Chapter 5: Entrepreneurship and Small Business Management
● Entrepreneurship – creating new business by strategic thinking and taking risk
● Entrepreneur – individuals who establish businesses on their own
o willing to pursue opportunities in situations others view as problems or threats
o founders of businesses that become large-scale enterprises
o respond quickly to changes
o show greater flexibility
o try to use economies of scale, but it’s difficult
● Characteristics of entrepreneurs:
o Internal locus of control: Entrepreneurs believe that they are in control of their own
destiny; they are self-directing and like autonomy.
o High energy level: Entrepreneurs are persistent, hard working, and willing to exert
extraordinary efforts to succeed.
o High need for achievement: Entrepreneurs are motivated to accomplish challenging
goals; they thrive on performance feedback.
o Tolerance for ambiguity: Entrepreneurs are risk takes; they tolerate situations with high
degree of uncertainty.
o Self-confidence: Entrepreneurs feel competent, believe in themselves, and are willing to
o Passion and action-orientation: Entrepreneurs try to act ahead of problems; they want to
get things done and not waste valuable time.
o Self-reliance and desire for independence: Entrepreneurs want independence; they are
self-reliant; they want to be their own bosses, not work for others.
o Flexibility: Entrepreneurs are willing to admit problems and errors, and are willing to
change a course of action when plans aren’t working.
● Necessity-Based Entrepreneurship: takes place because other employment options don’t
● Agency theory states that individuals try to make as much money as possible. Using this
theory, entrepreneurs try to cut costs wherever possible.
● Entrepreneurs have to remember that 50% of small businesses fail in the first 4 years of
● Tritech, Dell and Microsoft are small companies.
● National Bank of Canada, General Motors, and 3M are large corporations.
● Small Business
o Are ones with or 100 or fewer employees. o Independently owned and operated
o 48 percent of all private sector employees work in small businesses.
o The World Bank estimates that one of the strongest factors in the growth of any nations
GMP (Gross National Product) is small business.
o Small business owners can react quickly to changes.
o Nearly 85% of small businesses are conducting business over the internet.
● Small businesses fail because:
o lack of experience
o lack of expertise
o lack of strategy and strategic leadership
o poor financial control
o growing too fast
o insufficient commitment
o ethical failure
o The style of franchise grants the franchisee the right to sell a widely recognized product
or brand: product and trademark franchising.
o The style of franchise grants the franchisee the right to market the product and
trademark and use a complete operating system: business format franchising.
o Franchises account 41% for percent of all retail trade.
● Family Business – owned and controlled by members of a family
● Family Business Feud – occurs when family members have major disagreements over how
the business should be done
● Succession Problem – the issue of who will run the business when the current head leaves
● Succession Plan – describes how the leadership transition and related financial matters will
● Intrapreneurship – when you have an organization and you appoint people who are working
to come up with new products within the organization
● Intrapreneur – a person within a corporation who is given the freedom and resources to
initiate projects, business ventures, etc.
● What are Skunk works? An experimental laboratory or department of a company or institution,
typically smaller than and independent of it