Chapter 6 Managing Small Business Start-ups

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Chapter 6Managing Small Business Start-ups
Group 2 Hazel G. De Mesa Gregorio M.
Cudiamat Fritzie P. Tangkia-Fabricante Christopher
L. De Jesus Ma. Dolorosa E. Ferrer
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Learning Objectives

1. Define the personality characteristics of an
   entrepreneur.
2. Explain social entrepreneurship as a vital part
   of todays small business environment.
3. Outline the necessary steps in launching a small
   business.
4. Describe 5 stages of growth for an
   entrepreneurial economy.
5. Explain relationship of management functions to a
   growing entrepreneurial company.

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What is Entrepreneurship?

• It is the process of initiating a business
  venture, organizing the necessary resources, and
  assuming the associated risks and rewards.

What is an entrepreneur?
Someone who engages in entrepreneurship. Recogni
zes a viable idea for a business or
product. Finds assembles resources to
undertake the business venture. Assume
financial, legal risks and reap the rewards
thru profits.
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Small Business Categories
Thrive on the challenge Of building a more
profitable Business.
Works on something new Creative, meaningful.
Enjoy the act of balancing Work personal life.
Idealists 24
Optimizers 21
Hard workers 20
Jugglers 20
Sustainers 20
Likes the chance a small Business gives them to
handle everything themselves. Thrive on pressure
of paying bills meeting deadlines and
meeting Payroll.
Get personal satisfaction From being business
owners.
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Statistics on Worlds Most Entrepreneurial
Countries
The table shows of individuals Age 18- 64
Active in Starting/Managing a Small Business.
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Reasons why small business is a dynamic part of
todays economy
2. Globalization Increased Competition
1. Economic Changes
Entrepreneurs find bigger opportunities in
Globalization in the sense that it demands an
entrepreneurial behavior of flexibility and
responsiveness. Small business are more
resilient that even the largest companies can no
longer dominate their industry.
Economy is a fertile soil for entrepreneurs. It
provides opportunities for small businesses
because medium and large sized companies tend to
outsource services to help them focus on
operational aspects that provides greater impact
for them.
3. Technology
4. New Opportunities/Market Niches
Rapid advances and the affordability of
computer technology has introduced new methods of
producing and delivering goods which are
within reach of even the smallest companies.
Technology has enabled businesses to sell
products services improved productivity,
communications custo- mer service and obtain
information about com- petition the market they
are in.
Small business also capitalize on the
sustainability movement, tapping new business
opportunities towards corporate social
responsibility.
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Small Business
Innovation
Job Creation
Research shows that the age of the company more
than its size determine the number of job it
creates. All new jobs in recent years were
created by new companies.
Statistics says that 55 of innovations in
362 different industries were traced to small
and new companies. Small firms filing for
patents has 13-14 times more patents than large
firms.
Impact of Small Business
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Personality Traits of Entrepreneurs

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Is the belief that individuals that their future
is within their control and that external forces
have little influence. An external locus of
Control is the belief that their future is not
within their control but rather is influenced by
external forces.
Internal Locus of Control
High Energy Level
Persistence and putting long hours of work
despite the difficulties and struggles. starting
up for entrepreneurs requires great effort and a
level of energy to surpass all obstacles.
Entrepreneurs are motivated to excel and pick
situations in which success is likely. Here a
SMART-C goal Specific, Measurable, Attainable,
Realistic, Time-bound and Challenging, are
formulated. They could also be short term, medium
term and long term goals.
Need to Achieve
Confidence is a must in terms of mastering the
day to day activities of managing the business,
anticipating problems and handling these problems
that involve customer relations and the technical
details to keep the business moving. Coupled with
the Confidence is the effective skill of decision
making.
Self Confidence
Awareness of Passing Time
Patience is not in their vocabulary. They always
have a feeling of urgency. They create the
momentum and seize it as if there is no tomorrow.
Tolerance for Ambiguity
They are not troubled by disorder and
uncertainty. They have the courage to take both
calculated and uncalculated risks.
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What is Social Entrepreneurship?
It combines the creativity, business smarts,
passion and hard work of the traditional
entrepreneur with a mission to change the world
for the better.
Who is a Social Entrepreneur?
Social Entrepreneurs are leaders who are
committed to both good business and positive
social change. They create business that meet
critical human needs and solve important
problems that are unsolved by current economic
social institutions. Their primary goal is
improving the society rather than maximizing
profits, but they also emphasize solid business
results, high performance standards and
accountability.
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Launching an Entrepreneurial Start-up
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Writing the Business Plan
Choosing a Legal Structure
Starting With the Idea
Getting Financing
In pursuing the entrepreneurial dream, it all
starts with the idea. Planning comes next, then
decisions on the legal structure should be made,
followed by financing then finally drawing out
the action plans needed to keep the business
moving.
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Entrepreneurs are inspired by new ideas. Others
decide they want to run their own business And
starts to look for ideas and opportunities.
Starting With the Idea
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Some Reasons for Starting a Business 1. Joined
Family Business 41 2. Control the Future
36 3. Be your own Boss 27 4. Fulfill a Dream
25 5. Downsized/Laid off 5

