Transcript small_business_and_entreprenership 3

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?
 Porter’s 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 owner’s 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
Porter’s 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.