Subject Chapter : 1 Introduction 1.1 Status of Salaried Persons 1.2. Advantages of Becoming Entrepreneurs 1.3 Selected Definitions of Entrepreneur 14 Entrepreneurship 1.5 Selected Entrepreneurial Askings "16 Characteristics. Attributed to + Entrepreneurs 1.7 The Myths of Entrepreneurship ‘Types OF Entrepreneurship 9. Entrepreneur Versus 1.10. National Benefits of| TAIT Hazards Negative Aspens of a ee 1d econ a Gr ener ns eee He erecta omen mera Development 1.20 Advantages and Disadvantages if Intrepreneuring 1.21 Comparative Characteristics of Entrepreneur, intrapreneur and Traditional Manager 1.22 Myths of Innovation 1.23. Principles of Inse ation 1.24 A Comparison of Constant {Improvement and Innovation 1.25 Approaches to Creative Problem Solving 1.26 Constant Self-analysis for Entrepreneurial Success 1.27 Plan of Presentation 1.28 Summing Up Appendix -1 A Entrepreneurial Readiness Questionnaire ‘Appendix ~ | B ‘Assessment of Entrepreneurial Potential Chapter : 2 Theories and Assistances for Entrepreneurship ‘McCielland’s Achievement Motivation 22 Schumpeter’s Views On Enirepreneurship Contents BBR BON 88 31 35 Subject 23° Everett Hagen's Theory of Social 24 Impact of Work Motivation Theories of Maslow, McGregor, and Heraberg 25. A Proposed Model Of Ensepreneural 216 Eameyenesal Sup ial Poor Countries 2.7 The Emerging Essential Behavioral Patterns of The Entrepreneurs 28 Factors and Influence on Entrepreneurship 29° Factors Behind Entrepreneurial Growth 2.10 Assistance and Entrepreneurial Development Cycle 2.11, Organisational Sources of Assistance 2.12 Organised Sources of Assistance in Bangladesh 2.13. Special Assistance to Small Business 2.14 Summing Up 2A ‘The fans. 's Quiz Inttcing ‘Small Business ‘Types of Small Businesses 32 Slowed remus ot Sal Buses 33. Forms f the Small Business 34 Characteristics of Small Business 35. Stages of Small Business 7 36 Role of Small Business 3.7 Scientific Inventions by Small Business 38 Keysto Success & Factors 3:10. Competitive Strengths of Small Firms 311 Legal Areas Requiring Attention 3.12. The Succession n Fuly Business Firms 3.13. Causes of Small Business Failure 3.14 Ways to Get ino Small Business 3.15. Selection of Line of Activity for ‘Small Business 3.16 Summing Up Chapter : 4 Buying an Existing Business Benes and robles of Buying 42 Braume al Oppenunie 43° Circumstances When to Buy? 44° Focus of Analysis While Buying 45 Stepsin Dealing the Buy out R n B “ 6 612 6.13 la vaoragsormse ryorseoChapter : 3 Introducing Small Business 3.1 Types of Small Businesses £3.10 Competitive Strengths of Small 3.2 Structural Features of Small Business Firms 133. Fonms of the Small Business ‘Legal Areas Requiring Attention 134 Characteristics of Small Business ‘The Succession in Family Business 35 Stages of Small Business Development Firms. 136 Role of Small Business Causes of Small Business Failure 3.7 Scientific Inventions by Small Business ‘Ways o Get into Small, Entrepreneurs Business{SB] £38 Keysto Success & Factors Responsible for ‘Selection of Line of Activity for Failure Small Business £39 Advantages & Disadvantages of Small ‘Summing Up. Business ‘Small business is an integral part of the total business scene in any country. Though small in size such business activities cover almost any area of business viz. manufacturing, mining, wholesaling, retailing, service ang the like, tis now well recognized that small businesses are the largest employers with lower investment per job. That apart, the growth & development of medium & large industries is mosily dependent on the small business. Small business occupies a vital place in the national economy. Entrepreneurs invest their own money, time, and ability in their business and contribute substantially to the community in terms of jobs and goodwill. Small business is necessarily small within its respective industry, but retail sales could approach several crores of taka annually. Small business has gained a major portion of our economy by contributing to personalized flexibility, creativity, specialization, ‘communication, and performance. It also provides resources and serves as outlets for big business. Many people become entrepreneurs because they enjoy self-expression, personal growth, community relations, and an opportunity to make a strong financial contribution to themselves and their loved cones. They are usually highly motivated, hard-working individuals who receive satisfaction from taking risks. Lack of proper management attitudes, training, experience, and skills-reflected in symptoms such as inadequate financing, poor ocation, and weak planning ~cause half of all businesses to fail by thei third year. ‘Small business means the size of which is not big- the size again depends on the yardstick one uses to ‘measure. What is small to one may be mediu n or even big to some others. However, small business hhas been defined by various authors in various ways. Some such definitions are56 Entrepreneurship & Small Business Selected Definitions of Small Business 1, Small Business Act [SBA], 1934, * A business which is independently owned and operated & not dominant in its field.” 