• Sources of New Business Ideas
• In depth Understanding of
• Industry 37
• Market Niche Spotted 36
• Brainstorming 7
• Copying Someone else 4
• Hobby 4
• Other reasons 11

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Writing A Business Plan
A Business Plan is a document specifying the
business details prepared by an Entrepreneur
prior to opening a business.
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• Characteristics of a good Business Plan
• Demonstrate a clear, compelling vision that
  creates an air of excitement.
• Provide clear realistic financial projections.
• Profile potential customers target market.
• Include detailed information about industry and
  competitors
• Provide evidence of an effective entrepreneurial
  management team.
• Pay attention to good formatting and writing.
• Keep the plan short- at the most 50 pages.
• Highlight critical risks that may threaten
  business success.
• Spell out the sources and uses of start-up funds
  and operating funds.
• Capture the readers interest with a killer
  summary.
• Please click this link
• http//www.dti.gov.ph/SME_Basics_BusinessPlanPrepa
  ration.php

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Writing A Business Plan
Business Plans are absolutely critical
for lenders. Studies show that small
businesses with a carefully thought-out written
plan are much more likely to succeed than
those without one.
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• Vital Parts of the Business Plan
• The Executive Summary
• The Business Description Segment
• The Marketing Segment
• Research, Design Development Segment
• Manufacturing Segment
• The Management Segment
• The Critical Risks Segment
• The Financial Segment
• The Milestone Schedule Segment

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http//www.chanrobles.com/legal5cc1.htm
Before beginning a business, an Entrepreneur
should choose an Appropriate legal structure for
the Company.
Choosing a Legal Structure
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Sole Proprietorship
Sole Proprietorship is defined as an
unincorporated business owned by an individual
for profit. This is easy to start because it is
easy and it has a few legal requirements. The
drawback in this type is the limited liability
for the business resulting to a higher risk.
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A partnership is an unincorporated business owned
by two or more people. Partners share
responsibility resources con- tribute their
expertise. The disadvantage is the
unlimited liability of the partners and
possibility of disagreements that may somehow
affect the business.
Partnership
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A corporation is an artificial entity created by
the state and existing apart from its owners. It
is liable for its actions and must pay taxes on
its income. It has a legal life of its own, and
its liability is not limited to the owners, thus
it continues to exist even if the owners live or
die.
Corporation
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Starting a business usually requires a
significant amount of funding. An investment is
required to acquire the manpower, materials and
facilities needed to start the Business.
Getting Financing
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Debt Financing
Angel Financing
Equity Financing
Venture Capital Firm
Financing provided by a wealthy individual who
believes in the idea for a start-up and provides
personal funds and advice to help the Business
get started.
A group of companies or individuals that invests
money in new or expanding business for ownership
and potential profits.
Borrowing money that has to be repaid at a later
date in order to start a business.
Financing the consists of funds that are
inves- ted in exchange for ownership in the
company.
Sources of initial funding for small business
start-ups.
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3. Buy a Franchise Franchising allows others to
pur- chase the right to distribute the Products
and services with the help from the owner. The
advan- tage is that management help is provided
by the owner. Disad- vantage is lack of control
of the owner in terms of exploring other options
to increase efficiency.

