Chapter ppt_17.pptx

Section 4:
Putting the Business Plan to Work
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Essentials of Entrepreneurship and Small
Business Management
Ninth Edition
Chapter 17
Building a New Venture
Team and Planning for the
Next Generation

Learning Objectives (1 of 2)
1. Explain the challenges involved in the entrepreneur’s role
as a leader and what it takes to be a successful leader.
2. Describe the importance of hiring the right employees
and how to avoid making hiring mistakes.

Learning Objectives (2 of 2)
3. Explain how to create a company culture that encourages
employee retention.
4. Describe the steps in developing a management
succession plan for a growing business that allows a
smooth transition of leadership to the next generation.
5. Explain the exit strategies available to entrepreneurs.

Leadership
• Leadership:
– The process of influencing and inspiring others to work
to achieve a common goal and then giving them the
power and the freedom to achieve it.
• Entrepreneurs must take on many roles in their
companies, but none is more important than that of leader.

Business Leaders
• Business leaders should be:
– Innovative
– Passionate
– Willing to take risks
– Adaptable

Effective Leaders (1 of 4)
• Effective leaders:
– Create a set of values and beliefs for employees and
passionately pursue them.
– Establish a culture of ethics.
– Define and then constantly reinforce the vision they
have for the company.
– Develop a strategic plan that gives the company a
competitive advantage.

– Respect and support their employees.
– Set the example for their employees.
– Create a climate of trust in the organization.
– Build credibility with their employees.
– Are authentic.
– Focus employees’ efforts on challenging and driving
toward those goals.

– Provide the resources employees need to achieve their
goals.
– Communicate with their employees.
– Value the diversity of their workers.
– Celebrate their workers’ successes.
– Are willing to take risks.
– Encourage creativity among their workers.
– Maintain a sense of humor.

– Create an environment in which people have the
motivation, the training, and the freedom to achieve the
goals they have set.
– Create a work climate that encourages maximum
performance.
– Become a catalyst for change when change is needed.
– Develop leadership talent.
– Keep their eyes on the horizon.

Questions Every Leader Should Address (1 of 3)
• Do we want to build a great company, and are we
committed to doing the things that are required to make
our company great?
• Do we have the right people on the bus and in the key
seats?
• What are the brutal facts?
• What are we best at, and what do we have an unbounded
passion for?
– Company hedgehog

Company Hedgehog

• What is our company’s 20-Mile March, and are we hitting
it?
• Where do empirical data tell is that we should be placing
our big bets?
• What are the core values and core purpose on which we
want to build this enterprise over the next 100 years?
• What is our 15- to 25-year BHAG?

• What could kill our company, and how can we protect our
flanks?
• What should we stop doing to increase our discipline and
focus?
• How can we increase our luck?
• Are we becoming a Level 5 leadership and cultivating a
Level 5 management culture?

Servant Leadership
• There is no one single “best” style of leadership.
• Many workers respond well to servant leadership:
– A leader takes on the role of servant first and leader
second.
 What do people need?
 How can I help them get it?
 What does my organization need to do?
 How can I help my organization do it?

Three Vital Tasks of a Leader
1. Hire the right employees and constantly improve their
skills.
2. Create a culture for retaining employees.
3. Plan for “passing the torch” to the next generation of
leadership.

Building an Entrepreneurial Team
• Study: 80% of employee turnover is caused by bad hiring
decisions.
• Most common causes of poor hiring decisions:
– Relying on candidate’s description of themselves.
– Failing to follow a consistent, evidence-based selection
process.
– Failing to provide candidates with sufficient information
about the job.
– Succumbing to pressure to fill a job quickly.
– Failing to check candidates’ references.

Figure 17.2 Annual Growth Rate in the U.S.
Workforce by Decade
Source: Bureau of Labor Statistics, 2012.

