This is my 1st Independent Study (BUS596) at CALMAT. The subject I selected for my Independent Study is “Entrepreneurship”. The textbook’s title is “Small Business Management; Entrepreneurship and Beyond”; 4th edition, written by Timothy S. Hatten.
After reading Chapter 1, I understand the following key points
- Characteristics of Small Business
- The roles of Small Business in the U.S. Economy
- Important of Diversity in the Marketplace and the Workplace
- Some of the Opportunities available to Small Business
- Most Common Causes of Small Business Failure
Chapter 1: Small Business: An Overview
a. What is Small Business?
b. Small Businesses in the U.S. Economy
c. Workforce Diversity and Small Business Ownership
d. Secrets of Small Business Success
e. Understanding the Risks of Small Business Ownership
a. What is Small Business?
A business is generally considered small if it is independently owned, operated, and financed; has fewer than 100 employees, and has relatively little impact on its industry.
As some of us know small business generates a great deal of innovation, opportunities, and profit for millions of Americans. 2005 U.S. census data shows that 24 percent of 25.8 million small businesses have employees, and 76 percent do not.
Here’s the fact of small business in U.S:
- Represent more than 99.7 percent of all employers
- Employ 41 percent of high-tech employees (scientists, engineers, computer workers)
- Create 60 – 80 percent of net new jobs annually
- Create more than 50 percent of private GDP
- 53 percent home-based and 3 percent franchises
Small business size standard vary by the industry within which the business operates, construction, manufacturing, mining, transportation, wholesale trade, retail trade, and service.
b. Small Businesses in the U.S. Economy
In the late 1950s and early 1960s, businesses began paying more attention consumer wants and needs, rather than focusing on production. This paradigm shift was called the “marketing concept”. With this shift came an increased importance ascribed to the service economy. Small service businesses create competitive advantage for themselves by offering their customers more time for other things.
By the early 1970s, corporate profits had begun to decline, while the large firms’ costs increased. Managers began to realize that bigger is not necessarily better and the economy of scale does not guarantee lower costs. Other startups, such as Wal-Mart which was founded in the 1960s could respond more quickly to customers’ changing desires, and they were more flexible in changing their products and services.
In the 1980s, and then in the 1990s, U. S. business saw a period of merger mania to acquired other businesses purely for the growth, rather than to exploit a natural fit between each other. Then it was followed a string of bankruptcies and downsizing.
In the 1971 only 16 schools in the U.S. offered courses in entrepreneurship. By 2005 that number had grown to 1,600. The evidence of increased interest in entrepreneurship education U.S. colleges and universities is phenomenal.
c. Workforce Diversity and Small Business Ownership
The report suggested that the minority-owned businesses are vital to the growth of the U.S. economy. The statistics from the report as follow:- Asian-owned firms totaled 1,103,587 and generated $326.7 billion annual revenue
- Black-owned firms totaled 1,197,567 and generated $88.6 billion annual revenue
- Hispanic-owned firms totaled 1,573,464 and generated $222 billion annual revenue
- American Indian/Native-owned firms totaled 201,387 and generated $26.9 billion annual revenue
d. Secrets of Small Business Success
You will improve your chances of achieving success in running a small business if you identify your competitive advantage, remain flexible and innovative, cultivate a close relationship with your customers and strive for quality. Small businesses perform more efficiently than larger ones in several areas. You have to offer your customers more value than your competitors do. A competitive advantage can be built from many different factors.
- Flexibility
- Innovation
- Close Relationship to Customers
- Market sue and definition
- Gathering sufficient capital
- Finding and keeping efficient employees
- Getting accurate information
e. Understanding the Risks of Small Business Ownership
Running a small business involves much more than simply getting an idea, hanging out a sign, and opening for businesses the next year. You need a vision, resources, and a plan to take advantage of the opportunity that exists.
The causes of business failure are many and complex; however, the most common causes are inadequate management and inadequate financing.
Business management is the efficient and effective use of resources. For small business owners, management skills are especially desirable. Lack of experience is one of their most pressing problems. Inadequate financing can be caused by improper managerial control as well as shortage of capital. You can fail to plan for the future or not have strategic direction. Your plan should provide a road map for your business, showing you both the expressways and the scenic route – and the detours.
Question 4: Define outsourcing and describe its impact on small business
Answer: Outsourcing means relying on smaller vendors & suppliers to produce the parts. For example, I have been indirectly doing business with Foxconn, the world's largest contract electronics manufacturing services provider. They replied on many small vendors to manufacture parts for them. These relationships enable Foxconn to focus on their major customer (i.e. Apple) and what it does best, while at the same time creating economic opportunity for hundreds of individual entrepreneurs in China & Taiwan. These small businesses perform more efficiently than larger ones in several area.
Question 8: How would you show that small business is becoming a more important part of the economy?
Answer: According to U.S. Small Business Administration Office of Advocacy estimated that there were 25.8 million businesses in the U.S. in 2005. Census data shows that 24 percent of those 25.8 million businesses have employees, and 76 percent do not. It represents more than 99.7 percent of all employers. It creates more than 50 percent of private gross domestic product (GDP) in U.S.
My View:
For my past 20 years working in Electronic Design Automation (EDA) industry, I noticed many start-ups (small businesses) are more likely than large businesses to be innovative. The reason is the R&D departments of most large businesses (the big three of EDA are Synopsys, Cadence, Mentor Graphics) tend to concentrate on the improvement of the products their companies already make. This practice makes sense for companies trying to profit from their large investments in people, plant & equipment. At the same time, it discourages the development of totally new idea and products. They rather make acquisition on start-up with good tracking record of innovative technology. Real innovation has come most often from independent inventors and small businesses.
Small businesses have its success secret. They can perform more efficiently than larger one in some areas. For example, I noticed smaller contract electronic manufacturing service provider offers more competitive advantage than larger manufacturers (i.e. Foxconn, Flextronics) in flexibility, delivery, pricing , and innovation. The analogy is the large and small businesses turning in new directions. The big truck has a lot more capacity (more headcount, higher cost, many decision-makers, etc.) but the pickup has more maneuverability in reaching customer (efficiency).