• Start a New Business
• The entrepreneur sees a product or
• service that has not been done before.
• The advantage is the owner designs the
• Business based on how he liked it done.
• The disadvantage is there is longer
• time to realize profits due to lack of
• client base and the common
• mistakes new entrepreneurs make.

Tactics for Becoming a Business Owner
4. Business Incubator A business incubator
provides shared office, management
support services legal advice to
entrepre- neurs. The great value of this is
the expertise of a mentor, who serves as
advisor, model ready access to a team of
professionals.
2. Buy an existing business An established
business already has systems in place, operating
procedure, existing customer base. The
advantage is the shorter time to get the
business running. The disadvantage is the need to
pay goodwill and the flexibility in terms of
introducing changes of to the system for
improvement.
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Five Stages of Growth for an Entrepreneurial
Company
Main Problems are producing the product
or Service and obtaining customers.
The business demonstrates that it is a
workable Business entity. It produces the product
service and it has sufficient customers.
Concerns here include finances.
The company is solidly based profitable.
Systems procedures are in place. The owner
could stay involved or turn the managing tasks to
professional managers.
Here the key problem is how to grow rapidly
finance the growth. The owner must learn
to Delegate and the company must have
sufficient Capital to sustain the growth.
The companys substantial financial Gains may
come at the cost of losing Its advantages of
small size, including Flexibility and the
entrepreneurial Spirit.
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Four Managerial Functions in Relation to Small
Business Start-Ups
Planning
Organizing
Leading
Controlling
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Small Medium Enterprisesin the Philippines
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Source SMED in the Philippines Survey (Google)
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Recently, Republic Act No. 9178, otherwise known
as the Barangay Micro Business Enterprise
(BMBE) Act of 2002 has redefined the categories.
Hence, the present structure, by law, is as
follows Micro - up to 3,000,000
Small - P3,000,001 - 15,000,000 Medium
- P15,000,001 - 100,000,000
Large - above P100,000,000
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Current State of SMEs in the Philippine Economy
Number of Establishments and
Employees According to the statistics of business
establishments published by the National
Statistics Office, there are 811, 589 business
establishments in the country. Of total,
micro-enterprises account for 743,949 (97.1),
small enterprises 61,759 (7.6), medium
enterprises 2, 923 (.4), and large enterprises
2,958 (0.3).
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Geographic Distribution

• The analysis of geographic distribution of
  enterprises throughout the country indicates a
  high concentration in the National Capital Region
  (NCR), which accounts for 24.4 of all
  establishments and 40.1 of all employees.

• The five regions subject to the present study
  (NCR, Regions 3, 4, 7 and 11) hold a combined
  share of 65.0 of total establishments.
  Similarly, the regions account for 72.1 of total
  employees. As a result, around two-thirds of SMEs
  are concentrated in the five regions.

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Conclusion

• The government is keen on helping small
• to medium enterprises in terms of financial
• assistance and thru the power of education.
• Thru these initiatives, there is hope that the
• Philippines could create more entrepreneurs
• who are socially responsible who will
  contribute to the growth of the countrys
  economy.

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• Group 2-Case Chapter 6. Emmas Parlor
• 1. At what business sage is Emmas Parlor? As
  what stage is her Web-based organic tea business?
  What synergies exist between the two businesses?
  How critical do you think these synergies are to
  the success of each business?
• Emmas Parlor is in Stage 3.The business already
  has a enough customers to make it profitable. And
  at point,, the owner, already has a choice to
  consider hiring professional managers/supervisors
  to take over the daily operations of the
  business. However, If Emma, the owner, decides
  not to pursue any expansion or diversification of
  her business, then , Emmas Parlor is already in
  Stage 5. Because , at this stage, the business
  already has financial stability, manpower
  resources and a solid customer base. The three
  factors determines if a company is matured or
  not.
• Emmas Web-Based Organic Tea Business is also in
  Stage 3. It has a solid customer base and a level
  of sales that would make it financially stable.

