking business opportunities
under conditions of risk

Entrepreneur
One who accepts the risks and opportunities of
creating, operating and growing a new business

Small Business Owner

A person who independently owns a
business that has relatively little impact
in its market
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Entrepreneurial Characteristics
Successful Entrepreneurs:
Are resourceful.
Are concerned about good customer
relations.
Desire to be their own boss.
Can deal with uncertainty and risk.
Are open-minded.
Rely on networks, business plans, and
consensus.
Have different views on how to succeed, to
automate a business, and when to rely on
experience or business acumen.
2009 Pearson Education, Inc.

Starting and Operating a New Business

Crafting a Business Plan
Conveys a description of the business strategy
for the new venture and how it will be
implemented
A business plan should address:
The entrepreneurs goals and objectives
The strategies that will be used to obtain them
The implementation of the chosen strategies

Preparing a Business Plan

Setting goals and objectives
Sales forecasting
Financial planning
2009 Pearson Education, Inc.

Starting the Small Business

Buying an Existing Business
Less risk in purchasing ongoing, viable
business

Franchising
Advantages
Proven business opportunity for franchisee
Access to management expertise of franchisor

Disadvantages
Start-up costs for franchise purchase
Ongoing payments to the franchisor
Management rules and restrictions on the franchisee
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Starting the Small Business (contd)

Starting from Scratch
Disadvantage: Higher risk of business failure
Advantage: Avoids problems of an existing business

Questions to Be Answered:
Who and where are my customers?
How much will those customers pay for my
product?
How much of my product can I expect to sell?
Who are my competitors?
Why will customers buy my product rather than the
product of my competitors?

2009 Pearson Education, Inc.

Financing the Small Business

Personal Resources
Loans from Family and Friends
Bank Loans
Venture Capital Companies
Small-Business Investment Companies (SBICs)
Minority Enterprise Small-Business Investment
Companies (MESBICs)
SBA Financial Programs
Guaranteed loans and immediate loan programs
Management advice (SCORE and SBDCs)
2009 Pearson Education, Inc.

Trends in Small-Business Startups

Emergence of
E-commerce
Crossovers from
Big Business
Opportunities for
Minorities & Women
Global
Opportunities
Better
Survival Rates
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Reasons for Failure and Success

Failure

Poor management
Neglect
Weak control systems
Insufficient capital

Success

Hard work, drive, and dedication

Market demand
Managerial competence
Luck!!!
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Business Ownership
Forms of Legal Ownership
Sole proprietorship: Owned and operated by one
person
Partnership: Sole proprietorship multiplied by the
number of partner-owners
Corporation

Choice of Ownership Form

Based on the entrepreneurs needs/desires for
control, ownership participation, financing
sources, and appropriateness of the chosen form
for the industry in which the firm will compete
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Sole Proprietorships
Advantages:

Disadvantages:

Freedom
Simple to form
Low start-up
costs
Tax benefits
Formation of
cooperatives

Unlimited liability:
Owners are
responsible for all
debts of a business

Limited resources
Limited
fundraising
capability
Lack of continuity

2009 Pearson Education, Inc.

Partnerships
Advantages:

Disadvantages:

More talent and

money
More fundraising
capability
Relatively easy to
form
Limited liability for
limited partners
Tax benefits

Unlimited liability
for general
partner
Disagreements
among partners
Lack of
continuity

2009 Pearson Education, Inc.

Alternatives to General Partnerships

Limited Partnership
Allows for limited partners who invest money but
are liable for debts only to the extent of their
investments
Must have at least one general (or active) partner,
who is usually the person who runs the business and
is responsible for its survival and growth

Master Limited Partnership

Organization sells shares (partnership interests) to
investors on public exchange. Investors are paid back
from profits
The master partner retains at least 50 percent
ownership and runs the business, while minority
partners have no management voice
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Cooperatives
Combine the freedom of sole
proprietorships with the financial
power of corporations
Groups of sole proprietorships or
partnerships agree to work
together for their common
benefit

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Corporations
Corporation
Firms that have filed papers of incorporation

Corporations may:

Be small or large
Sue and be sued
Buy, hold, and sell property
Make and sell products
Commit crimes and be tried and punished for them
Have limited liability for individuals who form them

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Corporations
Advantages:

Disadvantages:

Limited liability: The

owners responsibility
for the debts of a
business is limited to
their investment in a
business

Continuity
Stronger
fundraising
capability

Double taxation
of dividends
Fluid control
Complicated and
expensive to
form

2009 Pearson Education, Inc.

Types of Corporations
Closely Held (Private) Corporation
Publicly Held (Public) Corporation
Subchapter SCorporation
Limited Liability Corporation (LLC)
Professional Corporation (PC)
Multinational (Transnational)
Corporation
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Managing a Corporation
Corporate Governance
The roles of shareholders, directors, and other
managers in corporate decision making and
accountability
Corporate governance is established by the
firms bylaws and involves three bodies:
Stockholders (shareholders): Investors who buy
ownership shares in the form of stock
The board of directors: Group elected by
stockholders to oversee corporate management
Corporate officers: Top managers hired by the
board to run the corporation
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Stockholders: Owners of Corporations

Stock: A share of ownership in a
corporation
Dividends: Profits distributed among
stockholders

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Special Issues in Corporate Ownership

Joint Ventures and Strategic Alliances:
Strategic alliance: Two or more organizations
collaborate on a project for mutual gain
Joint venture: Partners share ownership of a
new enterprise

Employee Stock Ownership Plans

Allows employees to own a share of the
corporation through trusts established on their
behalf

Institutional Investors
Control enormous resources and can buy huge
blocks of stock
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Special Issues in Corporate Ownership

(contd)
Mergers, Acquisitions, Divestitures, and
Spin-Offs:
Merger: Two firms combine to create a
new company
Acquisition: One firm buys another
outright
Divestiture: Strategy whereby a firm sells
one or more of its business units
Spin-off: A firm sells part of itself to raise
capital
2009 Pearson Education, Inc.