Your Guide To Starting A Small Enterprise - Amazon Web Services

CHAPTER 1: STARTING A SMALL ENTERPRISE 3The government defines a small business based on how much the business owns (asset size)and the number of people that work for it (employment) for purposes of rationalizingassistance and incentives to business enterprises.In terms of asset size, a small enterprise has capital assets between P3 million to P15million. In terms of employment, a small business employs from 10 to 99 workers. Belowthe level of asset size and employment mentioned, you have a micro enterprise. Above suchlevel, you have a medium or large-scale business.Generally speaking, however, micro, small and medium-scale businesses are categorized assmall. Some micro enterprises grow into small, then from small into medium, and so on.This is one of the reasons why the government has made distinctions among them so that itssupport services and incentives can be focused according to the needs of enterprises, whichapparently tend to differ depending on the size category of the business (You will know moreabout these government services towards the end of this chapter).Just like any other business, small businesses are found in manufacturing (for example, foodprocessing or garment making), services (auto repair or internet café), agribusiness (farmingor fishing), or trading (grocery store, buy-and-sell).Strengths and Weaknesses of a Small Business¾Strengths.You must have heard of the phrase “small is beautiful.” E.F.Schumacher in Small is Beautiful: Economics As If People Matteredpraised small business for using low-level or intermediate technologyrather than the high technology of large firms. The latter“dehumanizes” the working man or makes a machine out of him, whileintermediate technology still allows him to think creatively at work andfind fulfillment from its results.Indeed, in big enterprises, production has been so mechanized that the worker isreduced to setting up the equipment and watching over its operation, intervening onlywhen something unexpected happens. In an assembly line, work is divided intosmaller units for the sake of “efficiency,” but the worker gets to do only a few routinesteps like cutting, punching, or soldering – work processes that require little thinkingor creativity.In contrast, in most small factories, an individual worker gets to work on a whole orpart of an operation. In furniture making, for example, some work processes thatrequire individual attention are carpentry, in-lay making, finishing; in garmentmanufacturing, cutting, embroidery, sewing the collar or the sleeves, etc.Usually, small enterprises are those engaged in pottery, basket weaving, papiermache making, woodcraft, jewelry making, or other craftwork where skilled artisanscan still practice their traditional craft.Small businesses also often use materials and methods that are friendly to the naturalenvironment constantly in danger of being polluted or depleted of its resources.

4YOUR GUIDE TO STARTING A SMALL ENTERPRISEOther advantages of a small business include: Small-scale producers are able to make use ofraw materials and by-products in limitedvolume which otherwise would have beendisposed of as waste in large-scalefactories.For example, an enterprising person can buy wood scraps from large furnituremakers and turn these into racks to hold DVDs, mobile phones, and evenmagazines. Because authority is centralized around the owner-manager, decision-making isfast.Communication of information downwards does not suffer from bureaucraticdelays, provided that the owner-manager practices an open, rather than asecretive, management style. In times of rapid changes in market demand and preferences, small-scaleproductionunits can more readily modify their manufacturing set-up to make a changeoveror to diversify to other products or product variants.A children’s garment subcontractor can easily shift to stuffed toys when ordersstop coming. The patriarchal, often informal management style,practiced in many small firms, gives employees asense of belonging. The atmosphere in a smallbusiness is more like that in an ordinary Filipinofamily where the owner-manager is looked up toas the “father” or “mother” or the kuya or ate of theemployees. In this manner, a sense of belongingflourishes. Thus, the labor turnover in small businessesis not as high as expected when in fact the employeesreceive comparatively low wages. In seasons of economic crisis, like recession and inflation, small enterprises areoftenbetter able to make adjustments in their production, personnel and other systems.This was demonstrated in the oil crisis of the 1970s and again in the Asiancurrency crisis of the 1990s wherein many large firms were forced to fold up. Incontrast, many small firms stayed afloat and survived.It might be added that small-scale enterprises are the beneficiaries of variousincentives and support services from government.