2. Bolton Repor: Report on the Commission of the Enquiry on Small Business Firms, 1977. ‘Small firm is one that has a relatively small share of its market. " * | 3. Stoner. Freeman & Gilbert, 1995, “Small Business refers t0 businesses locally owned and managed, often with very few employees working at a single location,” 4. USGow. “A small business is one with fewer than 500 employees.” 5. Committee For Economie Development ‘A small business is one which possesses at least two of the following four characteristics ‘managers are the owners Capital supplier & the owner isan individual or a small group ‘workers & the owners are local , market may not be so relatively smaller compared with the biggest unit in the industry[ sales, employees etc) 6. “All those businesses, manufacturing or otherwise which carried on in relatively small establishments." 7. “A small business venture is any business that is independently owned and operated . not dominant in its field . and does not engage in any new marketing or innovative practices." 8._“A business which is usually organised and managed by the owner and ot his family members.” A deeper look of the definitions provided above shows that the basis of defining and understanding the ‘meaning of small business has been attempted from different angle [i] the physical size of the unit; ii). the size of investment; {iii] the size of employment; Liv] hired or self - management sty [v1 the type of energy used, man’s physical force, coal, electricity, gas, ete. {vil market size- limited local or wide and also foreign: {vii} the extent of the use of technology & innovativeness; and (vi]_the nature and the sources of the capital supply, public issues or otherwise; 3.1 Types of Small Businesses ‘There ate six different types of businesses int which most small businesses fall. A given business may be active in more than one type simultaneously, although one type will usually predominate. The six types are: 1, Retail sales. 2. Services 3. Finance 4. Agriculture 5. Wholesale 6. Manufacturing Some Business Options, Classified into Relates! Groups ) Another classification of small business may be slone in to manufacturing, service, wholesale, research Q ‘& development, consulting, and retailing. The related sub classifications in each of the six main groups ‘of small business may be seen as under: § Ree Beets = pene Se few38 Entrepreneurship & Small Business ‘Small Business classifies the following types of businesses as small if they meet the criteria listed below: 3. Fle 1. Manufacturing firms: A manufacturing firms is classed as small if it has 250 employees or less. pe “Manufactures take raw materials and change ino finished goods forsale. oe 2. Services Service firms with annual receipts of $2 million or ess are classed as small. A service | 9 Mga firm provides services for customers, and types of service firms including hotels, barber and | 10, Pro beauty shops, all types of repair shops, plumbers, and electricians. MTax Wholesaling: Wholesalers with annual receipts of $9.5 million or less are classed as small. ‘Wholesalers buy and resell merchandise sel in significant amounts to final consumers. 4. Research & Development: Firms engaged in developing newer methods, techniques of production, sales and software system can serve others who are in need of those. ‘5. Consulting: Consultancy services with regard to efficient management, project appraisal, raising sources of finance, methods of reducing risk, technical and engineering services etc. are provided through these type of firms. 6. Retailing: A retail firm is small if it has annual receipts of $2 million or less. A retail business is cone that buys goods from suppliers and sells them to customers. Typical kinds of retail firms are food stores, clothing stores, drugstores. 3.2 Structural Features of Small Business ‘Structurally small business may vary depending on skill, location, and otherwise. This may be seen as under: Sectors Tiny [ ‘ancillary Unis ‘risen L Stile Figure- 3A: Showing the structural features of small business 3.3 Forms of the Small Business ‘There are three basic forms of business organization methods: the sole proprietorship, the partnership) different for and the corporation. With only a few limited exceptions, any type of business venture can use any for™) small busin of organization. The factors that will affect the business form chosen are: 1, Manage 1. Ease of formation @ Deci 2. Exposure to financial risk. Lit 3. Tax treatment of income. @ Verb 4. Continuity of business upon death of ownerIntroducing Small Business 59 Flexibility -Possible to accommodate change ‘Simple in arranging capital - depending the size & nature of business. Nature of liability ~limited /unlimited Legal formalities required — simplest ~ soletradership Maintain business schedule 10. Profit earning projected for self 11. Tax consideration ‘A Comparison of Three Forms of Business Organization ‘The mostly adopted forms of business organizations