Small Business: Creating Value Through Entrepreneurship offers a balanced approach to the core concepts of starting, managing, and working in a small business. An ideal textbook for undergraduate courses in small business management and entrepreneurship, the book offers a student-friendly pedagogical framework that blends foundational research on small business with the real-world practice of business ownership. Relevant examples are provided throughout the text, bringing key concepts to life while providing a realistic view of what it takes to create a successful and sustainable small business.
Organized into five streamlined sections - a small business overview, paths to small business ownership, financial and legal issues, ways to grow a small business, and discussion of the “Entrepreneur’s Dilemma” - the text offers a diverse range of relatable examples drawn from both actual businesses and from depictions of entrepreneurship in popular media. Each clear and accessible chapter features discussion questions, mini-case studies, further reading lists, and color visual displays designed to enhance the learning experience and strengthen student engagement and comprehension.Table of Contents
Preface vii
1 Understanding Small Business 1
1.0. Introduction 1
1.1. Describe Small Business 3
Comprehension Check 7
1.2. Define Small Business Management 7
1.2.1. Problems with (Rapid) Growth 11
Comprehension Check 13
1.3. Myths About and Benefits of Small Business Entrepreneurship 13
Comprehension Check 17
1.4. Identify Various Forms of Entrepreneurship 17
Comprehension Check 20
Summary 20
Live Exercise 21
World of Books 21
In the Movies 22
Things to Remember 22
Key Terms 23
Experiential Exercise 23
2 Starting a New Business 24
2.0. Introduction 24
2.1. Motivations for Starting a New Venture 26
Comprehension Check 29
2.2. Part-time and Full-time Startups 30
Comprehension Check 32
2.3. From Idea to Opportunity 32
Comprehension Check 39
2.4. The Universal Startup Model 39
Comprehension Check 42
2.5. Analyze the State of Startup in the United States 43
Comprehension Check 45
Summary 46
Live Exercise 46
World of Books 46
In the Movies 46
Things to Remember 47
Key Terms 48
Experiential Exercise 48
3 Family Business 49
3.0. Introduction 49
3.1. The Basics of Family Business 51
3.1.1. Definition of Family Business 51
3.1.2. Family Business System 53
Comprehension Check 54
3.2. Two Sides of the Family Business 54
3.2.1. Positives of a Family Business 55
3.2.2. Negatives of a Family Business 56
Comprehension Check 59
3.3. Types of Family Businesses 59
Comprehension Check 62
3.4. Succession Planning in Family Business 62
3.4.1. Enduring Family Firms 64
3.4.2. Best Practices for Family Firms 66
3.4.3. Next-Generation Challenge 67
3.4.4. Role of Offspring Gender 68
Comprehension Check 71
Summary 71
Live Exercise 71
World of Books 71
In the Movies 71
Things to Remember 72
Key Terms 73
Experiential Exercise 73
4 Franchising for Small Firms 74
4.0. Introduction 74
4.1. Meaning and History of Franchising 76
4.1.1. Historical Evolution 79
4.1.2. Forms of Franchising 81
Comprehension Check 83
4.2. Considerations in Franchising 83
4.2.1. Advantages of Franchising 84
4.2.2. Disadvantages of Franchising 86
Comprehension Check 88
4.3. Types of Franchise 88
4.3.1. Legal and Institutional Environment for Franchising 89
Comprehension Check 95
4.4. Decision to Become a Franchisee 96
4.4.1. Assess Your Situation 97
4.4.2. Start Your Research 97
Comprehension Check 100
Summary 100
Live Exercise 100
World of Books 101
In the Movies 101
Things to Remember 101
Key Terms 102
Experiential Exercise 102
5 Small Business Ownership Through Acquisition 103
5.0. Introduction 103
5.1. Business Acquisition and Its Two Sides 105
5.1.1. Bright Side of Acquisitions 107
5.1.2. Downsides of Acquisition 108
Comprehension Check 109
5.2. The Acquisition Process 110
5.2.1. Step 1: Raising Capital 110
5.2.2. Step 2: Identifying Targets 111
5.2.3. Step 3: Funding the Buyout 112
5.2.4. Step 4: Operating and Value Creation 113
Comprehension Check 114
5.3. Possible Acquisition Paths 114
5.3.1. Self-funded Search 114
5.3.2. Traditional Search Fund 115
5.3.3. Sponsored Search 116
5.3.4. Incubated Search 117
Comprehension Check 118
5.4. Valuing a Business 118
Comprehension Check 120
Summary 120
Live Exercise 121
World of Books 121
In the Movies 121
Things to Remember 121
Key Terms 122
Experiential Exercise 123