CHAPTER 1: STARTING A SMALL ENTERPRISE 5¾ Weaknesses.On the other hand, there are major constraints and weaknesses thathave to be addressed in order to make small businesses stronger andmore competitive. These constraints include:Marketing in small businesses is characterized by competitors selling a largenumberof similar products mostly to small local markets, resulting in small sales andnarrowprofit margins. Small manufacturers also find it difficult to compete againstimported goods and those produced by multinationals and other larger firms.Generally, distributors are reluctant to accept their products, preferring the moreestablished bigger-name brands. Small businesses lack skills in market planningand in doing market studies. Consequently,owner-managers are hard pressed to identify theneeds, preferences, and buying habits of customers.Small firms generally find it difficult to producemarketable goods that measure up to qualitystandards in sophisticated or upscale markets,including export markets. Small businesses hardly undertake promotional activities, notably mediaadvertising.While many should be able to get by with low-cost advertising strategies, theylack skills on how to do these. In production, the most commonly-cited problem has to do with raw materials –theiravailability, quality, and cost. Small entrepreneurs also have to cope withwastage and late delivery of materials, problems which hamper the efficiency ofproduction. Labor-related problems are also experienced,notably in terms of demand for higher wages,negative attitude of workers, high workerturnover, and low productivity of workers. Because of limited capacity, small enterprises cannot avail of economies of scalenotonly in production but also in procuring raw materials. Consequently, they tendto operate at higher costs. Other production-related problems include:machine breakdowns, lack of technicalknow-how, quality control problems, andobsolete technology. Small factories alsoneed technical support on product designand development, quality control, andproductivity improvement.

6YOUR GUIDE TO STARTING A SMALL ENTERPRISE In finance, many small businesses fail or falter because of a basic lack of arealisticand workable business and financial plan. Generally, they use inadequate cashcontrol tools and techniques, resulting in shortage or loss of funds and highoperating costs. Planning cash requirements is hardly practiced. Many alsopurchase raw materials on cash basis and sell goods on credit, leaving them withvery little funds for current needs. Many entrepreneurs do not know how to generate funds from within theiroperations.They do not realize that they could cut down unnecessary expenditures byreducing wastage, increasing efficiency of production, keeping inventories to theminimum and, generally, improving operations. Lack of capital remains a major problem formost small enterprises in spite of numerouspolicies and programs designed to providethem with more credit. This is becausecommercial banks still prefer to lend to largefirms since they are considered low-risk. In management, control and administration of the firm is centralized in the handsofthe owner-manager. This implies lack of provision for the continuity of thebusiness as well as lack of planning and control. Because the owner-managerlacks specialized staff, he does not have access to the financial informationnecessary for sound decision-making. Few management staff results in the owner-manager being too engrossed in daytoday operations of the company at the expense of long-term planning. Other management problems facing smallbusinesses include: inadequate system ofinternal administration; poor and inadequaterecord keeping; unsystematic recruitment andselection of workers; and unscientific decision-making.DO YOU HAVE WHAT IT TAKESTO SUCCEED IN BUSINESS?From what you have read about the strengths and weaknesses of a small business, you can seethe crucial importance of the role played by the owner-manager – whom we would now bettercall “entrepreneur.”The entrepreneur is the most important person in the business. He takes the key role incontrolling and administering the firm in all its aspects and functions. He is the one whotakes most of the risks (as when he loses his shirt and faces scorn) and receives most of therewards (as when he gets rich and reaps recognition).