are sole proprietorship, partnership and corporation or public lifnited companies. There are distinctions among these three. Points of ‘comparisons among the three forms are: erro Sole Proprietorship [Partnership Corporation ae of Formation | Very easy Easy to very easy Moderate sy Tegal Requireneras | None, exanp for sia = possible declaration | Samael a of mame ‘Sonact betwen prers tecomnendet ear Limited ability of owner. Improved ability to borrow Can borrow funds: totenow tro maliple owns ‘treet Tow waxes Are Paid Profits avid up among owners and are taxed on each pert Desree of Financial Rak (Owner is spose or | Parnes hare Owner hae only lined ada ‘pons or debs ‘apne ford a tase of cmpeny Nanber ofOwners | one Two orm One orrore Continuity of Business Basincsisteminatedt | Bosiness maybe Busnes continous afer ext owner teminned a death of ary | death of any stacoler pater oles provers Seotibaicn we made 3. 4 Characteristics of Small Business ‘There are various essential characteristics of small business. By characteristics small businesses are __ different forms of medium and larger business organizations. The widely identified characteristics of ‘mall business may be seen as under: 1.” Managed by the owner © Decisions are taken at one point ® Allrisks borne by the owner @ Little or no delegation of authority ® Extension of the entrepreneurs’ personality Verbal communication ® Noseparate entity @ Independently rurv managed60. Entrepreneurship é& Small Business Family workers and or fewer hired workers Mostly owner financed and or limited borrowed funds With no access to the share marketf no public issue}. No scope for specialist service Little emphasis on long term planning Close labor - owner/ management relations. No or limited use of innovative production! marketing __ Business is housed in small establishments . ” Rational cost control possible 10, Maximum possible safety of business secret 11. Local market and or limited non- local market 12. Size of investment is relatively smaller 13. Volume of sales relatively smaller [limited market share} 14. Unable to adopt modem technology ° 15. Mostly handicraft with no use of electricity 16. Requirement of minimum legal formalities 3.5 Stages of Small Business Development ‘Any business big, medium or small generally go through four key stages one after the other. The names of the stages are often, found to be different by different authors. The race start from the conception stage going through other two stages to reach the stage of dissolution. According to one author the stages are: 1. The pre-business stages, in which an idea is thought about and is developed. 2. The business stage, in which the idea is launched into a successful business endeavor. 3. The growth stage, in which the entrepreneurial spirit emerges and the business shoots forward through expansion, new production, acquisition, or merger. 4. The termination stage, in which the owner's manager's business is sold, is liquidated, is acquired by others, or is given to friends or relatives. ‘Vesper Kari H in his paper that appeared in the Harvard Business Review (57. No; 4] in 1979 identified the following 4 stages in some other titles as under: eetawe 1. Pre- start—up; 2. Start-up; 3, Early growth; 4. Later growth. Prior to Vesper, Miller Harry, on the other hand, in 1963 noted the 4 stages like: 1. Survival; 2. Growth; 3. Shaping: ‘ ‘4. Maturity. A hiint on the Vesper’s {since provided at a later period) four stages runs: 1. Pre-start- up: Plan and develop contacts Look for resources & opportunities Form & nature of organisation 10 be decided. Location to be selected Time of phasing “Analysis of risks & rewards " {We suspect lot many ideas of small businesses never get beyond the dream stage]Introducing Small Business et Early growth: Feedback from marketplace ‘Feel’ for the realities of the market & the operational problems. 4. Later growth: Building a operational Team Find better market--- dealership, franchise, ete Look for external funds & outside family workforce ‘The persons engaged in small business either as an owner, of as a manager ot as a developer, or as a consultant, or a8 & policy maker should clearly know the stages to design appropriate course of action for the particular stage. Else, there is possibility of committing wrong decisions causing irrelevance to the situations. Decision M.king Characteristics and Growth Stages ‘Two authors in 1989 showed three stages instead of four as we have shown above. According to Gilmore and Kazanjian the stages are early stage, growth stage and later stage. These two authors showed two types of characteristics of making decisions in these three stages which may be seen as under: Early Stage(s) ‘Growth Stage Tater Stagels) Primary Foces Product business ‘Volume production | Cost control Definition Market share Profitability Acquisition of resources | Viability ‘Future growth opportunity Development of market Position Decision-Making Tnformal ormal Characteristics Centralized Decentralized Nonspecialized Specialized Short time