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• The Web-Based Organic Tea Business of Emma
  Lathbury, does not only reach customers who are
  interested in buying Emmas product but also
  reached those who wants to avail of the services
  that Emmas Parlor has. Web Based Organic Tea
  Business of Emma is also a means to gather
  customer feedback. Feedbacks are important to
  gauge customer satisfaction. Some, if not most of
  these customers, would look for a venue/place
  where these special products are served. Emmas
  Parlor becomes a place where , not only can these
  customers experience, freshly made tea, but also
  , a venue for other activities. The Web Based Tea
  Business of Emma, does not only market the Tea
  itself, but also the venue where these product
  are served. This is quite similar to a coffee
  shop business.
• In the food business, where competition is
  stiff, the entrepreneur should find innovative
  ways of reaching out to customers. Faced with an
  ever increasing cost of doing business, having
  an substantial number of customers is a factor
  to determine growth and stability.

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• 2. How does Emma Lathbury fit the profile of the
  typical entrepreneurs? Which of those traits are
  likely to continue to serve her all, and which
  might be counterproductive at this stage of her
  business?
• An entrepreneur is someone who initiates a
  business venture, organized the available
  resources and assumes the risks and rewards. An
  entrepreneur exudes internal locus of control,
  high energy level, need to achieve,
  self-confidence, awareness of passing time, and
  tolerance for ambiguity.
• Emma Lathbury had an idea of making and serving
  tea. Her successs was mainly due to her own
  efforts from choosing a location, putting up her
  tea house, blending different tea and marketing
  these through her Web-Based Tea Business.
• At this point, the trait that has always been a
  factor for her success is would behaving a high
  energy level,awareness of the risk involved and
  an internal locus of control. During the
  formative

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• years of a business, the entrepreneur needs to
  work for extended hours . This would not be
  possible if a person has a low energy level
  which can effect their interest, motivation and
  resourcefulness , factors that a starting up
  business heavily relies on. Awareness of the
  risk and the obstacles involved in starting a
  business is one advantage of an entrepreneur may
  have. Identifying the risk involved in starting
  small business is a lot better than relying on
  instincts. Some entrepreneurs ,even before the
  actual start of business operation , are
  discouraged if they see that the risks are too
  great. But an entreprenur with an internal locus
  of control, a belief that an individual has
  control of their future, would think otherwise.
  In any other case, a business plan is usually the
  most useful guide to operating a business.
• Tolerance for Ambiguity might be a
  counterproductive trait of an entrepreneur.
  Tolerance for ambiguity or uncertainty during the
  formative years is different compared to when the
  business is already established. Once a business
  becomes stable or matures, the entrepreneur might
  overlooked some important factors or
  environmental conditions that has an effect on
  the business. Factors like pricing,
  franchising, wholesale and retail agreements,
  competition, labor laws, availability or scarcity
  of materials can change the status of a business.
  So the entrepreneur has to always prepare
  alternatives courses of action in preparation
  for uncertainties in the future.

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• 3. After listing the pros and cons for each of
  Emmas options and considering her personality,
  which course of action would you recommend?

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• I think the best options for Emma is to
  delegate some of her responsibility to a
  professional supervisor or manager. The food
  business is a very competitive and physically
  demanding . As business grows, there needs to be
  additional manpower to cater for present and
  future customers. In addition to this, the number
  of employees, strict compliance for government
  agencies like the FDA and Department of Health
  ,IRS may require a lot of tedious leg work. If
  these requirements coincides with the daily
  routine of supervising the tea house, it will be
  very difficult for Emma to meet all of these
  requirements alone . If Emma would hire a
  professional manager, she could find better ways
  to serve the customer, meet compliance
  requirements of the government which I believe
  has stringent penalties, deal with suppliers and
  creditors properly and some more task which would
  eventually result in the conti continued success
  of the business. Knowing Emma, she would always
  like to have a hand on the daily operation of the
  business. She still could. This options is the
  best for her.