Small business management and Entrepreneurship 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 Micro 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.