Chapter Three:

Entrepreneurship, Franchising
And Small Business
Definition of Entrepreneurship
 Entrepreneur– A person who takes
the risks necessary to organize and
manage a business and receives the
financial profits and non-monetary
rewards.
 Intrapreneur– An entrepreneurial

person employed by a corporation

and encouraged to be innovative and
creative.
Characteristics of Entrepreneur
1. Need for Achievement-
 A strong desire to succeed, to grow, to accomplish
challenging tasks.
 Strong desire for achievement leads to independence.
 They need to be free to set their own course, establish
their own goals and use their own style.
2.Low Need to be Traditional/Conform–
 Growth oriented entrepreneurs are able to ignore
others’ advice.
 Do what they really wish to do.
3.Persistence
 Persistent/determined, work hard, doing what is best
for the business.
Characteristics of Entrepreneur
4.High Energy Level/ Enthusiasm
 High working hour per week is common.
 He plans, organizes, directs, creates
strategy and explore funds.
5.Risk-taking Tendency –
 Growth oriented entrepreneurs believe in
their ability to achieve success.
 They accept risk and find it motivating.
5.1 Risk Factors for Entrepreneurs
 Business Risk– Entering into the new
business.
 Financial Risk– Investing all financial
resources.
 Career Risk– By leaving a secured job for a
venture with a highly uncertain future.
 Family/Social Risk– Little time for family and
socializing.
 Franchising
 A system for selective distribution of goods
and/or services under a brand name through
outlets owned by independent business owners
 Franchise– The right to use a specific business
name (Pizza Hut, McDonald’s) and sell its goods
or services in a specific city, region or country.
 Franchisor– The licensing company in the
franchise arrangement.
 Franchisee– The independent owner of a
franchise outlet who enters into an agreement
with a franchisor.
 Elements of Franchising
 A contractual agreement between the
franchisee (person) and the franchisor.
 A branded product or service.
 Operation by a businessperson for the purpose
of earning a profit.
 Monitoring by the franchisor so that standard
procedures and a standardized product or
service are used.
 Advantages of Franchising
Guidance –
 Many franchisors try to overcome
managerial deficiencies or inexperience by
providing some form of training
Brand Name –
 The investor who signs a franchise
agreement acquires the right to use a
nationally or regionally promoted brand
name
 Advantages of Franchising…
Proven Product –
 The franchisor can offer the proven

product and method of operating the

business. The product or service is known
and accepted by the public
Financial Assistance –
 Association with a well-established

franchisor (through it reputation and its

financial controls) enhances the investor’s
credit rating with local banks
 Disadvantages of Franchising
 Costs – Training, guidance and other
forms of support
 
 External Control – Franchisor exercises
some control over promotional activities,
financial records, hiring, service
procedures and managerial development
 Weak Training Programs- sometime
poor training or not deliver training
program by franchisor.
 Small Business
One that is independently owned and
operated and is not dominant in its field
of operation.
Characteristics of Small Business –
A) Retailing and service (max sales $3.5m)
B) Wholesaling (max employee 500)
C) Manufacturing (max employee 250)
D) Special trade construction (max sales
$7m)
Small Business Opportunities

 Three typical ways to become a

small-business owner include –
*Take over a family business.
*Buy an existing business.
*Start a new business .
 Areas of Small Businesses
A. Manufacturing- printing shops, cloth
manufacturing, furniture shop etc.

B. Services
 Intangible products that cannot be physically

possessed and that involve performance or

effort.
Service businesses include:
1. Business services– Businesses that provide
service to other business organizations
(accounting firms, advertising agencies, tax
consultants, computer programmers etc.)
2. Personal Services– Barber & beauty
shops, laundries, travel agencies etc.
3. Repair Services– Automobile repair,
appliance repair, plumbing repair,
furniture repair etc.
4. Entertainment and recreation
services– Amusement parks, picture
theaters etc.
5. Hotels and Motels– Residential hotels.
 Areas of Small Businesses…
C. Wholesaling
 Selling to other sellers, such as retailers,

other wholesalers or industrial firms.

 Groceries, grain, fruits, vegetables.
 These businesses serve as a link between
manufacturers and retailers
 
D. Retailing– Sell goods to ultimate
consumers.
 Small-Business Start-Up

Business Plan
 A written document that describes the

business, products or services, the

consumers the competition, the
financing, and all activities necessary to
enter in to the business and make or sell
a product or service.
 It is the game plan of the new business.
 Causes of Small Business Failures
Planning Oversights
 Not able to detect market and competitive

changes.
 No plans for emergency situations.

 Inadequate financial planning.

Poor Managerial Qualities

 Unwillingness to work hard, long hours.

 Lack of ability to deal with people.

 Failure to delegate responsibility and tasks.

Causes of Small Business Failures..

Use of Inadequate Business Methods

 Poor record keeping

 No credit controls

 No inventory control system

 Inability to hire help

Under Financing
 Lack of funds to buy adequate stock and

equipment
 Lack of funds to hire personnel