horizon Long and Short time hortzon ‘Source: Thomas N. Gilmore and Robert k. Kazanjan “Clarifying Decision Making in High Grown Venture, The Use of Responsibility Chatng, “Journal of Business Ventre January 1989): 71 3.6 Role of Small Business ‘Small Businesses play a significant role in the socioeconomic development of a country. Irrespective of the systems of the economy, growth stage of the economy, place of industry in the economy, use of skill & technology in any country small business plays an important role which none of the concerned people dare to undermine. Important ones of such roles are indicated hereunder: 1. Large industry wastage/ by- products can be put to use Desired industrial spread & decentralization is facilitated Business/ industry diversification is mad> easier Innovations for new products / services ere mado ‘Development of new technologies with rogard to methods, inputs, & skills are silently undertaken. Ensures wide competition & thereby provides reasonable price advantage to consumers Promotion & development of entreprene arship are facilitated Contribute in raising the GDP of the cou try 10. Enable equitable distribution of income «mong persons & regio: » 11. Make better use locally available skill, expertise & technical know — how 12, More personalised contacts possible wit, all customers, suppliers, employees & others interested in the business. 13, Explore innovative marketing at home & abroad 14, Act as seed bed for new venture62 Entrepreneurship & Small Business 15. Help in foreign currency earnings through personalized push exports. 16. Help in correcting some of the problems created by unplanned urbanization 17. Provide an honourable alternative livelihood in a land starved / scarce country 18. Traditional indigenous technologies are kept alive through adaptation 19. A controlling factor over big business’ tendency toward monopoly 20. Greater community li 21. Development of leaderships in the fields of business, society & otherwise. 22. Large number of small investors can become owner of such businesses. 23. Large number of low cost job opportunities can be created 24. Act as backward linkages of the relatively larger industries 25. Cost effective production is possible 26. Unutilized natural resources can be brought under productive use 27. Easy supply of needed goods! services is facilitated. 3.7 Scientific Inventions by Small Business Entrepreneurs ‘Though small in size but small businesses and their entrepreneurs are big with large potentiality. This they had already shown not only by their important roles as above but they have also innovated & developed many revolutionary inventions as under : ‘Automatic Transmission : ‘Magnetic Recording ‘Oxygen Steel making Process Zipper Power Steering Color Photography ‘Turbojet Engine Xerography Laser Insulin Self-windioe Wristwatch FM Radio Prince Tennis Racket Air Ball- Point Pen Penicillin ‘Streptomycin Petroleum Catalytic Cracking Titanium Cotton Picker tic Core Memory Magnetic, Flexible Soda Straws ‘Vacuum Cyclotron Fiber Optics Heterodyne Radio ‘Dacron Polyester Fiber Tube Cellophane Hovercraft ‘Shell Molding 3.8 Keys to Success & Factors Responsible for Failure _ Small businesses grow in large number but these businesses also fail in large number. If the secrets of © there success are known to the concerned people including the responsible government officials, these “> ean-be nursed and strengthened in order to reduce the number of small business failure. Secrets of * small business success and the factors responsible for small business failures may be seen as under: 13, Appr “Ee ‘Keys to Success I Factors Responsible for Failure “I. Defermining appropriate cause of action for 1. Inappropriate course of action for future future. 2. Right personnel 2. Inelevant personnel, 3. Skill workers 3. Unskilled workers 4. Attractive location ‘Wrong business location :Introducing Small Business 63 3 m 12. B, 14, ‘Keys to Success T Benefits of first startup = No competition = Reliable data base and scientific record keeping ‘Mobilizing adequate amount of capital Ability to extract favor of needful persons + High Govt. Official = Chamber Executive Top Political leaders + Key Bank Personnel ‘Obtaining professional consultancy benefits Proper & up to date record Keeping Remain sensitive to all the intemal and external changes affecting the business Starting business with previous experience. ‘Training in the line of business. ‘Appropriate knowledge about the market. ‘Remain careful to take appropriate steps in right time Ability to recognize é face limitations = fe 9, 10. 12, 1. 4 15. 16, v7, 18 19. 20. 