How to Reduce Employee Turnover Rates
• Provide rewarding, challenging work.
• Pay employees fairly.
• Provide training opportunities and mentoring relationships.
• Offer flexible work schedules.
• Provide simple (and inexpensive) rewards such as thank-
you notes for extra effort or “good job” notes for jobs well
done.
• Conduct exit interviews when employees leave to
determine areas that require improvement.

How to Hire Winners (1 of 2)
• Commit to hire the best talent.
• Elevate recruiting to a strategic position.

Strategic Recruiting (1 of 2)
• Look inside the company first.
• Look for employees with whom your customers can
identify.
• Make employment advertisements stand out.
• Use multiple channels to recruit talent.
• Encourage employee referrals.

Strategic Recruiting (2 of 2)
• Recruit on campus.
• Forge relationships with schools and other sources of
workers.
• Recruit “retired” workers.
• Consider using offbeat recruiting techniques.
• Offer what workers want.

Table 17.3 Affordable Alternative Benefits
Although small companies typically cannot match their larger rivals on the employee benefits packages
they offer, with some creativity, entrepreneurs can provide less expensive options that increase
employee retention, motivation, and morale.
Perhaps You Cannot Offer . . . But You Might . . .
Tuition reimbursement for
college classes
Implement a flex-time schedule that allows employees to attend
classes at a nearby college or university
Paid leave Use job sharing so that two part-time employees share one full-time job
Comprehensive health
insurance
Hold a wellness day in which a local health care provider performs
basic health screens for employees
An onsite fitness center Set up a basketball goal in a corner of the parking lot or a ping-pong
table in the office or negotiate a reduced fee for employees at the local
YMCA
401(k) retirement plan with
employer match
Invite a local investment adviser to provide financial counseling and
retirement advice to employees
Counseling services Allow employees to bring their dogs to work; research shows that
allowing pets in the workplace reduces stress and increases job
satisfaction
Childcare subsidies Negotiate discounts at a local preschool for employees’ children or
allow employees to telecommute from home several days a week
Sources: Based on Paula Andruss, “Affordable Alternatives,” Entrepreneur, May 2012, p. 57; “Pets at Work Keep Workers
Happy,” U.S. News and World Report, April 2, 2012, http://health.usnews.com/health-news/news/articles/2012/04/02/pets-
at-work-keep-workers-happy.

• Create practical job descriptions and job specifications.
– Job analysis

Conducting a Job Analysis (1 of 2)
Step 1:
• Create a job description:
– A written statement of the duties, responsibilities,
reporting relationships, working conditions, and
materials and equipment used in a job.
 Handy tool: Dictionary of Occupational Titles

Sample Job Description
Worm Picker – gathers worms to be used as fish bait; walks
about grassy areas, such as gardens, parks, and golf
courses and picks up earthworms (commonly called dew
worms and nightcrawlers). Sprinkles chlorinated water on
lawn to cause worms to come to the surface and locates
worms by use of lantern or flashlight. Counts worms, sorts
them, and packs them into containers for shipment.
(# 413.687-014 in D.O.T)

Conducting a Job Analysis (2 of 2)
• Step 2:
– Create a job specification:
 Written statement of the qualifications and
characteristics needed for a job, stated in terms
such as education, skills, and experience.

Table 17.5 Linking Tasks from a Job Description to
the Traits Necessary to Perform a Job Successfully
Job Task Trait or Characteristic
Generate and close new sales “Outgoing”; persuasive; friendly
Make 15 “cold calls” per week “Self-starter”; determined; optimistic;
independent; confident
Analyze customers’ needs and
recommend proper equipment
Good listener; patient; empathetic
Counsel customers about options and
features needed
Organized; polished speaker; “other
oriented”
Prepare and explain financing
methods
Honest; “numbers oriented”;
comfortable with computers and
spreadsheets
Retain existing customers Customer oriented; relationship builder

• Plan an effective interview.

