This high-level post introduces the challenges of entrepreneurship and reviews the initial stages of the entrepreneurial venture: strategic management and form of ownership alternatives. Small businesses drive the world economy, and the owners of small businesses are themselves driven to succeed. Strategic management is a linchpin in the small business venture, one that requires a future orientation while being firmly grounded in the present. Strategic intent is dependent, to some degree, on the ownership structure of the business; that structure may also determine the future growth rate that the firm can expect to maintain.
An entrepreneur is “a person who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize on those opportunities” (Scarborough, Wilson, & Zimmerer, 2009). Entrepreneurs share a few personal traits, including a desire for responsibility, a willingness to assume risk, confidence in their own abilities, and they are energetic and achievement-oriented. Plainly, the entrepreneur is someone who recognizes a market need and has the right mixture of personality traits and business acumen in order to take advantage of planned market opportunities.
The advantages of entrepreneurship include the following:
- The freedom to make decisions independently.
- Flexibility in work hours and environment.
- The ability to use one’s creativity at will.
- The opportunity for substantial financial rewards.
- The chance to make a difference.
There are some drawbacks to entrepreneurship as well, such as the following:
- The responsibilities inherent to business ownership.
- The likelihood of having to work longer hours.
- The chance of losing all of one’s investment.
- Government regulations and red tape.
- The high failure rate among small businesses.
Strategic entrepreneurship has four basic steps:
- Establish an entrepreneurial framework: That is, entrepreneurs must continually frame the environmental challenges to transform them into entrepreneurial opportunities.
- Create and make deposits in an opportunity bank: Build an inventory of entrepreneurial ideas by redesigning the company’s own products and services or those of other firms, by re-segmenting the existing markets, or by creating new markets.
- Focus on the best opportunities: By identifying and prioritizing key target markets for current and new products and by allocating resources to these targeted opportunities.
- Adaptive execution: Formulating and implementing a business strategy that provides direction in a highly uncertain environment and redirects strategy as reality. Adaptive execution is at the heart of strategic thinking for the entrepreneur.
Innovation and risk-taking are two of the key variables of strategic entrepreneurship:
- Innovation is the individual’s tendency to engage in new ideas and creative processes that may result in new products or services.
- Risk taking is a measure of the proclivity to engage in risky projects, and a preference for bold vs. cautious acts. How these two factors intersect can be used as a determinant of entrepreneurial venturing (Simsek, 2007).
The three basic forms of ownership are the proprietorship, the partnership, and the corporation, although there are also variations of the last two forms. The least complex business form is the sole proprietorship. One individual owns the business, although employees can be hired. The main disadvantage of a sole proprietorship is potential legal liability—the owner is personally liable for the business’s debts or any other problems. Proprietorships also have a limited access to capital.
A partnership has two or more owners. The advantages and disadvantages of a partnership are similar to those of a sole proprietorship, particularly for the tax and liability issues, and for the access to capital. The specifics of the partners’ relationship must be defined in a written partnership agreement. A corporation provides certain legal protections. It also lends some credibility to the business, which is particularly helpful when you are looking for financing or trying to do business with larger companies, although it is more complex from a tax standpoint. A small, start-up business can elect to become an S-corporation, which makes the tax situation less onerous.
Be smart and be encouraged,
Scarborough, N. M, Wilson, D., & Zimmerer, T. W. (2009). Effective small business management. New Jersey: Prentice Hall.
Simsek, Z. (2007). CEO tenure and organizational performance: An intervening model. Strategic Management Journal, 28(6), 653–662.