The Foundation of Entrepreneurship

Prepared by: Lucresia McGrowder January

2014

Learning Objectives:
After the completion of this lesson
students should be able to:
Explain the concept of a small business
Evaulate the characteristics of successful
entrepreneur and its benefits
Describe the cultural diversity of
entrepreneurship
Describe the important role small
businesses play in our nation's ecomomy

Learning Objectives continued:
Explain 5 common mistakes made when
starting a business
Identify the key success factors in
operating a business
Examine risk management in small
business
Identify the social and ethical issues facing
the entrepreneur

What is a Small Business?
Independently owned and managed
business that does not dominate its
market

Characteristics of a Small Business
Small businesses
Ones with 100 or fewer employees, depending on
the policies in a country.
Independently owned and operated.
50 percent of the private labour force works in
small businesses.
Are established by:
Starting a new business.
Buying an existing business.
Buying and running a franchise.




What is Entreprenuership?
Entrepreneurship
Strategic thinking and risk-taking behavior
that results in the creation of new
opportunities for individuals and/or
organizations.
Entrepreneurs
Risk-taking individuals who take actions to
pursue opportunities and situations others
may fail to recognize or may view as
problems or threats.

What is Entrepreneurship?
Entrepreneurs are
Founders of businesses that become large-
scale enterprises.
People who:
Buy a local franchise outlet
Open a small retail shop
Operate a self-employed service business
People who introduce a new product or
operational change in an existing
organization.

Characteristics of Entrepreneurs
Desire for responsibility
Preference for moderate levels of risk
risk eliminators
Confidence in their ability to succeed
Determination
Desire for immediate feedback
High level of energy
Future orientation opportunity,
necessity, and serial entrepreneurs
Skilled at organizing
Value achievement over money

Characteristics of Entrepreneurs
Entrepreneurs tend to exhibit:
A high degree of commitment
Tolerance for ambiguity
Flexibility
A willingness to work hard
Tenacity


Entrepreneurship
One characteristic of entrepreneurs
stands out:
Diversity!

Anyone regardless of age, race,
gender, color, national origin, or any
other characteristic can become an
entrepreneur (although not everyone
should).

Benefits of Entrepreneurship
The opportunity to:
Create your own destiny
Make a difference
Reach your full potential
Reap impressive profits
Contribute to society and to
be recognized for your efforts
Do what you enjoy and to have fun at it


Drawbacks of Entrepreneurship
Uncertainty of income
Risk of losing your entire investment
Long hours and hard work
Lower quality of life until the business
gets established
High levels of stress
Complete responsibility
Discouragement

The Cultural Diversity
of Entrepreneurship
Young entrepreneurs
Women entrepreneurs
Minority-owned enterprises
Immigrant entrepreneurs
Part-time entrepreneurs
Home-based businesses
Family businesses


Popular Areas of Small Business Enterprise
Services
Retailing
Construction
Financial
Insurance
Wholesaling
Transportation
Manufacturing

Successful Small Business Examples
Tailors - Spencer's Tailoring
Hair Salons - Sassy's,Babe's
Dressmakers - Lara-Lou's, Logo Stitch, Sun
Island, Palm Club
Printries - Lithographic, Xerox
Contractors - Seaton Construction, Tank Weld,
WIHCONContruction, Gore Developement
Bakers - National Bakery, Captain's
Transportation - Bloomfield Jamaica, On-time
Taxi Service, Knutsford Express, JUTA Tours
Mistakes to Avoid When Starting a New
Business
Not researching target market
Sketchy business plan
Expecting immediate profits
Assuming banks will lend you money
Not focusing on the customers and assuming
they will automatically find you and buy
Disregarding control test
Relying on your own legal and accounting skills
Trying to do everything alone
Trusting verbal agreements
Sacrificing personal relationships for the
business
Starting a business without a clear exit strategy
Reasons Why Small Business Fail
Key Factors: How to Avoid Business Failure
Know your business in depth
Develop a solid business plan
Manage financial resources
Understand financial statements
Learn to manage people effectively
Set your business apart from the
competition
Maintain a positive attitude