CHAPTER 1: STARTING A SMALL ENTERPRISE 7Before you decide to be one, you should know what is expected of you, as an entrepreneur.The Role of an EntrepreneurThe entrepreneur is sometimes described as someone who allocates and manages the factorsof production, bears risks, innovates, and makes major decisions.¾ The entrepreneur plans, organizes, and puts together all the resources requiredto start a new enterprise and to run and operate it on a sustained basis. Theseresources are human (workers, managers, customers, and suppliers) and non-human(land and building, money, machines, materials, and methods or processes).¾ The entrepreneur takes risks – not just in the way gamblers and speculators do –but rather in terms of putting resources together in order to realize businessobjectives. It takes risk-taking to invest money, efforts, and other resources into anew undertaking whose result is uncertain. He might win or lose, get rich or gobankrupt – but he takes chances anyway.¾ The entrepreneur innovates. He continuously creates and develops new productsand services based on what he understands to be the needs of society. He also looksfor ways by which these goods and services can be produced more economically.¾ In the process of starting, running and growing their business, small entrepreneurshelp build the nation. They are often called the “backbone of the economy,” or “theengine of growth” because – consciously or unconsciously – entrepreneurs play thefollowing roles in society: Bring about employment. When entrepreneurs put up a business, they often needto hire other people to get things done. This is why when business slows down,the country’s unemployment increases. On the other hand, when people areemployed, they are able to feed their families, send their children to school,provide them with decent homes, and contribute to government revenues throughthe income taxes that they pay. Improve the quality of life. Entrepreneurial activities contribute to thecontinuousimprovement of living standards. The development of new products and thedelivery of needed services make life easier and more comfortable for society.Cooking, forexample, has been revolutionized by entrepreneurs. Today, we cook with betterandfaster stoves like micro wave ovens, turbo broilers, pressure cookers, multipurposecookers – thanks largely to entrepreneurial innovations. Contribute to a wider distribution of income. Entrepreneurs continuously searchanddevelop raw materials they need in order to produce goods and services. Theyoften find these in the rural areas. And when they locate in the provinces, theyare actually spreading the benefits of development to these often, neglectedcommunities. This will help slowdown migration and overcrowding in themetropolis.

8YOUR GUIDE TO STARTING A SMALL ENTERPRISE Utilize resources for national productivity. Economic development is hastened ifour natural and other resources are put into good use. Entrepreneurs are famousfor utilizing them. For example, handicraft entrepreneurs have made use oflocally-grown and in abundance, weeds and reeds like pandan, rattan, bamboo,anahaw, nipa, buri even, would you believe, cogon grass?Entrepreneurs also make productive use of capital resources such as family orpersonal savings, which may otherwise be used in unproductive ways likegambling or luxury spending. Generate social benefits through government. With revenues that thegovernmentcollects from taxes, duties and licenses paid by entrepreneurs, the government isable to allocate the money to different social services in the communities. Theseservices come in the form of infrastructure like roads and bridges, educationaland medical services and facilities, and maintenance of peace and order.Are you willing to accept these responsibilities?If you answered “Yes” to that, the next question is: Do you have the “it” to be anentrepreneur? Refer to the personal traits in the next section that are considered“entrepreneurial.”You may have already formed an idea from what you have read so far – that entrepreneurshipis not for the weak-hearted or the shy. Neither is it for those who want to take things easy.And it isn’t for those who want sure returns on their investments.See if you can identify with the personal qualities and competencies associated withsuccessful business people.Personal Characteristics of EntrepreneursThe entrepreneur has attracted the attention of social scientists. If so – that they are importantto economic growth – then it follows that the tribe of entrepreneurial members of societyshould multiply. But first, they should be identified. Are you one of them? Entrepreneurs arethose described as:¾¾¾¾¾¾¾¾¾¾¾opportunity seekerspersistentcommitted to workrisk-takersdemanding in terms of quality and efficiencygoal settersinformation seekersgood in planning and monitoringpersuasive and good in networkingconfidentcreative.

