GEED 20013
THE ENTREPRENEURIAL MIND
Instructional Materials
ENTREPRENEURIAL
MIND
Compiled by:
ELIZABETH L. PAMBUENA,MEM
Assistant Professor
Chapter 1:
What is Mindset, exactly?
We all have a mindset, but we are often unaware of it or the significant impact it has on our lives.
Our attitude is the underlying mechanism that can open doors and spark our ambition, activating
our faculties in ways that allow us to flourish and thrive. Our mindset, on the other hand, can blind
us to opportunities and stifle our ability to learn and evolve, keeping us stuck in unproductive
thinking and activity patterns.
WHAT IS AN ENTREPRENEUR MINDSET?
A mindset is a cognitive belief system that we use to absorb information, make decisions, and
direct our behavior. It is made up of interconnected beliefs, assumptions, and knowledge.
A unique set of beliefs, knowledge, and mental processes that drive entrepreneurial conduct is
known as an entrepreneurial mindset. Those who have an entrepreneurial attitude are more likely
to:
Success and Failure in Small Businesses
LEARNING OBJECTIVES
1. Be able to explain what is meant by business success.
2. Be able to describe the different components of business failure.
3. Understand that statistics on business failure can be confusing and contradictory.
4. Understand that small business failure can be traced to managerial inadequacy,
financial issues, and the external environment.
5. Understand that small business owners need to be able to formally plan and
understand the accounting and finance needs of their firms.
There are no easy answers to questions about success and failure in a small business. The
different points of view are all over the map.
What Is a Successful Small Business?
Ask the average person what the purpose of a business is or how he or she would define a
successful business, and the most likely response would be “one that makes a profit.” A more
sophisticated reply might extend that to “one that makes an acceptable profit now and in the
future.” Ask anyone in the finance department of a publicly held firm, and his or her answer would
be “one that maximizes shareholder wealth.”
The management guru Peter Drucker said that for businesses to succeed, they needed to
create customers, while W. E. Deming, the quality guru, advocated that business success
required “delighting” customers. No one can argue, specifically, with any of these definitions
of small business success, but they miss an important element of the definition of success for the
small business owner: to be free and independent.
Many people have studied whether there is any significant difference between the small
business owner and the entrepreneur. Some entrepreneurs place more emphasis on growth in
their definition of success. William Dunkelberg and A. C. Cooper. “Entrepreneurial Typologies: An
Empirical Study,” Frontiers of Entrepreneurial Research, ed. K. H. Vesper (Wellesley, MA:
Babson College, Centre for Entrepreneurial Studies, 1982), 1–15.
However, it is clear that entrepreneurs and small business owners define much of their
personal and their firm’s success in the context of providing them with independence. For many
small business owners, being in charge of their own life is the prime motivator: a “fervently
guarded sense of independence,” and money is seen as a beneficial by-product.“Report on the
Commission or Enquiry on Small Firms,” Bolton Report, vol. 339 (London: HMSO, February
1973), 156–73., Oftentimes, financial performance is seen as an important measure of success.
However, small businesses are reluctant to report their financial information, so this will always
be an imperfect and incomplete measure of success. Terry L. Besser, “Community Involvement
and the Perception of Success Among Small Business Operators in Small Towns,” Journal of
Small Business Management 37, no 4 (1999): 16.
Three types of small business operators can be identified based on what they see as constituting
success:
1. An artisan whose intrinsic satisfaction comes from performing the business activity;
2. The entrepreneur who seeks growth;
3. The owner who seeks independence M. K. J. Stanworth and J. Curran, “Growth and the
Small Firm: An Alternative View,” Journal of Management Studies 13, no. 2 (1976): 95–
111.
Failure Rates for Small Business
When discussing failure rates in small business, there is only one appropriate
word: confusion. There are wildly different values, from 90 percent to 1 percent, with a wide range
of values in between. Roger Dickinson, “Business Failure Rate,” American Journal of Small
Business 6, no. 2 (1981): 17–25. Obviously, there is a problem with these results, or some factor
is missing. One factor that would explain this discrepancy is the different definitions of the
term failure. A second factor is that of timeline. When will a firm fail after it starts operation?
The term failure can have several meanings.
A. B. Cochran, “Small Business Failure Rates: A Review of the Literature,” Journal of Small
Business Management 19, no. 4, (1981): 50–59. Small-business failure is often measured by the
cessation of a firm’s operation, but this can be brought about by several things:
An owner can die or simply choose to discontinue operations.
The owner may recognize that the business is not generating sufficient return to warrant
the effort that is being put into it. This is sometimes referred to as the failure of opportunity
cost.
A firm that is losing money may be terminated to avoid losses to its creditors.
There can be losses to creditors that bring about cessations of the firm’s operations.
The firm can experience bankruptcy. Bankruptcy is probably what most people think of
when they hear the term business failure. However, the evidence indicates that
bankruptcies constitute only a minor reason for failure.