6 Small Business Marketing 124
6.0. Introduction 124
6.1. What Is Small Business Marketing? 126
Comprehension Check 128
6.2. Products: Goods and/or Services 128
Comprehension Check 131
6.3. Capturing the Attention of the Market 131
6.3.1. The Marketing Funnel 132
6.3.2. Digital Marketing 135
Comprehension Check 139
6.4. Locating Your Business in the Right Place 139
6.4.1. Is Your Customer the User? 140
6.4.2. Getting Through to the User or Customer 140
Comprehension Check 143
6.5. Pricing Is Crucial! 144
Comprehension Check 147
Summary 148
World of Books 148
In the Movies 149
Live Exercise 149
Things to Remember 149
Key Terms 150
Experiential Exercise 151
7 Small Business Accounting 152
7.0. Introduction 152
7.1. Why Accounting Matters 154
Comprehension Check 158
7.2. Basic Accounting Concepts 158
7.2.1. Business Entity Concept 158
7.2.2. Going Concern Concept 159
7.2.3. The Accounting Equation 159
7.2.4. Revenues and Expenses 161
7.2.5. Cash Flow 162
Comprehension Check 163
7.3. Accounting System and Financial Reports 163
7.3.1. Income Statement 164
7.3.2. Cash Flow Statement 164
7.3.3. Balance Sheet 165
7.3.4. Statement of Retained Earnings 166
7.3.5. Statement of Owner’s Equity 166
Comprehension Check 167
7.4. Key Ratios for Financial Statement Analysis 167
7.4.1. Profitability Analysis 168
7.4.2. Leverage Ratio 170
7.4.3. Activity Ratios 171
7.4.4. Liquidity Ratios 172
Comprehension Check 174
Summary 174
World of Books 175
In the Movies 175
Live Exercise 175
Things to Remember 175
Key Terms 176
Experiential Exercise 177
8 Small Business Finance 178
8.0. Introduction 178
8.1. Introduction to Small Business Financing 180
Comprehension Check 182
8.2. Types of Funding 182
8.2.1. Debt Funds 182
8.2.2. Equity Funds 184
8.2.3. Funding Growth Internally 185
Comprehension Check 186
8.3. Financing from Personal Resources 186
Comprehension Check 191
8.4. Formal Sources of Financing 191
8.4.1. Financing from Debt 191
8.4.2. Financing from Equity 194
8.4.3. Other Financing Sources 197
Comprehension Check 199
8.5. Crowdfunding and Its Appeal 199
Comprehension Check 202
Summary 202
World of Books 203
In the Movies 203
Live Exercise 203
Things to Remember 203
Key Terms 205
Experiential Exercise 205
9 Small Business and the Law 206
9.0. Introduction 206
9.1. Legal Structures for Small Businesses 208
9.1.1. Proprietorship: Most Common Legal Form for American Businesses 209
9.1.2. Partnerships: Formed by Many Hated by Many 211
9.1.3. Corporation: They Are People Too! 211
Comprehension Check 215
9.2. Fundamentals of Contracts 215
9.2.1. Types of Contracts 217
Comprehension Check 219
9.3. Introduction to Intellectual Property 219
9.3.1. Trademark (or Service Mark) 220
9.3.2. Trade Secret 221
9.3.3. Copyright 221
9.3.4. Patents 222
Comprehension Check 223
9.4. Basics of Bankruptcy Laws 224
Comprehension Check 226
Summary 226
World of Books 227
In the Movies 227
Live Exercise 227
Things to Remember 228
Key Terms 229
Experiential Exercise 229
10 Ethics and Social Responsibility 230
10.0. Introduction 230
10.1. Why Behave Ethically? 230
Comprehension Check 235
10.2. Legal and Moral Criteria for Ethical Behavior 236
10.2.1. Law and Morality as Two Criteria in Making Business Decisions 237
10.2.2. Ethics and the Role of Time and Place 240
Comprehension Check 240
10.3. Should Ethics Be Taught? 241
Comprehension Check 243
10.4. Corporate Social Responsibility 243
Comprehension Check 247
10.5. Introduction to Ethical Frameworks 248
Comprehension Check 251
Summary 251
World of Books 251
In the Movies 251
Live Exercise 251
Things to Remember 252
Key Terms 254
Experiential Exercise 254
11 Leadership and Its Challenges 255
11.0. Introduction 255
11.1. Qualities of Successful Entrepreneurs 257
11.1.1. Passion 257
11.1.2. Perseverance 259
11.1.3. Humility 261
Comprehension Check 262
11.2. Leadership Styles of Entrepreneurs 263
Comprehension Check 266
11.3. Stress and Well-being 266
11.3.1. Financial Stressors 267
11.3.2. Interpersonal Stressors 268
11.3.3. Self-regulation Problems 268
11.3.4. Nature of Work 269
11.3.5. Uncertainty 269
11.3.6. Work-Life Conflict 269
Comprehension Check 272
11.4. Delegation and Professional Management 273
Comprehension Check 275
Summary 275
World of Books 276
In the Movies 276
Live Exercise 276
Things to Remember 277
Key Terms 278
Experiential Exercise 278
12 Human Resources Management 279
12.0. Introduction 279