Planning an Effective Interview (1 of 2)
• Involve others in the interview process.
• Develop a series of core questions and ask them of every
job candidate.
• Ask open-ended questions rather than questions calling for
“yes or no” answers.
• Create hypothetical situations candidates would encounter
on the job and ask how they would handle them.
– Situational interviews

Planning an Effective Interview (2 of 2)
• Probe for specific examples in the candidate’s work history
that demonstrate the necessary traits and characteristics.
• Ask candidates to describe a recent success and a recent
failure and how they dealt with them.
• Arrange a “non-interview” setting that allows others to
observe the candidate in an informal setting.

Sample Interview Questions
Table 17.6 Interview Questions for Candidates for a Sales
Representative Position
Trait or Characteristic Question
Outgoing; persuasive; friendly; self-
starter; determined; optimistic;
independent; confident
How do you persuade reluctant prospects to buy?
Good listener; patient; empathetic;
organized; polished speaker; “other”
oriented
What would you say to a fellow salesperson who was getting
more than his share of rejections and was having difficulty
getting appointments?
Honest; customer oriented; relationship
builder
How do you feel when someone questions the truth of what
you say? What do you do in such situations?
Other questions: If you owned a company, why would you hire yourself?
If you were head of your department, what would you do
differently?
How do you recognize the contributions of others in your
department?
If you weren’t in sales, what other job would you be in?

• Conduct the interview.

Conducting an Effective Interview
• Break the ice.
– Goal: diffuse nervous tension.
• Ask questions.
– Puzzle interviews.
– Remember the 25/75 Rule.
– Be respectful and keep it legal!
• Sell the candidate on the company.
– The best candidate will have other job offers.
– Convince the best candidate that your company is a
great place to work.

• Conduct the interview.
• Contact references and conduct a background check.

Checking References
• Checking an applicant’s references is an important part of
protecting a company against making a “bad hire.”
• Is it really necessary? Yes!
– According to a recent survey, 77% of hiring
professionals have detected false information or
exaggerations on candidates’ résumés

Figure 17.3 Why Hiring Managers Reject Job
Candidates after Checking their Social Media
Profiles
Source: Based on “Number of Employers Using Social Media to Screen Candidates Has Increased 500
Percent over Last Decade,” Career-Builder, April 28, 2016,
www.careerbuilder.com/share/aboutus/pressreleasesdetail.aspx?ed=12/31/2016&id=pr945&sd=4/28/2016

Company Culture
• Culture:
– Distinctive, unwritten, informal code of conduct that
governs the behavior, attitudes, relationships, and style
of an organization.
– “The way we do things around here.”
• In small companies, culture plays a important part in
gaining a competitive edge a strategy does.

Characteristics of a Positive Culture (1 of 3)
• Hiring for cultural fit
• Respect for work and life balance
• Sense of purpose
• Sense of fun
• Engagement

Figure 17.5 Drivers of Employee Engagement,
Engagement Outcomes, and Business Outcomes
Source: 2017 Trends in Global Employee Engagement, Aon Hewitt, 2017, p. 2.

• Sense of fun
• Engagement
• Diversity

Figure 17.6 Composition of the U.S. Workforce
Sources: Based on Crosby Burns, Kimberly Barton, and Sophia Kerby, “The State of Diversity in Today’s Workforce,”
Center for American Progress, July 12, 2012, p. 4; Steve H. Murdock, “Population Change in the United States:
Implications for Education, the Labor Force, and Economic Development,” Hobby Center for the Study of Texas at Rice
University, November 10, 2011, p. 59.

• Sense of fun
• Engagement
• Diversity
• Integrity
• Participative management
• Learning environment

Job Design Strategies (1 of 4)
• Job simplification:
– Breaks work down into its simplest form and
standardizes each task.
• Job enlargement (horizontal job loading):
– Adds more tasks to a job to broaden its scope.
• Job rotation:
– Cross-trains workers so they can move from one job in
a company to others, giving them a greater number
and variety of tasks to perform. Often used with a skill-
based pay system.