Failure can therefore be thought of in terms of a cascading series of outcomes (see Figure
1.1 "Types of Business Failures"). There are even times when small business owners involved in
a closure consider the firm successful at its closing. Don Bradley and Chris Cowdery, “Small
Business: Causes of Bankruptcy,” July 26, 2004, accessed October 7,
2011, www.sbaer.uca.edu/research/asbe/2004_fall/16.pdf. Then there is the complication of
considering the industry of the small business when examining failure and bankruptcy. The rates
of failure can vary considerably across different industries; in the fourth quarter of 2009, the failure
rates for service firms were half that of transportation firms.
Figure 1.1 Types of Business Failures
The second issue associated with small business failure is a consideration of the time horizon.
Again, there are wildly different viewpoints.
Chapter 2
Why Do Small Businesses Fail?
There is no more puzzling or better studied issue in the field of small business than what
causes them to fail. Given the critical role of small businesses in the US economy, the economic
consequences of failure can be significant. Yet there is no definitive answer to the question.
Three broad categories of causes of failure have been identified: managerial
inadequacy, financial inadequacy, and external factors. The first cause, managerial
inadequacy, is the most frequently mentioned reason for firm failure.T. C. Carbone, “The
Challenges of Small Business Management,” Management World 9, no. 10 (1980):
36. Unfortunately, it is an all-inclusive explanation, much like explaining that all plane crashes are
due to pilot failure. Over thirty years ago, it was observed that “while everyone agrees that bad
management is the prime cause of failure, no one agrees what ‘bad management’ means nor
how it can be recognized except that the company has collapsed—then everyone agrees that
how badly managed it was.”John Argenti, Corporate Collapse: The Causes and Symptoms (New
York: McGraw-Hill, 1976), 45. This observation remains true today.
The second most common explanation cites financial inadequacy, or a lack of
financial strength in a firm. A third set of explanations center on environmental or external factors,
such as a significant decline in the economy.
Because it is important that small firms succeed, not fail, each factor will be discussed in
detail. However, these factors are not independent elements distinct from each other. A declining
economy will depress a firm’s sales, which negatively affects a firm’s cash flow. An owner who
lacks the knowledge and experience to manage this cash flow problem will see his or her firm fail.
Managerial inadequacy is generally perceived as the major cause of small business
failure. Unfortunately, this term encompasses a very broad set of issues. It has been estimated
that two thirds of small business failures are due to the incompetence of the owner-manager.
Graham Beaver, “Small Business: Success and Failure,” Strategic Change 12, no. 3 (2003): 115–
22.
The identified problems cover behavioral issues,
1. a lack of business skills;
2. a lack of specific technical skills; and
3. marketing myopia.
Specifying every limitation of these owners would be prohibitive. However, some limitations
are mentioned with remarkable consistency. Having poor communication skills, with employees
and/or customers, appears to be a marker for failure.
The second major cause of small business failure is finance. Financial problems fall into
three categories: start-up, cash flow, and financial management. When a firm begins operation
(start-up), it will require capital. Unfortunately, many small business owners initially underestimate
the amount of capital that should be available for operations.
The last major factor identified with the failure of small businesses is the external environment.
There is a potentially infinite list of causes, but the economic environment tends to be most
prominent.
Even given the confusing and sometimes conflicting results with respect to failure in small
businesses, some common themes can be identified.
The reasons for failure fall into three broad categories:
a. managerial inadequacy
b. finance
c. environmental.
They, in turn, have some consistently mentioned factors (see Table 1.5 "Reasons for
Small Business Failure"). These factors should be viewed as warning signs—danger
areas that need to be avoided if you wish to survive. Although small business owners
cannot directly affect environmental conditions, they can recognize the potential problems
that they might bring. This text will provide guidance on how the small business owner can
minimize these threats through proactive leadership.
Table 1.5 Reasons for Small Business Failure
Managerial Inadequacy Financial Inadequacy External Factors
Failure in planning (initial
start-up plan and
subsequent plans)
Inexperience with
managing business Cash-flow problems
operation Insufficient initial
Downturn in economy
Ineffective staffing capitalization
Rising unemployment
Poor communication Inadequate financial
Rising interest rates
skills records
Product or service no
Failure to seek or Not using
longer desired by
respond to criticism accountants’ insights
customers
Failure to learn from past Inadequate capital
Unmatchable foreign
failures acquisition strategies
competition
Ignoring customers’ Failure to deal with
Fraud
needs financial issues
Disaster
Ignoring competition brought about by
Failure to diversify growth
customer base
Failure to innovate
Ineffective marketing
strategies
Ultimately, business failure will be a company-specific combination of factors.
1. The lack of a single “the buck stops here” leader until too late in the game
2. No separation between the technology organization and the product organization
3. Too much public relations, too early
4. Too much money
5. Not close enough to the customer
6. Slowness to adapt to market reality
7. Disagreement on strategy within the company and with the board
“Entrepreneurs Turn Business Failure into Success”
1. Bloomberg Businessweek's 2008 cover story highlights owners who turn business failure into
success.
http://www.businessweek.com/magazine/content/08_70/s0810040731198.htm
