Financial and Planning Implications for Small Business Entrepreneurship

Article excerpt

ABSTRACT

Data collected from 369 Midwestern small business owners suggests a marked difference between small business owners whose initial start-up capital was low ($10,000 or less) versus those with higher start-up capital. Those with high start-up capital tend to be older, with both prior managerial/ownership and marketing experience. They also tend to be high monitors of their marketing environments, to prepare a business plan prior to starting their business, to seek marketing assistance in the start-up phase of their business, and to commence with one or more partners. They also tend to initially pursue a broader geographic scope.

High start-up capital entrepreneurs are more likely to develop a business plan than low start-up capital entrepreneurs. Those preparing business plans were also more likely to start with an initial product line that was innovative rather than traditional, to dedicate a higher proportion of their current workforce to marketing/sales duties, and to expand their geographic scope over time. Finally, as entrepreneurs take on more start-up capital, they are more likely to possess more managerial experience, to be monitors of their marketing environments, to prepare a business plan prior to beginning their business, and to pursue a broader geographic scope.

LITERATURE REVIEW

Schein (1994) is correct to argue that developing variables for more detailed empirical studies in entrepreneurship is long overdue. He differentiates between selfemployment and commencing a business in order to survive mid-life lay-offs as well as downsizings. Schein adamantly distances himself from researchers who link selfemployment and entrepreneurship. He stresses that autonomous professionals (teachers, consultants, people who run companies) are not entrepreneurs because they have not created anything. We classify the entrepreneur as an owner of a small business. Our definition is consistent with Webster's definition of an entrepreneur: the person who organizes, manages, and assumes the risks of a business- a successful business person. Our definition of success is simply that the entrepreneur creates a going concern.

Schumpeter (1961), in his Theory of Economic Development, claims that the primary function of an entrepreneur is not in principle tied to the possession of wealth, even though he admits that the accidental fact of wealth possession creates a practical advantage. Although the entrepreneur usually uses borrowed purchasing power, the granting of credit more often than not precedes fully covered credit. He argues that there are only two reasons that will cause the prompt disappearance of newly credited purchasing power after the entrepreneur begins the productive process. The first is that most companies are not terminated in one period, but in most cases only after a period of years. The second is that there is no disappearance of credit either in the individual or in the social economy. Schumpeter states that the newer commodities constitute what he calls a counter balance and create a cover for new purchasing power. Ultimately, he claims that credit instruments eventually do not influence prices, but credit eventually loses its impact. In essence, the entrepreneur takes consumptive credit and turns it into purchasing power.

Kirzner (1973), in Competition and Entrepreneurship, differentiates himself from Schumpeter when he states that the important aspect of entrepreneurship is not so much the ability to break away from the routine as it is to perceive when new opportunities have gone unnoticed. He believes that the true function of the entrepreneur is not the shifting of cost and revenue curves but the noticing that they have shifted. We believe entrepreneurs often anticipate that the curve will shift and that their actions begin to create the shift. Bom Kirzner and Schumpeter would believe, in the contexts of potential change (i.e., future revenue and cost shifts), the assumption of rationality becomes irrelevant. …