David Stokes

Nicholas Wilson
Small Business Management and
Entrepreneurship
Fifth Edition

Lecture outline
Internal and external influences
When and where to setup
Which industry or market to choose
Sink or swim?
Porters five force analysis
Why will small businesses excel?
Critical survival factors

Internal influences
Owner-manager motives
Personal attributes
Technical skills
Management competencies
Marketing, finance, human resource

management

Entrepreneurial management behaviors

Opportunity identification and exploitation,
resource coordination, networking,
entrepreneurial decision making

External influences
Macro
Political
Economic
Social
Technological
International

Micro
Local economy
Market
Competitors
Customers

When to set up
Levels of unemployment
Government policies
Profitability
Interest rates
Personal savings and assets
Consumer expenditure
Structural change

Where to set up
Geographic areas with:
Population growth
Unemployment
Wealth
Workforce qualification
Business size
House prices
Local government spending
Government policy

Which industry and

market
to choose?
Lets first differentiate
between market and
industry.

Economies of scale
Product differentiation
Switching costs
Access to distribution channels
Government policy

Impact of internet
What can a business do to give it the best

possible chance of success on the internet?

Niche or specialized product
Flexible payment methods
Secure electronic payments
Minimum capital investment
Stock control
Quick and reliable logistics
High visibility on the internet
Provide a comprehensive web site

Types of business
closures
Most common types of business closures are:
Financial failures
Not meeting owners objectives
Technical closures
Sold on

Adjusting to uncertainty
Why are small firms more likely to face

uncertainty compared to large firms?

Inability to control prices
Lack of market power
Dependency on a small customer base

Small firms can face three types of

uncertainty:
Technical uncertainty

Unsure of the success of the product or service and

the costs

Market uncertainty

Entrepreneur does not know if the demand of the

product will exist

Competitive uncertainty

How will entrepreneurs handle and deal with

competition

Some problems
Problems that the small business owners are

likely to face with respect to uncertainty:

Interest rates
Cash flow and payments
Low turnover
Lack of skilled employees
Tax burden
Premises, rent and rates
Inflation
Government regulations and paperwork
Access to finance
Competition from big business
High rates of pay

Porters five force

analysis
Potential for Entry (barriers to entry)
Power of Buyers
Power of suppliers
Potential for substitutes
Rivalry

In some industries large firms will have advantage

over small firms but in some industries it is the

other way.
Some industries may be fragmented into large
number of smaller firms for the following reasons:
Low entry barriers
Diseconomies of scale
High creative content
Personal service
Close local control
Newness

Assignment
Identify some critical survival factors in the

small business environment which help to

determine whether a new venture will sink or
swim.