Use of Online Resources in Small Business

Facebook
Seach Engines, eg. Google,
Social Media
Social an Ethical Issues in Small Business
What Is Integrity?
A general sense of honesty and reliability that is
expressed in a strong commitment to doing the right
thing, regardless of the circumstances.
Honesty, reliability, and fairness in business practices
An essential element of successful business relationships
Is as much about what to do as it is who to be.
Doing the Right Thing
Ethical issuesquestions of right and wrong
Legal and ethical considerations
Conflicts of self-interest

Four Types of Responsiblies of Small Business
Social and Ethical Issues in Small
Businesses - Kinds of Ethical Issues
Ethical Issues in Business Operations
Income and expense reporting (tax fraud)
Truth in advertisingpersuasion and
deception
Bribing customers and rigging bids
Direct sellingpyramid schemes, bait-and-
switch selling
Effects of owners ethics on their employees
Accurately reporting financial information

Kinds of Ethical Issues (Cont'd)
Ethical Issues and Employees
To do an honest days work
Fraudulent workers compensation claims
Theft of company property and embezzlement
of funds
Violation of personal ethics to make a sale


Social Responsibility and Small
Business
Social Responsibility
The firms ethical obligations as a good citizen
to its community.
Regarded as the price of freedom to operate in a
free economic system.
Frequently takes the form of personal
contributions, volunteerism and the contribution of
services by the firm and its employees.

Social Responsibility and Small Business
Environmental
Protection
Consumerism
Support of
Education
Compliance with
Government
Regulations
Response to
Community
Needs
Contributions
to Community
Organizations
Obligations to
Stakeholders
Social
Responsibilities
of
Small Firms
Challenges and Benefits of Acting with Integrity
Small Companies and the Legitimacy Lie
Limited resources tempt small firms to
misrepresent facts and cut ethical corners if
an issue affects profits.
PRO Levers: products, representatives,
organization
The Integrity Edge
Exhibiting integrity in business may actually
boost a firms performance.
Greatest benefit of integrity is the trust it
generates.


Trust and the Integrity Edge

Improved
financial
performance
Increased sales
and customer
loyalty
Improved access
to capital
Fewer regulatory
inspections and
less paperwork
Enhanced brand
image and
reputation
Benefits of
Ethical
Business
Practices
Better
recruitment and
reduced turnover
Improved
productivity and
quality
Building a Business with Integrity
The Foundations of Integrity
Underlying values: unarticulated ethical
beliefs that provide a foundation for ethical
behavior in a firm.
Are based on personal views of the universe and
mankind.
Strongly held views can lead to tough choices.
Ethics of the firm affect how outsiders view the firm
and their decisions about the firm.

Managing Risks in Small Business
TYPES OF RISK
ENTREPRENEURS FACE
Strategic or Market risks
Financial/Economic risks
Operational risks
Acts of God or Natural Disasters

Strategic Risks
Strategic risks are the businesss
exposure to changes in market conditions

Defining the wrong target market
Pricing the product incorrectly
Incorrectly estimating demand (over/under)
Not understanding the customer

Economic and Financial Risks
Economic risks are outside the control of the
small business owner

Changes in the economy
Inflation, recession, unemployment, etc.
Changes in supply and demand
Changes in the level of competition

Financial Risks
Financial risks include:

Interest rate changes, which affect the cost of capital
for a growing company
Foreign exchange rates when the company is doing
business globally
The availability of credit
Product liability and warranty claims
Cash flow/liquidity problems
Loss of Revenues

Operational Risks
Operational risk is exposure to loss due to poor
systems and controls

Supply Chain Control and Disruptions
Leases
A Poor Business Plan
Ineffective Quality Assurance Program
Information System Data Loss
Dependence on Independent Contractors
Employee theft and incompetence

Operational Risk
Employees are a
huge source of risk
for small businesses.