12.1. Making the Decision to Hire 281
12.1.1. Using Independent Contractors 283
12.1.2. Recruiting Employees 284
Comprehension Check 287
12.2. Finding New Employees 287
12.2.1. Referrals 288
12.2.2. Relatives and Friends 289
12.2.3. Advertisements 290
12.2.4. Internet Job Sites 290
12.2.5. Social Media 291
12.2.6. Employment Agencies 291
12.2.7. Company Websites 292
12.2.8. Other Sources 292
Comprehension Check 294
xx Contents
12.3. Selecting and Training Employees 294
12.3.1. Tools for Screening Applicants 296
12.3.2. Training Employees 301
Comprehension Check 302
12.4. Rewarding and Disciplining Employees 303
12.4.1. Wages 303
12.4.2. Benefits 304
12.4.3. Disciplining Employees 305
Comprehension Check 306
Summary 306
World of Books 306
In the Movies 306
Live Exercise 307
Things to Remember 307
Key Terms 309
Experiential Exercise 309
13 Operations and Supply Chain Management 310
13.0. Introduction 310
13.1. Basics of Managing Operations 312
13.1.1. Productivity 316
Comprehension Check 318
13.2. The Fundamental Concept of Inventory 318
13.2.1. Just-in-Time Inventory Management 320
13.2.2. No Inventory 322
Comprehension Check 323
13.3. Introduction to Scheduling 323
Comprehension Check 325
13.4. Issues of Quality 325
Comprehension Check 328
Summary 328
World of Books 329
In the Movies 329
Live Exercise 329
Things to Remember 330
Key Terms 331
Experiential Exercise 331
14 Global Opportunities for Small Firms 332
14.0. Introduction 332
14.1. Motivation for Competing Internationally 333
Comprehension Check 338
14.2. Common Modes of International Expansion 338
14.2.1. Types of Exporting 340
14.2.2. Licensing 341
14.2.3. Franchising 342
14.2.4. Foreign Partnerships 343
Comprehension Check 344
14.3. Challenges to Overseas Expansion 344
14.3.1. Demographic and Cultural Factors 345
14.3.2. Government Policies and Regulatory Framework 346
14.3.4. Political and Economic Risks 347
14.3.5. Adverse Exchange Rate Shifts 348
Comprehension Check 349
14.4. Main Approaches to International Strategy 349
Comprehension Check 351
14.5. Contemporary Issues in Globalization 351
Comprehension Check 354
Summary 354
World of Books 354
In the Movies 354
Live Exercise 355
Things to Remember 355
Key Terms 356
Experiential Exercise 357
15 Strategic Thinking for Small Firms 358
15.0. Introduction 358
15.1. Strategy of Small Business 360
Comprehension Check 362
15.2. Thinking Strategically! 362
Comprehension Check 364
15.3. SWOT Analysis 364
15.3.1. Looking Outward 366
15.3.2. Looking Inward 370
15.3.3. Aligning Internal with External 371
15.3.4. Common Mistakes in SWOT Analysis 373
Comprehension Check 374
15.4. Generic Strategies for Small Firms 374
Comprehension Check 378
Summary 378
World of Books 378
In the Movies 378
Live Exercise 378
Things to Remember 379
Key Terms 380
Experiential Exercise 380
16 Business Planning for Small Firms 381
16.0. Introduction 381
16.1. What Is a Business Plan? 382
16.1.1. To Provide Direction 384
16.1.2. To Determine Feasibility 384
16.1.3. To Attract Capital and Other Resources 385
Comprehension Check 386
16.2. What Is a Business Model? 386
16.2.1. Coming Up with a Business Model 387
Comprehension Check 390
16.3. Writing a Business Plan 390
16.3.1. Cover Page 390
16.3.2. Table of Contents 390
16.3.3. Executive Summary 392
16.3.4. Company Description 392
16.3.5. Environmental and Industrial Analysis 393
16.3.6. Manufacturing and Operations 396
16.3.7. Financial Analysis 396
16.3.8. Critical Assumptions and Risks 399
16.3.9. Appendix 400
Comprehension Check 401
16.4. Customizing the Business Plan 401
16.4.1. Things to Watch Out for in Business Plans 402
Comprehension Check 404
Summary 405
World of Books 405
In the Movies 405
Live Exercise 405
Things to Remember 406
Key Terms 407
Experiential Exercise 408
17 Harvesting the Business 409
17.0. Introduction 409
17.1. Approaches to Harvesting a Business 410
17.1.1. Harvest Through Sale of the Firm 412
17.1.2. Sales to Rivals 414
17.1.3. Sales to Employees 415
17.1.4. Sales to Other Buyers 416
Comprehension Check 418
17.2. Valuing a Firm 418
Comprehension Check 422
17.3. Challenges to Harvesting 422
17.3.1. Anticipating the Harvest 423
17.3.2. Post-harvest Planning 424
Comprehension Check 426
17.4. Harvesting by Going Public 426
Comprehension Check 428
Summary 428
World of Books 428
In the Movies 429
Live Exercise 429
Things to Remember 429
Key Terms 431
Experiential Exercise 431
Index I-1