21 2, 23, %, ‘Factors Responsibie for Failure } ‘Tartng business with too many compeors = In appropriatenon reliable data base and ‘nsclentie recordkeeping ‘Scarcity/ Surplus Capital No good connection ‘Traditional minded and lack innovation Obsolete production Obsolete machinery ‘Starting business without previous experience. ‘Nofirrelevant training in the line of business Lack of knowledge about the market and demand (Out dated product ‘Chronic disease / death of the main promoter or ‘key personnel Conflicts among the heir after death of main promoter on the division ofthe properties and assets Machine break down ‘Cruelty and Uncompromising behavior. Inconsistency of policy/ promises and commitment Low quality product . Low salesmanship & channel of distribution [Naural ealamity accident ‘Unhappy family life. |. Addition to alcohol, drugs and Ws (Women, ‘wine et.) 3.9 Advantages & Disadvantages of Small Business ‘Small businesses bring so many advantages for the owners, their workers, their customers and for the ‘government as a whole. But they have some disadvantages as well : “Advantages Tisadvantages T. More personal contacts with customers, T.Weadequaie management ability caused by ack of suppliers, and employees train’ up and development Z, Bete interpersonal relationships = financing , including “wnat” 3._ More efficiency in many respects TA competitive positon “4. A source of innovation, including Hexibilty cf | 4. Lack of cvordinaion between producing and selling64 Entrepreneurship & Small Business, Advantages ‘disadvantages TA controlling factor over business tendency | 5. Lack of proper record: keeping toward monopoly. &__ Greater community life Gack of effective marketing techniques | 7. Development of leaders 7d ity of operations Scoxe’ Manfied FR Kets de Vries, “The Dynamics of Family-Controlled Firms: The Good News and the Bad News.” ee Orgatizational Dynamic (winter 1993968, j 3.10 Competitive Strengths of Small Firms In spite of various types of problems, small firms can compete vigorously in’ many industrial areas Indeed, their smalinese gives them a number of competitive strengths. When exploited skillfully. these Strengths enable them to “cary the attack” to larger firms. Three of these strong points are discussed ‘The bureaucratic structure of a large corporation tends to isolate its management from customers and markets, Salespeople have regular contact with the marketplace, but their thinking is several steps removed from the influential decision-making levels of the corporation. : Flexibility in Management : Big business is often pictured as being uniformly imore efficient than small business. Some. people relieve that small business exists because it is protected through government aid in one form or another or because high business has not yet entered a particular field. Product and Specialization Tris impossible to Become. a specialist in such broad reas as general business management. By’ narrowing the range of business activity, however, one can develop an expertise in providing needed goods and services 3.11 Legal Areas Requiring Attention ‘A list of the many areas in which legal requirements must be met will be helpful to the small entrepreneurs. Some of them are : 1, Sales Contracts 2. Agency Relatiovships: 3. Branch and Substary Relationship; 4, Unemployment ‘Laws & Workers Compensation Laws; 5. Laws relating Collective Bargaining Agreements; 6. 1 8 Product Liability La Real Estate Transactions |. Insurance Claims; 9. Need for Audited Statement of the Firm; 10. Tort or Negligence actions for Damage to Property: 11, Minimum Wage Laws and other Personnel Regulations; 12, Purchasing Contracts and other types of Contracis;, 13. Consignment Installation and Open Account Sales; 14, Local Laws governing Licenses, Competency, Zoning, and Land uses; Negotiable Instrument Transactions, 16. Bankruptcy and Insolvency proceedings; 17. Occupational Safety and Health related: Laws; 18, Trademarks, Copyrights, and Patents; 19. Libel Laws and their Ramifications; eeeIntroducing Small Business 6s 20. Conflict with Social Legislation: 21. Leases of Real or Personal Property: 22) Payroll Procedures and withholding Taxes: 3, Obligations under all types of Contracts; 2d. Preparation of Legal Documents for use with lending Institutions or Landlords; 25. Obligations under with Suppliers or Consumers; 26. Tax Laws and their latest changes. we above ist includes only some of the areas with legal implications that the smal business nurepreneure should be familiar. The complete list is almost endless because dives & indirect laws sar segutations vary from country to country and inthe same country from period 9 period 3.12 The Succession in Family Business Firms In any business in general and in the family firms in particular, succession js imPorers in ensuring a aay ee nst managerial control and involvement in organizational business, nd financi mater cornrraiy business, an important factor in the succession planning process isthe nila of ason wee ential successor. Where there is no son, or if the son’s ability ss doubslal « supeeteet Ssanrlicated by fection arising from rivalries involving [al a father and his sen). [b] between or Shrong brothers, {c] brothers and sisters and (4) other family members who have positions in the business Family Member Concerns ‘Gaining and losing control of family assets How to got money out of the business, it vecesssry ‘Assurance that the business will continue Having control