To Ensure That the Company is Up to Par
Develop a mission and value system that
all employees buy into.
Do background checks and reference
checks on ALL potential hires.
Treat good employees well.
Investigate improper conduct immediately

Act of God - Natural Disasters
Crises which are outside the control of the
small business owner

Fire
Flood/water damage
Tornados and earthquakes
Terrorism and war
Loss of facilities (building)
Loss of utilities (water and electricity)

To Ensure that The Company's Employees
are Up to Par
Remind employees often about proper
conduct
Use written agreements to protect the
company
Be proactive about seeking information
about problems in the workplace and
make it easy for whistle-blowers to report
improper conduct.
Base decisions about conduct on facts to
avoid lawsuits.

Tools for Managing Risks

Note: To find a listing of the risk management tools appropriate for
dealing with a potential loss, see the box corresponding to the severity
and frequency of the potential loss.
Strategy to Mediate Risks
Risk control
Preventive approaches
AVOIDANCE
Eliminate the activity, thus eliminate the risk
REDUCTION
Change the activity to reduce the probability of loss/risk

Risk sharing
Insurance
Outsourcing/Independent Contractors/Suppliers

Risk communication
Educating employees, customers, etc about the risks

Methods to Manage Risks
Risk Financing
Making funds available to cover losses that cannot be
managed by risk control

Risk Transfer
Buying insurance or making contractual agreements
with others to transfer risk
Risk Retention
Choosingwhether consciously or unconsciously,
voluntarily or involuntarilyto manage risk internally
Self-Insurance
Designating part of a firms earnings as a cushion
against possible future losses


Fire
Property
Risks
Natural
Disasters
Burglary and
Business Swindles
Shoplifting
On-Premise
Injury
Competition
from
Former
Employees
Loss of
Key
Executives
Employee
Dishonesty
Bad Debts
Product
Liability
Personnel
Risks
Customer
Risks
Bankruptcy
Classifying
Risk by Type of
Asset
Property Risk
Real Property
Land and anything physically attached to the land, such as
buildings
Personal Property
Machinery, equipment, furniture, fixtures, stock, and vehicles
Replacement Value of Property
The cost to replace or replicate property at todays prices
Actual Cash Value (ACV)
An insurance term that refers to the depreciated
value of a property

Property Risk (Cont'd)
Direct Loss
A loss in which physical damage to
property reduces its value to the
property owner
Indirect Loss
A loss arising from inability to carry on
normal operations due to a direct loss of
property

Insurance for Small Business
Basic Principles of a Sound Insurance Program

Identify your insurable business risks
Workers compensation and automobile liability
insurance are required by law.
Limit coverage to major potential losses
Avoid overspending insurance resources.
Relate premiums to probability of loss
Insure most improbable but critical losses first

Insurance for Small Business
Theft insurance
Business Interruption Insurance
Key person insurance
Professional liability insurance
Commercial property insurance
Business auto insurance
Equipment breakdown insurance
Workers compensation and employers
liability insurance

Insurance:Valuation
Valuation
Both real and personal property are valued on a
replacement-cost basis such that all property damage
and loss will be reimbursed at the rate required to
rebuild or replace the property
Insurance to Value Provision
Requires the insured to carry a minimum policy limit
relative to the actual value of the property
Not contained in most BOPs
Coinsurance provision
Requires that property be insured for at least 80 percent of its
value or a penalty will be applied to any covered loss

Additional BOP Coverage
Business Interruption Insurance
Reimburses a business for the loss of anticipated
income plus continuing expenses that cannot be met
because of the negative impact of a direct loss on
business revenues
Commercial General Liability (CGL) coverage
Covers bodily injury and property damage for which
the business is liable
Medical Payments Coverage
Covers injuries of customers and the general public,
with no fault required on the part of the insured

Monitor Performance
A business owner
cannot eliminate all
risk but assessing
and managing risk will
insure that the
company has fewer
surprises that might
damage the business
significantly.

The End