3

chapter

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

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

2009 Pearson Education, Inc.

LEARNING OBJECTIVES
After reading this chapter, you should be able to:
1.
2.
3.

4.

Define small business, discuss its importance to the U.S. economy, and
explain popular areas of small business.
Explain entrepreneurship and describe some key characteristics of
entrepreneurial personalities and activities.
Describe the business plan and the start-up decisions made by small
businesses and identify sources of financial aid available to such
enterprises.
Discuss the trends in small business start-ups and identify the main
reasons for success and failure among small businesses.
2009 Pearson Education, Inc.

L E A R N I N G O B J E C T I V E S (contd)
After reading this chapter, you should be able to:
5. Explain sole proprietorships, partnerships, and
cooperatives and discuss the advantages and
disadvantages of each.
6. Describe corporations, discuss their advantages and
disadvantages, and identify different kinds of
corporations.
7. Explain the basic issues involved in managing a
corporation and discuss special issues related to
corporate ownership.
2009 Pearson Education, Inc.

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

2009 Pearson Education, Inc.

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
2009 Pearson Education, Inc.

FIGURE 3.2: Small Business by Industry

2009 Pearson Education, Inc.

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

2009 Pearson Education, Inc.

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

2009 Pearson Education, Inc.

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

2009 Pearson Education, Inc.

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!!!
2009 Pearson Education, Inc.

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
2009 Pearson Education, Inc.

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
2009 Pearson Education, Inc.

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

2009 Pearson Education, Inc.

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

2009 Pearson Education, Inc.

Corporations
Advantages:

Disadvantages:

Limited liability: The

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

Double taxation of
dividends
Fluid control
Complicated and
expensive to form

Continuity
Stronger fundraising
capability
2009 Pearson Education, Inc.

Types of Corporations
Closely Held (Private) Corporation
Publicly Held (Public) Corporation
Subchapter S Corporation

Limited Liability Corporation (LLC)

Professional Corporation

Multinational (Transnational) Corporation

2009 Pearson Education, Inc.

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

2009 Pearson Education, Inc.

Stockholders: Owners of Corporations

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

2009 Pearson Education, Inc.

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
2009 Pearson Education, Inc.

Special Issues in Corporate Ownership (contd)

Mergers, Acquisitions, Divestitures, and SpinOffs:
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.

Key Terms
acquisition
board of directors
business plan
chief executive officer (CEO)
closely held (or private) corporation
cooperative
corporate governance
corporation
divestiture
double taxation
employee stock ownership plan
(ESOP)
entrepreneur

entrepreneurship
franchise
general (or active) partner
general partnership
institutional investor
joint venture
limited liability
limited liability corporation (LLC)
limited partner
limited partnership
master limited partnership
merger
multinational (or transnational)
corporation

2009 Pearson Education, Inc.

Key Terms (cont.)

officers
professional corporation
publicly held (or public) corporation
S corporation
small business
Small Business Administration (SBA)
Small Business Development Center
(SBDC)
small-business investment company
(SBIC)
sole proprietorship
spin-off

stockholder (or shareholder)

strategic alliance
tender offer
unlimited liability
venture capital company

2009 Pearson Education, Inc.