Entrepreneurs and Small Business
Introduction | Small Business | Small Business Success Factors | Challenges
Facing Small Business | How to Succeed? | Entrepreneurial Behaviors | Final
Thoughts | References
Introduction
Back to Top
"If there exists no possibility of failure, then victory is meaningless."
– Robert Schuller
This quote from entrepreneur, Robert Schuller, kicks off our lecture this week so
perfectly. Failure is an option in small business; however, without the chance of
failure, success would be meaningless. In other words, if something has risk then
the upside of success could be quite lucrative. Small business and
entrepreneurship is not for everyone, but those who do have a desire to work for
themselves and run a business must understand the risks and plan accordingly;
which is the purpose of this class.
This week, we will talk about the basics of small business and entrepreneurial
factors. We first define small business and the factors of successful small
businesses. Additionally, we will review success factors for small companies. On
the flipside, we will review the challenges and failures. At the core of this class,
we will discuss entrepreneurs, entrepreneur traits, and how to start your
business.
Small Business
Back to Top
Simple question: What is a small business?
Small business, as defined by the federal government, has many different
standards. The general standard is a company that has less than 500 employees
is classified as small.
However, there are many exceptions by industry where 1,000 employees or
annual revenue determines the classification. If you are not sure if you are a
small company, the Small Business Administration (SBA) publishes a table that
outlines the industry and the qualifications based on number of employees
and/or annual revenue. For a complete list, view this website.
http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf
,In general, small businesses represent more than 99.7% of all employers and
create 60 to 80 percent of net new jobs annually (Hatten 2009). In short, small
business is critical to the well being of our economy.
Some interesting facts about small business, for those that are classified as small
business.
• 61% employ 0-4 people
• 18% employ 5-9 people
• 11% employ 10-19 people
• 9% employ 20-99 people
This shows that 99% of small businesses employ less than 100 employees;
therefore, only 1% of small businesses employ over 100 employees!
Small Business Success Factors
Back to Top
Small businesses fail at an alarming rate (more on failure a little later), but so
many do succeed. As identified, 99 percent of the workforce is employed in small
companies, so what are they doing right? Why does small business succeed?
First, imagine a battleship and a small sailboat. The battleship is a large, multi-
national corporation and the sailboat is your small business. In a fight, you would
have no chance to succeed, or would you? A small sailboat can make quick
course corrections and remain flexible, while a large battleship makes slow turns
and can be outmaneuvered easily. One reason for success is simply the ability to
be flexible and innovative.
For example, working at a credit union for many years, the competition was
large multi- national banks. These banks had millions of customers and billions
of dollars where credit unions had just 40,000 members and approximately
$250M. However, credit unions have better technology, service, and innovation.
Why? They are small, and when equipment updates are needed or a process
change occurs, it was easy to change in a smaller number of locations for 100
employees. A large company, with thousands of branches and hundreds of
thousands of employees in many countries, has organizational inertia and pain
when implementing new technology and process change.
Another success factor is identifying your competitive advantage. In other
words, what does your small business do well? Usually, small businesses have a
core niche that allows them to succeed where larger companies could struggle.
Credit unions focus on small business needs and middle class families. They
offer products and services that catered to this segment.
,Since you are small, your customers are not just numbers. Having close relations
with your core customers can be vital. Think of the small cafe in your
neighborhood. When you go in for a cup of coffee or breakfast, they often call
you by name and give you personalized treatment that makes you feel special
and hence, keep you loyal. Again, the size of a credit union allows employees to
learn about their customers and give the personal touch that may be lacking in a
large bank.
A small business that strives for quality will succeed. All of the factors shared so
far are great and help to attract customers, but a commitment to high quality
and high touch service is what will keep you in business. As shared, the credit
union technology was current and immediate, which helped increase quality and
service.
Challenges Facing Small Business
Back to Top
Despite all of the advantages of going into business, it is always a good idea to
review the challenges facing anyone thinking about starting a business. One of the
most difficult steps is finding quality sources of financing. Since lack of capital is
the primary cause of most new business failures, it is critical that sufficient capital
be found before opening for business.
However, most banks are leery of loaning to new entrepreneurs. This may limit
the entrepreneur to his or her own money, loans from family, finding a partner,
or selling stock to friends. All of these options have serious downsides that we'll
discuss as we move on; this is a serious issue with no easy solution.
The financial challenges do not end once the small business is in operation.
