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
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
Low Need to be Traditional/Conform–
• Growth oriented entrepreneurs are able to ignore others’
advice
• Do what they really wish to do
Persistence
• Persistent, work hard, doing what is best for the business
Characteristics of Entrepreneur
High Energy Level/ Enthusiasm
• 60-80 hours of work per week is common
• He plans, organizes, directs, creates strategy
and explore funds
Risk-taking Tendency –
• Growth oriented entrepreneurs believe in their
ability to achieve success
• They accept risk and find it motivating
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
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
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, Contd.,
Proven Product –
The franchisor can offer the proven product
and method of operating the business. The
product or service is known to and accepted by
the public
Financial Assistance –
Association with a well-established franchisor
(through its reputation and financial controls)
enhances the investor’s credit rating with local
banks
Disadvantages of Franchising
• Costs – Training, guidance and other forms of
supports / costs
• External Control – Franchisor exercises
some control over promotional activities,
financial records, hiring, service procedures
and managerial development
• Weak Training Programs
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
• B) Wholesaling
• C) Manufacturing
• D) Special trade construction
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
B. Services
• Intangible products that cannot be physically
possessed and that involve performance or effort
Service businesses include:
• Business services– Businesses that provide service
to other business organizations (accounting firms,
advertising agencies, tax consultants, computer
programmers etc.)
Areas of Small Businesses
• Personal Services– Barber & beauty shops,
laundries, travel agencies etc.
• Repair Services– Automobile repair,
appliance repair, plumbing repair, furniture
repair etc.
• Entertainment and recreation services–
Amusement parks, picture theaters etc.
• Hotels and Motels– Residential hotels
Areas of Small Businesses
C. Wholesaling
• Selling to other sellers, such as retailers, other
wholesalers or industrial firms
• Groceries, appliances, 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 into the business
and make or sell a product or service
• It is the game plan of the new business