over decisions made by business leadership Protecting interest when ownership is dispersed among family members Tees terces end concerns prepare the entrepreneur for developing a management continuity saic€) and policy. A writen policy can be established in one of the following ststegiess ae ne Yammer controls the management continuity strategy entirely. This is very common. Yet legal advice is still needed and recommended. a eee et consults wih selected family members. Here the legal advise helps to establish liaison between family and owner in constructing the succession mechanism. a eee orks with professional advisers. This is an actual board of advisers from wars professional disciplines ad industries that works. with the owner to establish the ‘mechanism for Succession (sometimes referred to as a “quasi board”) Fees soneks with family involvement. This aliemative allows the core family (blood ae eet d cpouses) to actively participate in and influence the decisions regarding succession Te atl reasonably healthy and the Firm is ina viable condition, the following adcitional actions should be considered: rer s owner formulates buy/sell agreement atthe very outset of the company..or soon thereale, and whenever a major change occurs, This is also the time to consider an appropriate insurance policy om Key individuals that would provide the cash needed to acquire the equity of the deceased. 6. The sumer considers employee stock ownership plans (ESOP). Ifthe owner has no immediie siecemor in mind and. respects the loyal'y and competence of his or her employees, then Sioroprate ESOP might be the best solution for passing control of the enterprise. After the ‘Owner's death, the employees could decide on the management hierarchy.a eg ge RE 66 Entrepreneurship & Small Business +. The owner sells or liquidates the business when losing enthusiasm for it but is sil physically able ‘ego on: This could provide the capital to launch another busines. Whatever the ‘owner's plans, the firm would be sold before it fails due to disinterest ean mobile or liguidates after discovering terminal illness but still has time forthe orderly transfer of management or ownership. For it hc trates, legal advice is beneficial, but of greater benefit is having advissr (legal or rrferwise) who understand the succession issues and are able to recommend # urs of action. inecyreneuria founders of family firms often reject thoughts of suecesion. Yet neither ignorance nor Enreprer change the inevitable fact. It is therefore crucial for entrepreneurs to desi © plan for ___suocesson very carefully. Such plans prevent today's flourishing family businesses from becoming @ statistic of diminishing family dynasties. Barriers to Succession Planning in Family Firms Founder / Owner Family_ ‘Death anxiety Company as symbol Death as taboo © Lossof identity Discussion is a hostile act & Concern about legacy Dilemma of choice Feat of loss/abandonment © Lossof Power Fear of rivalry + Fiction of equality Generational envy ‘Change of spouse's position 3.13 Caiases of Small Business Failure Small busineses-grow in bulk and they die also in bulk. It is because without much of funds, legal ann ees ney clone can very easily initiate a small business even for self employ neat After the formalde an tyne and is depots as do not take much cre most of these unt ace Stee ‘eding to premature closure. The causes of such premature closure of most ofthe ‘small businesses are provided as under: ‘Undespriing or overpricing of goods or services Extending credit to0 freely. a ‘Expanding oredit too rapidly. Fal sep complet, acura rezons, so atte owners dil ino wouble witost etn Going into business with litle of no experience and without first something about i Borrowing money without planning just how and when to pay it bac. “Atempting o do 0 much business with too ite capt ‘Not allowing for setbacks and unexpected expenses. Buying too much on credit To Misating th eedom of bagi busines Tor one for ber 19 work of ot aeoring whim. TI] Starting factories or show rooms in wrong lozations 2 Making frequent withdrawals to cary habits of personal exravagance into te basins 13. [ Plunging in withou Gest testing the watfs on a smal scale 14 | Underestimating how much time it will ke t> build a market T5.__] Starting with too lite capital. 16 Starting with too much capital and being caeies in is use ‘(i Tplanned Expansion 18. | Having the wrong eines towards business is inlerest: groups 19.