Entrepreneurs do not have the staff or support resources commonly found in
most large businesses. As a result, a small business owner must wear many hats
and have a basic understanding of human resource management, marketing,
finance, and operations. Small business organizations, such as the National
Federation of Independent Business (NFIB.org), can help to guide small
businesses through the government and regulatory maze, something that a
small business or a single-owner would be unable to achieve.
The increasing globalization of today's markets offers new opportunities and risks
for small businesses. International markets, coupled with expanding trade
agreements, provide small businesses with many new global sales and profit
opportunities. Counterbalancing those new opportunities, highly-competitive
global markets tend to limit the ability of small businesses to raise their prices to
compensate for higher costs. This phenomenon is known as a lack of "pricing
power." Most small businesses would agree that the global opportunities
outweigh the problems.
How to Succeed?
Back to Top
, We have outlined success factors and challenges, now let us focus on the specifics
of being successful. Before you start a business, you must plan ahead! Research,
experience, and common sense are required to succeed in business. Here are
some ideas that will help you succeed.
• Understand Market Size and Characteristics
First and foremost, you must research your market and industry. How big
is the market place? Who is the competition and what is their market
share? How does the industry work? What regulations and issues does the
industry face? Is it a growing market or a declining industry? All of these
questions and much more must be understood before starting a business
plan, much less developing the idea. You may have a passion for a certain
area, but you must do your homework before entering the market.
• Have Enough Capital
This is the number one reason businesses fail. They take on too much
debt or do not plan ahead and acquire the correct amount of start-up
capital. If you have done your research and are honest with yourself, you
will outline the amount of funds needed. Be sure to prepare best and
worst-case scenarios about the amount of capital you need to succeed.
• Hiring Great Employees
Seems fairly obvious, but as your grow your company, you must hire the
right people. As you expand operations, you cannot be as hands-on as you
once were, so it is critical to ensure those hired share your vision and are
well trained.
Accurate Information
You must have good, accurate information. Keep good records from the
beginning. Accounting and finance must not be neglected. If you want
financing in the future, venture capitalists and bankers want to see good
record keeping. Start the business off on the right foot and have solid
finance and accounting principles.
Entrepreneurial Behaviors
Back to Top
Now that we have outlined the various basics of small business, we now focus
on the entrepreneur. What makes them tick? Why do they take the risks
associated with small business? As we have reviewed, the odds are stacked
against the entrepreneur, so what does it take to succeed or take the chance in
the first place?
Introduction | Small Business | Small Business Success Factors | Challenges
Facing Small Business | How to Succeed? | Entrepreneurial Behaviors | Final
Thoughts | References
Introduction
Back to Top
"If there exists no possibility of failure, then victory is meaningless."
– Robert Schuller
This quote from entrepreneur, Robert Schuller, kicks off our lecture this week so
perfectly. Failure is an option in small business; however, without the chance of
failure, success would be meaningless. In other words, if something has risk then
the upside of success could be quite lucrative. Small business and
entrepreneurship is not for everyone, but those who do have a desire to work for
themselves and run a business must understand the risks and plan accordingly;
which is the purpose of this class.
This week, we will talk about the basics of small business and entrepreneurial
factors. We first define small business and the factors of successful small
businesses. Additionally, we will review success factors for small companies. On
the flipside, we will review the challenges and failures. At the core of this class,
we will discuss entrepreneurs, entrepreneur traits, and how to start your
business.
Small Business
Back to Top
Simple question: What is a small business?
Small business, as defined by the federal government, has many different
standards. The general standard is a company that has less than 500 employees
is classified as small.
However, there are many exceptions by industry where 1,000 employees or
annual revenue determines the classification. If you are not sure if you are a
small company, the Small Business Administration (SBA) publishes a table that
outlines the industry and the qualifications based on number of employees
and/or annual revenue. For a complete list, view this website.
http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf
,In general, small businesses represent more than 99.7% of all employers and
create 60 to 80 percent of net new jobs annually (Hatten 2009). In short, small
business is critical to the well being of our economy.
Some interesting facts about small business, for those that are classified as small
business.
• 61% employ 0-4 people
• 18% employ 5-9 people
• 11% employ 10-19 people
• 9% employ 20-99 people
This shows that 99% of small businesses employ less than 100 employees;
therefore, only 1% of small businesses employ over 100 employees!
Small Business Success Factors
Back to Top
Small businesses fail at an alarming rate (more on failure a little later), but so
many do succeed. As identified, 99 percent of the workforce is employed in small
companies, so what are they doing right? Why does small business succeed?