CHAPTER 1: STARTING A SMALL ENTERPRISE 9Here are questions you can ask yourself to know if you have some of the so-calledentrepreneurial competencies:¾Opportunity seeking.Do you seek opportunities for business making? Can you identify themwhen they come? Do you act on them quickly? Or do you wait andtwiddle your thumbs until they pass you by?For example, you see a new arcade being built near your place – just perfect for thehotdog stand you have always wanted to set up. Do you just look at it with a sigh asyoupass by the growing structure everyday, or do you talk with the administrator andexplorethe possibility of leasing space?Or say, you love to cook and have in fact beguna small, off-and-on catering business. One dayyour friend tells you that the canteen concessionat her office is soon ready to accept bidding frominterested parties and asks you if you would liketo try. She tells you to attend a bidding conference.You think you might have a busy week aheadbecause of previous engagements. What will you do?In the morning dailies, the classified ads announce a “rush sale - owners leaving” ofused welding machines you need for the metalworking business you have in mind.But, oh my, it requires Manila-based people to go to Cavite province, where theowners reside. Do you get discouraged by the distance?What you do with breaks that open your chances to acquire space, markets, materials,equipment, loans or training programs for your business determines whether you areentrepreneurial or not.¾Risk-taking.Do you take moderate risks? These are risks that are calculated andstudied, rather than the reckless kind the gambler takes. They arecalled “risks” because if you do not study the situation and the marketenvironment, you will not be able to recover the amount of money youhave already invested.For example, will you put in your money on a business – any business – whoseoutcome, of course, is not 100 % certain? And at the same time, will you gatherinformation – read up, talk with experienced entrepreneurs, study the marketenvironment, make a feasibility study – to reduce the risk of losing your money?This is calculated risk-taking which successful entrepreneurs are known for.

10 YOUR GUIDE TO STARTING A SMALL ENTERPRISE¾Persistence.Do you get discouraged easily? Do you change your mind if peoplecriticize you or don’t agree with you? Have you had failures in thepast and did these bother you?Entrepreneurs stand their ground in the face of those negative comments saying it isunwise or not good to invest in an unsure business.And do you know that there are few entrepreneurs who were successful in their firstbusiness attempt? The majority tried and failed, only to try again. Yet, the more theyfailed the more determined they were to try again. Some would try a different line ofbusiness, different product, different market, different strategy, while learning moreand more from past mistakes.Are you willing to still try and try and try again, and learn from failures?¾Commitment to work contract.Do you honor your word? Your promises? Did you complete andsubmit your work on time – when you were in school? In theworkplace, do you think twice doing dirty or boring work, or someoneelse’s work, if necessary, just to get the job done on time – all becauseyou gave your word?Entrepreneurs will pay their workers premium overtime wages or other incentives tomeet a delivery schedule and not disappoint their customers. And these ownermanagers work right alongside their people doing whatever needs to be done,including sweeping floors and cleaning toilets. They skip a meal, lose sleep, do thework of absent workers. Some even miss family parties, children’s graduation,wedding anniversary dates, etc., in their commitment to the work contract.Can you imagine yourself making such personal sacrifices too?¾Demand for quality and efficiency.A high standard of quality and efficiency is also dominant amongachieving entrepreneurs. They expect excellence from themselves andtheir workers. So, in order to be able to meet these standards, theystrive to find ways to do things better, faster, cheaper.What about you? Whatever you’re doing, no matter how small, ordinary, or“everyday” – like wrapping a gift, cooking a meal, or hanging a picture frame on awall – do you try to do it as well as you can? You oftentimes hear “puwede na iyan!”from friends and other people, are you one of those who submit work that is puwedena kahit papaano ang paggawa?”Other questions to ask yourself to find out your drive for quality and efficiency: Doesit bother you when things are not done well? Do you always think there is a betterway to accomplish a task? Do you find ways to complete tasks assigned to you fasterat work and at home?

CHAPTER 1: STARTING A SMALL ENTERPRISE 11A quality product done at very minimal costs will give not only the entrepreneur ahigh level of satisfaction but so does the customer or the buyer of the product.¾ Goal setting.Do you like to think about the future? Do you have a clear plan, moreor less, about your life?Do you think of what you want to accomplish tomorrow, next week,next month, next year, or five years from now? Do you think oft

PART II: STARTING YOUR BUSINESS 4 THE BUSINESS PLAN Why Plan a Business? Components of a Business Plan 47 49 5 DETERMINING YOUR MARKET Some definitions . to the day when you would be able to work according to your own time, be your own boss, and enjoy all the money earned from your own efforts,