__| Inventory mismanagement 20. Too much capital going into xed assetsIntroducing Small Business 67 Dun & Breadstreet draw on up-to-date files of more than 9 million US businesses to provide information on trends in business failures and starts. In 1981, they found that 92% of the business failure was caused for bad matiagement. This may be seen as under nS | Causes of Business Failure nm | 15%, as | 16% | 7% Figure — 3B: Showing the Causes of Business Failure ‘SINo_| Causes of Failure ‘Explanations of the Causes T | Incompetence [449] Thabilty to run the business ~-physically, morally, or intellectual 7 | Tack of Managerial Experience | Lite or no experience of managing employees and other 17% resources before going into business 3 [Unbalanced Experience [16%] | Not well rounded in marketing , finance, purchasing, and production | Tnexperience inline [15%] | Lite, ifany, experience inthe product or service before going into business 3_| Cnknown (655 © | Neglect (1%) “Too lite atetion 1 the business, dus to bad habits, poor health, or marital difficulties 7 | Fraud or Disaster (195) Fraud : misleading name, false nancial tatements, premeditated overbuy, or iregular disposal of assets. Disaster fire flood, burglary, employees’ fraud. oF stikelsome disasters could have been provided against through insurance] 3.14 Ways to Get into Small Business ‘There are several ways to get into small business (SB]. The entrepreneur can be involved in small business generally through four different ways i:e. by inheritance of gift, buying, starting and franchising. The risk-taking entrepreneur will invest time & money into the small firm using one of these approaches. Approaches are mentioned as uader |. Inherited and or gifted SB 2. Buying & owning an existing SB 3. Starting a new SB} self initiated), and 2 4. Franchising Inherited and or gifted SB: ‘Some people may inherit small business from taeir forefathers, from in- laws or from some other Persons, For becoming owners through inheritance or gifts one is not required to make any payments, in case of gifts some costs with regard to transfer Deeds may be necessary. Such business ownership has both some benefits as well as some problems for the owners who inherit these. These are68 Entrepreneurship & Small Business Benefits & Problems of Inherited/Gifted SB Benefits of such SBS, Problems of sach SBs __Besome owner without capital T_ Suffer from all the ills of the SB. 2. Market & clientele existent 72. Difficult to change the old defective line of business 3 __ [ix Enjoy of fruits of the established business ‘Suler trom bad old employees “4. Enjoy goodwill ofthe past operations “4._Confliet with the enemies of the past owners q ‘The subject of becoming sinall business owner through buying an existing business unit and the tmatiers with regard to the process are discussed in the following Chapter [Chapter-4]. Moreover, the provess of becoming small business owner through staring the same from the scratch & the related eeracs have been dealt with in Chapter- 5. Besides, small business through franchise has been taken up for discussion in Chaptet- 6. Hence, the author deliberately refrained from discussing these processes ‘of becoming small business owners in the current Chapter. 3.15 Selection of Line of Activity for Small Business “The selection of the line of activity is very importa. This sto be sorted out before any other thing is taken up. Major types of activity are consumer goods and industrial goods. Some relevant considered in the process of such 2 selection: bb. Variety for products in one line is not of prime importance ‘c. Nearness to competitors is undesirable. ‘4. Store hours should usually be longer and still can be profitable Displays of impulse items are important 44 _._ Location i store is important 2 shopping goods aes Location should normally be near competitors so that customers can compare goods. b. Ability to explain advantages of merchandise over competing products is essential c. High-rent areas are not essential d. More capable and higher-paid salespeople are necessary, f. Assistance to customers in value determination is important. ae "a. Attractive, comfortable selling space for customers is important bb. Advertising can over wider areas of the city productively ©. Efficiency in installations is important Customer services are a premium item ._ Special sales may be less important ‘e Publicity emphasis is on location and brands more than on price {B] Industrial Goods PeNStial goods are those products that are sold to other business firms. cither for their oy caaestnption or for use in their own manufactur of other products. These goods, too, are extremely varied, They may be classified as follows: 1. Raw materials: Oi, grain, Top, uprocete bacco; woo. es ul - 2, Semi-manufactured goods: sheet ‘or steel, leather, pig iron, component parts, eteIntroducing Small Business © 3. Parts: blades for cutting machines, pistons for engines, bearings, as handles, etc 4. Supplies: cleaning compounds, plastic bags, wrapping paper, fuel, office stationery, etc. 5. Machinery and equipment: all machines and equipment items used in the factory, office, or store Special Considerations Industrial Goods ‘Any small firm selling to industrial users should recognize these special characteristics of industrial sales: 1. Industrial goods buyers are better informed about the products they buy. They buy products on the basis of performance and not because of advertising or emotio Factories will often request products made to their own specifications. ‘Many industrial goods are sold with the seller providing installation and repair service. Industrial goods prices are sensitive to changing business conditions. Many, industrial goods are sold directly by the factors to the user without the use of any intermediaries. 