Small Business Management

Lecture 01 History, Definition and Concepts of SMEs

Success Story

Born in February 24, 1955, in San Francisco, California. I slept on the floor in friends rooms, I returned coke bottles for the 5 deposits to buy food with, and I would walk the 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple. At 20, he and a friend started a company in a garage on April 1, 1976. Sell their most expensive possessions; Volkswagen and Hewlett-Packard scientific calculator. After 10 years,grown into a $2 billion dollar company with over 4000 employees.

At 30, however, was fired from the company sold over $20 million of his stock, spent days bicycling along the beach,and journeyed on to Italy. Started two Companies and within 10 years acquired the old company as well. Under his leadership, Apple returned to profitability and introduced innovations such as the iPod.

Source Materials

Recommended Book Small Business Management, 11th edition, 2005 Longenecker, Moore, and Petty Optional Books Small Business Management, 5th edition, 2007 Strokes D Essentials of Entrepreneurship and Small Business Management, 4th edition, 2005 Zimmerer, and Scarborough

Course Objective

To developing skills initiate a business venture.

The History

Small business flourished in almost all ancient cultures; The Egyptians, Arabs, Babylonians and so on. Small business was discovered about more than 4000 years ago. HAMMURABI, the king of Babylon introduced the first 300 business laws. These laws known as Code of HAMMURABI. In the year 1938 national planning committee NPC was set up and its general secretary Mr. K.T. Shah made the models of Indian industries.

Definitions of SMEs
Small scale industry may be defined to be an enterprise or series of operations carried out only by a workman skilled in the craft on his own responsibility, the finished products of which he markets himself.

Definitions of SMEs contd

According to US Small Industries,
a business qualifies a small if does not dominates its industry and less than 100 employees.

United Kingdom small firms were defined ,

entities having less than 200 employees. It should be run by its owner and should have a relatively small share of its market.

Definitions of SMEs contd

In Denmark,
a small business is one with fewer than 49 employees; a medium one has 50 to 199 employees and large business employees over 200 people.

In Japan,
the term smaller enterprises refers to such companies with a capital of not more than five million yen, companies with not more than two hundred personnel regularly employed.

Definitions of SMEs contd

Defining SME as per State Bank of Pakistan Micro: Less than 10 people employed
Productive assets limit of 2 million rupees.

Small:

Between 10-35 people employed.

Productive assets limit of 20 million.

Medium:

Between 36-99 people employed

Productive assets limit of 40 million.

Criteria for Defining Smallness in Business

Number of employees

Insurance in force

Value of assets

Sales volume Volume of deposits

Characteristics of Small Business 1. Privately held small business is again subdivided into two categories.

Very small where chief worker is the owner like jewelry shops, shoe stores and grocery shops etc. The Large Small business where the proprietor mainly directs the work of its employees.

Characteristics of Small Business.

2. No or few management layers 3. Style of management is personalized the owner has first hand knowledge of every move in the business at all levels he is the main decision maker. 4. Limited resources: a small business is unlikely to have sufficient resources to dominate the market.

Characteristics of Small Business.

5. Independence: the owner has ultimate authority and effective control 6. Scope of operations: small enterprises serve a limited segment of local or regional market. 7. Scale of operation: they occupy a limited share of given market. 8. Labor: they are low in capital and high in labor, as they cannot afford capital-intensive machinery.

Characteristics of Small Business.

9. Technological innovation if available small business does well 10. Specialized skills: The small enterprises normally have specialized skills for certain specific clients. 11. The small business does well in small, isolated, overlooked and imperfect market.

Characteristics of Small Business.

12. Small business does well in developing markets as it can easily absorb the changes. 13. Small business survives well in a bad business condition due to having quick and clever capability of bringing changes in cost and labor.

Entrepreneurial Incentives
Rewards of Entrepreneurship

Profit Freedom from the limits of standardized pay for standardized work. Profits should compensate costs of time, money and risk.

Independence
Freedom from supervision and rules of bureaucratic organizations. Provide flexibility in life.

Satisfying Way of Life Freedom from routine, boring, and unchallenging jobs. Most for professionals in second inning.

Drawbacks of Entrepreneurship
Hard

Work Long Hours Stress Risk

Entrepreneurial Characteristics
1. Need for achievement
High need for achievement try the break the status queue while low remained contended.

2. Risk tolerance

(Moderate) (High)

Financial risk , career risk and family risk

3. Self-confidence

Success depends upon own efforts internal locus. Success depends upon external factors external locus

Three Types of Entrepreneurs

1.

Founders
Establish a venture, an artist develop skills
and start business.

2. General Managers

Founders often become less innovative and more administrative, so new flesh required to energize.

3. Franchisees 4.Women Entrepreneurs

Increased at the rate of 8.5% p.a, owned 28% business and employed 10% manpower.

Types of Entrepreneurial Ventures

Limited returns Limited potential Substantial returns A good living for owner Stability

Marginal firms

Attractive small companies

Big bucks Examples: Apple Computer Nike Rapid growth

High-potential ventures

Entrepreneurial Refugees
A person who becomes an entrepreneur to escape an undesirable situation.

Foreign refugee Corporate refugee Parental refugee Feminist refugee Housewife refugee Society refugee

Success Story
oAccording to Forbes listings, he is the 937th richest person in the world. o A man on the board of 45 companies in Pakistan. oHe was awarded the Sitara-e-Imtiaz civil award by President Musharraf on 23 March 2004. oOwned an automobile leasing company in Kazakhstan and planning to acquire an established bank in Indonesia. o Owned a business unit is the largest exporting entity in Pakistan.