Small Business Management Chapter 1-4 Vocabulary Flashcards

Overview of Small Business Motivations

  • Owning a business can be challenging and uncertain.
  • Entrepreneurs should understand why they want to become business owners before starting.
  • Clear motivation helps owners stay committed during difficult times.
  • There are four main entrepreneurial motivations:
    • Personal fulfillment
    • Personal satisfaction
    • Independence
    • Financial rewards

Detailed Breakdown of Entrepreneurial Motivations

  • 1. Personal Fulfillment

    • Provides a sense of meaning and purpose to the business owner.
    • Derived from creating a product or service that improves other people's lives.
    • Loving the work helps owners continue when business operations become difficult.
    • Personal fulfillment can extend to employees when they feel like an important part of the business.
    • Job Happiness Factors:
      • Emotional health
      • Physical health
      • Job satisfaction
      • Healthy behavior
      • Access to basic needs
      • Overall quality of life
    • Gallup Study Finding: Business owners ranked highly in overall satisfaction compared with other occupational groups.
    • Key Idea: Personal fulfillment comes from meaningful work and creating value for others.

  • 2. Personal Satisfaction

    • Gained because business owners:
      • Feel rewarded by creating a good product or service.
      • Enjoy working with and helping employees.
      • Build friendships and relationships with other business owners.
      • Earn respect and recognition in their community.
      • Get satisfaction from seeing their ideas become successful.
    • Key Idea: Personal satisfaction is the enjoyment and pride that comes from the work and relationships created through the business.

  • 3. Independence

    • Involves the freedom to:
      • Make individual decisions.
      • Take risks and receive the corresponding rewards.
      • Control how work is performed.
      • Decide work schedules.
      • Have more flexibility for family or community activities.
    • Reality of Independence: Independence does not mean business ownership is easy. Entrepreneurs may work long hours and still need determination and discipline.
    • Key Idea: Independence means having more control over work and decisions, not having less responsibility.

  • 4. Financial Rewards

    • Motivated by the possibility of earning money.
    • An owner is ideally compensated in two ways:
      • Payment for personal time spent managing the company, similar to a salary.
      • A return on money invested in the business, such as dividends or growth in the value of the business.
    • Wealth Accumulation: Most entrepreneurs do not get rich quickly. Wealth usually comes from slowly building a profitable and valuable business over time.
    • Key Idea: Financial rewards can be important, but money should not be the only reason for owning a business.

Outside Influences on Business Ownership

  • Two major outside influences can affect the decision to become a business owner:

    • Family and friends
    • The desire to leave a difficult situation

  • Family and Friends

    • People may become entrepreneurs because family members or friends already own businesses.
    • Some people grow up working in a family business.
    • Working in a family business allows individuals to observe the entrepreneurial life up close.

  • The Desire to Leave a Difficult Situation

    • Driven by the desire to escape:
      • Being laid off
      • Financial hardship
      • A negative job situation
      • A corporate environment that feels restrictive
    • Reluctant Entrepreneurs: People who start or acquire a business because of financial hardship or another negative situation.
    • Corporate Refugees: People who leave corporate jobs because they feel the environment is restrictive or oppressive.
    • Key Idea: Escaping a bad situation by itself is usually not enough motivation to successfully run a business.

Perceptions, Paradigm Shifts, and Entrepreneurial Personalities

  • Importance of Perceptions

    • Knowing motivations is important, but owners also need an accurate understanding of what it takes to succeed in business.
    • Past experiences can influence the way business is viewed.
    • Paradigm Shift: A fundamental change in the way you see or understand a situation.

  • Michael Gerber's Three Entrepreneurial Personalities

    • Michael Gerber describes three personalities that influence how people start and run businesses.
    • Everyone has some combination of all three personalities, but successful owners need balance.

  • 1. The Technician Personality

    • Main Focus: Doing the work.
    • Enjoys doing the actual technical work of the business.
    • Examples: A mechanic starting an auto repair shop because they enjoy repairing cars, or a baker opening a bakery because they are good at baking.
    • Characteristics:
      • Thinks short-term and focuses on completing the work.
      • May use a paternalistic approach.
      • May be reluctant to delegate.
      • May define marketing mainly through price, quality, and reputation.
      • Often relies heavily on personal sales efforts.
      • Can struggle with long-term planning and business growth.
    • Key Idea: Knowing how to perform the technical work is not the same as knowing how to run the business.

  • 2. The Manager Personality

    • Main Focus: Organizing and managing the work.
    • Focuses on planning, organization, order, predictability, and preparing the business for growth.
    • Characteristics:
      • Avoids paternalism.
      • Delegates authority when necessary for growth.
      • Uses diverse marketing strategies.
      • Uses different types of sales approaches.
      • Seeks financing from more than one source.
      • Pays attention to budgeting, accounting, bidding, structure, and market research.
    • Key Idea: The manager creates systems and organization that allow the business to operate and grow.

  • 3. The Entrepreneur Personality

    • Main Focus: Planning the future and seeing the big picture.
    • Takes an idea and turns it into an opportunity.
    • Focuses on how the business should work and on the future of the company.
    • Characteristics:
      • Asks, "How must the business work?"
      • Sees the business as a system that produces results for customers and profits for the company.
      • Starts with a picture of a well-defined future and works to change the present to match that vision.
      • Develops strategies by first seeing the whole picture.
      • Focuses on opportunities instead of only performing the daily technical work.
    • Key Idea: The entrepreneur is the visionary who decides where the business is going.

Personality Comparison, Mentors, and Core Review

  • Quick Comparison of Personalities

    • Technician: Main focus is doing the work.
    • Manager: Main focus is organizing and managing the work.
    • Entrepreneur: Main focus is planning the future and seeing the big picture.
    • Key Idea: A successful business owner needs all three personalities working together. Too much focus on only one can limit the business.

  • Mentors

    • New entrepreneurs should seek personal mentors and business mentors.
    • Functions of Mentors:
      • Share experience and practical advice.
      • Help entrepreneurs avoid mistakes.
      • Provide encouragement during difficult periods.
      • Offer guidance throughout the entrepreneurial journey.
    • Key Idea: A good mentor can make a major difference when starting and growing a business.

  • Last-Minute Review Summary

    • Four Motivations:
      • Personal fulfillment
      • Personal satisfaction
      • Independence
      • Financial rewards
    • Two Outside Influences:
      • Family and friends
      • Escaping a difficult situation
    • Three Personalities:
      • Technician: Does the work.
      • Manager: Organizes the work.
      • Entrepreneur: Envisions the future.