6. There are fewer customers for industrial goods, but the average revenue per sale is usually much higher. 7. Users of components often inspect producers" factories. 3.16 Summing Up ‘A small business venture 1s any business that is independently owned and operated, not dominant in its feld, and does not engage in any new marketing or innovative practices. It is usualy organised and managed by the owner and or his family members. Small business has been recognised as a vial force of our economy by contributing to personalized Nexiility. creativity specialization, communication, and performance. I also provides resourees and serves as outlets for big business. These apart i. Small businesses occupy the lion share of the business units of the country and_ are the provider ofthe largest number of jobs; ii "The six major areas of small business are: retaling, service, wholesaling, research & development consultancy and manufacturing. tii, ‘There are thee besic forms of small business organization: the sole proprietorship, the partnership, and the corporation. iv. Digital Compute, Penicillin, Xerography, Petroleum Catalytic C* king and many others are the products developed by smal entrepreneurs. \. Lack of business prior experience, poor management, inadequate supply of initial seed capital’ working ‘apial, wong location, poor inventory management are some of the widely faced problems of the small business. si Poor performance of small business can result from many factors of which some are + Customers not baying products, post scheduling of production or purchases, theft and / or spoilage of products, 100 many people for the work tobe performed, opportunities lost et vi In family business, an important factor in the suecession process i the availabilty of a son as «potential successor, Where there i n0 son, oF if the sos ability is doubtful a succession is complicated by friction fis fom rivalries among the likely eis. vin, Three main ays of setting into smal business include buying, stating and franchising. ix. Selection of the line of activity before starting he small business is necessary and this must be judicious. The rationale of choosing the line of activity eithe® consumer goods oF industrial yoods need be based on some logical factors.OPES: 0 Entrepreneurship & Small Business Broad Questions 1. What is the meant by small business? Name the different types of small business. 2. Give the structural features of small business. Explain the characteristics of small business. % Discuss the role of small business vis-a-vis medium and large business, Suggest the type of z industries to be developed for a country like Bangladesh. Give logic for your answer. 7 - Elaborately discuss the different stages of small business development with example. Explain the socioeconomic roles of small business in the development of a country? Identify the usual problems of small business? How to overcome or at least minimize those? ‘Are more small firms engaged in retailing than in manufacturing? Why do you think ” ‘What does an entrepreneur risk when he or she goes into small business? Why is it suggested that entrepreneurs need to be committed to hard work? ‘9. What are the ways a person can get into small business? Which one of the methods is the best and why? 10. Do you see any evidence of the increasing or decreasing importance of small business in a country like Bangladesh? Explain. 11. In which sectors of the economy is small business most important? What accounts for its stréngth in these areas? 12. Do the advantages of small businesses outweigh the disadvantages? Explain. 13. Would you agree that attitude is more vital to the success of small business than tangible factors, such as, money and buildings? 14. [fall small businesses could be merged into large firms in some way, what would be the impact on industrial efficiency and on our standard of living? Explain. 15. What is your estimate as to the relative strengths of small business 20 years from now? What factors will be most significant in determining its role in the future? 2 16. Explain the symptoms of small business failure that are described in the chapter. Can you suggest some other business failure symptoms? 17. Is there one best legal form of organization, applicable to all entrepreneurs? Explain your answer. Short Questions 1. Whatis the meaning of small business? 2. Briefly write down the contributions of small business. 3. What are the secrets of success of small business? 4. Explain the advantages of small business. S. Explain the disadvantages of small business. 6 7. 8 9. ‘What are the barriers to smooth succession in family firms? ‘What are the pushes & pulls of entrepreneurship development? ‘What is the legal requirements for starting a business as a proprietorship? ‘What are the major strengths of small business? 10. What are the major weaknesses of small business” eo