• Job enrichment (vertical job loading):
– Builds motivators into a job by increasing the planning,
decision making, organizing and controlling functions
(traditional managerial tasks).
– Five core characteristics:
 Skill variety
 Task identity
 Task significance
 Autonomy
 Feedback

• Flextime:
– An arrangement under which employees build their
work schedules around a set of “core hours” – such as
11 a.m. to 2 p.m. – but have flexibility about when they
start and stop work.
• Job sharing:
– A work arrangement in which two or more people share
a single full-time job.

• Flex place:
– A work arrangement in which employees work at a
place other than the traditional office, such as a
satellite branch closer to their homes or, in some
cases, at home.
• Telecommuting:
– An arrangement in which employees have employees
working from their homes use modern communications
equipment to hook up to their workplaces.

Rewards and Compensation
• The key to using rewards to motivate workers is tailoring
them to the needs and characteristics of individual
workers.
• Money is an effective motivator …up to a point.
– Pay-for-performance systems
– Profit-sharing plans
– Open book management
– Cafeteria benefit plan

Intangible Rewards
• Intangible rewards can be powerful, yet inexpensive,
motivators.
– Praise
– Recognition
– Celebrations
• Entrepreneurs tend to rely on non-monetary rewards.

Family Businesses
• Family businesses:
– Account for 90% of all U.S. businesses.
– Account for 70–90% of global GDP.
– Employ 62% of private sector work force.
– Comprise 35% of the Fortune 500 companies.
– Created 78% of the U.S. economy’s net new jobs over
the last two decades.

Passing the Torch
• Unfortunately, only 30% of first-generation businesses
survive into the second generation.
• Of those that do survive to the second generation, only
12% make it to the third generation.
• Only 3% make it to the fourth generation and beyond.

Why is Management Succession so
Difficult?
• Primary causes of lack of continuity among family
businesses:
– Inadequate estate planning.
– Failure to create a management succession plan.
– Lack of funds to pay estate taxes.
– Sibling rivalries and personality conflicts.

Figure 17.7 Eight Characteristics of Successful
Family Businesses
Source: Worldwide Inheritance and Estate Tax Guide, EY, 2016. p. v.

Developing a Management Succession Plan
Step 1: Select the successor.
Step 2: Create a survival kit for the successor.
Step 3: Groom the successor.
Step 4: Promote an environment of trust and respect.
Step 5: Cope with the financial realities of estate and gift
taxes.

Table 17.9 Changes in the Estate and Gift Taxes
Year Estate Tax Exemption Gift Tax Exemption Maximum Tax Rate
2001 $675,000 $675,000 55%
2002 $1 million $1 million 50%
2004 $1.5 million $1 million 48%
2010 Tax repealed $1 million 35% (gifts only)
2012 $5.12 million $5.12 million 35%
2013 $5.25 million $5.25 million 40%
2014 $5.34 million $5.34 million 40%
2015 $5.43 million $5.43 million 40%
2016 $5.45 million $5.45 million 40%
2017 $5.49 million $5.49 million 40%

Coping with Estate Taxes
• Buy/Sell agreement
• Lifetime gifting
• Setting up a trust
– Revocable trust
– Irrevocable trust
– Irrevocable life insurance trust
– Irrevocable asset trust
– Grantor Retained Annuity Trust (GRAT)
• Estate freeze
• Family Limited Partnership (FLP)

Exit Strategies
• Entrepreneurs planning to retire often use two exit
strategies:
– Sell to outsiders
– Sell to insiders
 Leveraged buyout (LBO)
 Employee Stock Ownership Plan (ESOP)

Conclusion
• Leadership is the process of influencing and inspiring
others.
• Leadership shapes company culture.
• A succession plan is a crucial element in transferring
leadership.
• An exit plan allows entrepreneurs to step down and benefit
most from the sale of the company.

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