Fundamentals of Management, 8th ed

Chapter 5: Entrepreneurship and New Venture Management

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It is interesting that when technology in an industry changes, it often shifts the

economies-of-scale curve, thereby creating opportunities for smaller organizations. For

example, steel manufacturing was historically dominated by a few large companies,

which owned several huge facilities. With the development of mini-mill technology,

however, extracting economies of scale at a much smaller level of production became

possible. This type of shift is depicted in Figure 5.4(b). Point A in this panel is the low-

cost point with the original economies of scale. Point B is the low-cost point with the

economies of scale brought on by the new technology. Notice that the number of units

needed for low costs is considerably lower for the new technology. This has allowed the

entry of numerous smaller firms into the steel industry. Such entry would not have been

possible with the older technology.

This is not to say that no small-business owners do well in manufacturing—about

3.78 percent of businesses with fewer than 20 employees are involved in some aspect of

manufacturing. Indeed, it is not uncommon for small manufacturers to outperform big

business in innovation-driven industries such as chemistry, electronics, toys, and com-

puter software. Some small manufacturers prosper by locating profitable niches. For

example, brothers Dave and Dan Hanlon and Dave’s wife Jennie started a new

motorcycle-manufacturing business called Excelsior-Henderson. (Excelsior and Hender-

son are actually names of classic motorcycles from the early years of the twentieth

century; the Hanlons acquired the rights to these brand names because of the images

they evoke among motorcycle enthusiasts.) The Hanlons started by building 4,000 bikes

in 1999 and soon had annual production of 20,000 per year. Excelsior-Henderson

motorcycles have been well received (the top-end Excelsior-Henderson Super X sells for

about $18,000), and some Harley-Davidson dealers have started to sell them as a means

of diversifying their product line.

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Number of units produced