First, imagine a battleship and a small sailboat. The battleship is a large, multi-
national corporation and the sailboat is your small business. In a fight, you would
have no chance to succeed, or would you? A small sailboat can make quick
course corrections and remain flexible, while a large battleship makes slow turns
and can be outmaneuvered easily. One reason for success is simply the ability to
be flexible and innovative.
For example, working at a credit union for many years, the competition was
large multi- national banks. These banks had millions of customers and billions
of dollars where credit unions had just 40,000 members and approximately
$250M. However, credit unions have better technology, service, and innovation.
Why? They are small, and when equipment updates are needed or a process
change occurs, it was easy to change in a smaller number of locations for 100
employees. A large company, with thousands of branches and hundreds of
thousands of employees in many countries, has organizational inertia and pain
when implementing new technology and process change.
Another success factor is identifying your competitive advantage. In other
words, what does your small business do well? Usually, small businesses have a
core niche that allows them to succeed where larger companies could struggle.
Credit unions focus on small business needs and middle class families. They
offer products and services that catered to this segment.
,Since you are small, your customers are not just numbers. Having close relations
with your core customers can be vital. Think of the small cafe in your
neighborhood. When you go in for a cup of coffee or breakfast, they often call
you by name and give you personalized treatment that makes you feel special
and hence, keep you loyal. Again, the size of a credit union allows employees to
learn about their customers and give the personal touch that may be lacking in a
large bank.
A small business that strives for quality will succeed. All of the factors shared so
far are great and help to attract customers, but a commitment to high quality
and high touch service is what will keep you in business. As shared, the credit
union technology was current and immediate, which helped increase quality and
service.
Challenges Facing Small Business
Back to Top
Despite all of the advantages of going into business, it is always a good idea to
review the challenges facing anyone thinking about starting a business. One of the
most difficult steps is finding quality sources of financing. Since lack of capital is
the primary cause of most new business failures, it is critical that sufficient capital
be found before opening for business.
However, most banks are leery of loaning to new entrepreneurs. This may limit
the entrepreneur to his or her own money, loans from family, finding a partner,
or selling stock to friends. All of these options have serious downsides that we'll
discuss as we move on; this is a serious issue with no easy solution.
The financial challenges do not end once the small business is in operation.
Entrepreneurs do not have the staff or support resources commonly found in
most large businesses. As a result, a small business owner must wear many hats
and have a basic understanding of human resource management, marketing,
finance, and operations. Small business organizations, such as the National
Federation of Independent Business (NFIB.org), can help to guide small
businesses through the government and regulatory maze, something that a
small business or a single-owner would be unable to achieve.
The increasing globalization of today's markets offers new opportunities and risks
for small businesses. International markets, coupled with expanding trade
agreements, provide small businesses with many new global sales and profit
opportunities. Counterbalancing those new opportunities, highly-competitive
global markets tend to limit the ability of small businesses to raise their prices to
compensate for higher costs. This phenomenon is known as a lack of "pricing
power." Most small businesses would agree that the global opportunities
outweigh the problems.
How to Succeed?
Back to Top
, We have outlined success factors and challenges, now let us focus on the specifics
of being successful. Before you start a business, you must plan ahead! Research,
experience, and common sense are required to succeed in business. Here are
some ideas that will help you succeed.
• Understand Market Size and Characteristics
First and foremost, you must research your market and industry. How big
is the market place? Who is the competition and what is their market
share? How does the industry work? What regulations and issues does the
industry face? Is it a growing market or a declining industry? All of these
questions and much more must be understood before starting a business
plan, much less developing the idea. You may have a passion for a certain
area, but you must do your homework before entering the market.
• Have Enough Capital
This is the number one reason businesses fail. They take on too much
debt or do not plan ahead and acquire the correct amount of start-up
capital. If you have done your research and are honest with yourself, you
will outline the amount of funds needed. Be sure to prepare best and
worst-case scenarios about the amount of capital you need to succeed.
• Hiring Great Employees
Seems fairly obvious, but as your grow your company, you must hire the
right people. As you expand operations, you cannot be as hands-on as you
once were, so it is critical to ensure those hired share your vision and are
well trained.
Accurate Information
You must have good, accurate information. Keep good records from the
beginning. Accounting and finance must not be neglected. If you want
financing in the future, venture capitalists and bankers want to see good
record keeping. Start the business off on the right foot and have solid
finance and accounting principles.
Entrepreneurial Behaviors
Back to Top
Now that we have outlined the various basics of small business, we now focus
on the entrepreneur. What makes them tick? Why do they take the risks
associated with small business? As we have reviewed, the odds are stacked
against the entrepreneur, so what does it take to succeed or take the chance in
the first place?
