Wheelen/Hunger

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Chapter 12

• Strategic Issues in Entrepreneurial Ventures and
  Small Business
• Dr.Vijaya Kumar
• Skyline College

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Entrepreneurship and Small Business

• Small businesses
• 22 million
• gt95 of all businesses
• 85 new jobs created by small firms
• 2X RD dollars on fundamental research compared
  to large firms
• 50 of businesses found in any given year, not in
  business w/i 5 years

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Entrepreneurship and Small Business

• Small business firm
• One that employs fewer than 500 people and has
  sales of lt 20 million annually.

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Entrepreneurship and Small Business

• Small business firm
• Independently owned
• and operated
• Not dominant in its
• field
• Not engaged in
• innovative practices

• Entrepreneurial Venture
• Primary goals profit and
• growth
• Innovative strategic
• practices

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Entrepreneurship and Small Business

• Entrepreneur
• A person who organizes and manages a business and
  who assumes risk for the sake of profit.
• Ultimate strategist

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Informal Questions to Begin the Strategic
Management Process in a Small Company or
Entrepreneurial Venture
Formal Informal Define mission What do we stand
for? Set objectives What are we trying to
achieve? Formulate strategy How are we going to
get there? How can we beat the competition? Determ
ine policies What sort of ground rules should we
all be following to get the job done
right? Establish programs How should we organize
this operation to get what we want done as
cheaply as possible with the highest quality
possible? Prepare pro forma budgets How much is
it going to cost us and where can we get the
cash? Specify procedures In how much detail do we
have to lay things out, so that everybody knows
what to do? Determine performance measures What
are those few key things that will determine
whether we can make it? How can we keep track of
them?
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Entrepreneurship and Small Business

• Strategic planning
• Strongly related to small-business financial
  performance
• Many small firms do not use the process

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Entrepreneurship and Small Business
Not enough time
Small Business Reasons for Not using Strategic
planning
Unfamiliar
Lack of skills
Lack of trust
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Entrepreneurship and Small Business
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Entrepreneurship and Small Business
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Entrepreneurship and Small Business

• Strategic Decision-Making Process
• Develop the basic business idea
• A product and/or service having target customers
  and/or markets

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Entrepreneurship and Small Business

• Strategic Decision-Making Process
• Scan the external environment
• Locate factors in the societal and task
  environments that pose opportunities and threats

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Entrepreneurship and Small Business

• Strategic Decision-Making Process
• Scan the internal factors
• Objectively consider personal assets, expertise,
  abilities, and experience

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Entrepreneurship and Small Business

• Strategic Decision-Making Process
• Analyze the strategic factors
• SWOT and SFAS Table (Figure 5.1)

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Entrepreneurship and Small Business

• Strategic Decision-Making Process
• Decide go or no go
• Feasibility to go or further development

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Entrepreneurship and Small Business

• Strategic Decision-Making Process
• Generate a business plan
• Specify how the idea will be transformed into
  reality

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Contents of a Strategic Business Plan for an
Entrepreneurial Venture
I. Table of Contents X. Human Resources
Plan II. Executive Summary XI. Ownership III. Na
ture of the Business XII. Risk Analysis IV. Strat
egy Formulation XIII. Timetables and
Milestones V. Market Analysis XIV. Strategy
ImplementationAction Plans VI. Marketing
Plan XV. Evaluation and Control VII. Operational
PlansService/Product XVI. Summary VIII. Financia
l Plans XVII. Appendices IX. Organization and
Management
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Entrepreneurship and Small Business

• Strategic Decision-Making Process
• Strategic audit
• Framework oriented toward future

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Entrepreneurship and Small Business

• Strategic Decision-Making Process
• Implement the business plan
• Action plans and procedures

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Entrepreneurship and Small Business

• Strategic Decision-Making Process
• Evaluate the implemented business plan
• Compare actual performance against projected
  performance results

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Entrepreneurship and Small Business

• Corporate Governance
• Simpler in entrepreneurial firms
• Owner as manager
• No board unless incorporated

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Entrepreneurship and Small Business

• Corporate Governance
• Closely-held firms have passive boards
• Advisory board
• A group of external business people voluntarily
  meeting with owner to discuss strategic issues

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Entrepreneurship and Small Business

• Sources of Innovation
• Within the Industry
• The unexpected
• The incongruity
• Innovation based on process need
• Changes in industry or market structure

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Entrepreneurship and Small Business

• Sources of Innovation
• Societal environment
• Demographics
• Changes in perception, mood, and meaning
• New knowledge

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Entrepreneurship and Small Business

• Factors New Ventures Success
• 3 Factors
• The structure of the industry entered
• New ventures business strategy
• Behavioral characteristics of the entrepreneur

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Some Guidelines for New Venture Success
Focus on industries facing substantial
technological or regulatory changes, especially
those with recent exits by established
competitors. Seek industries whose smaller
firms have relatively weak competitive
positions. Seek industries that are in early,
high-growth stages of evolution. Seek
industries in which it is possible to create high
barriers to subsequent entry. Seek industries
with heterogeneous products that are relatively
unimportant to the customers overall
success. Seek to differentiate your products
from those of your competitors in ways that are
meaningful to your customers. Focus such
differentiation efforts on product quality,
marketing approaches, and customer serviceand
charge enough to cover the costs of doing
so. Seek to dominate the market segments in
which you compete. If necessary, either segment
the market differently or change the nature and
focus of your differentiation efforts to increase
your domination of the segments you
serve. Stress innovation, especially new
product innovation, that is built on existing
organizational capabilities. Seek natural,
organic growth through flexibility and
opportunism that builds on existing
organizational strengths.
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Entrepreneurship and Small Business

• Small Business Development
• Sub-stages
• Existence
• Survival
• Success
• Disengagement
• Growth
• Take-off
• Resource maturity

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Entrepreneurship and Small Business

• Family Businesses
• gt 1/3 of Fortune 500 family owned or dominated
• World percentage 50

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Entrepreneurship and Small Business

• Family Businesses
• Why family businesses fail
• Inherited wealth
• No allowance for changing firm
• Family is neglected
• Family lifestyles
• Family not prepared to run business
• Arena for family conflicts

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Entrepreneurship and Small Business

• Family Businesses
• Transfer of Power
• Phase 1
• Owner-managed business
• Phase 2
• Training and development of new generation
• Phase 3
• Partnership between generations
• Phase 4
• Transfer of power

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Entrepreneurship and Small Business

• Family Businesses
• Issues in evaluation and control
• Line between debt and equity is blurred
• Lifestyle is part of financial statements
• Standard financial formulas dont always apply
• Personal preference determines financial policies
• Banks combine personal and business wealth