Understanding business 11th by mchugh nickels chap006

Discuss the importance of small business to the American economy and summarize the major causes of small-business failure... Outline the advantages and disadvantages small businesses h

Entrepreneurship

and Starting a Small Business

CHAPTER 6

LEARNING OBJECTIVES

1 Explain why people take the risks of

entrepreneurship; list the attributes of successful

entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based

businesses.

2 Discuss the importance of small business to the

American economy and summarize the major

causes of small-business failure.

5 Outline the advantages and disadvantages small

businesses have in entering global markets.

PRUDENCIO UNANUE

Goya Foods

• Goya Foods has provided for

Hispanic families for over 75

years

• Unanue, a Spanish

immigrant, opened a small

grocery store in 1936

• Still family-owned, Goya now

employs over 3,500 and

sells more than 1,500

products

NAME that COMPANY

While I was an employee at a big company, I

developed a product that has become a staple

on most office supply lists I needed something

to mark the pages of a hymnal without falling out

or damaging the book What started as a simple, yellow piece of paper with a new adhesive

evolved into many different versions – now there are Super Sticky, recycled, Pop-Up and

electronic versions of my inventions

Who am I, who did I work for, and what did I invent?

WHAT is ENTREPRENEURSHIP?

• Entrepreneurship

Accepting the risk of starting and running a business.

NOTABLE ENTREPRENEURS

investment in 1880

from his family and friends

EARNING while LEARNING

• Jeremy Young – Developed a prepaid laundry

service for students at his university.

• Jessica Mah – Started InternshipIn that helps

students find high-quality internships.

• Zach Workman – Launched Punch, an all-natural energy drink.

• John Goscha – Created her one-of-a-kind jewelery company, Tramonti, during her freshman year.

YOU’RE NEVER TOO YOUNG

to be an ENTREPRENEUR

Four reasons to start your business right away:

1 You don’t have a mortgage or kids to take care of.

2 You can survive on little funds and work long hours.

3 No disruption to your career path It hasn’t started yet!

4 Use your alma mater for resources.

YOU’RE NEVER TOO OLD to be

an ENTREPRENEUR EITHER!

• The highest rate of

entrepreneurship activity is in

the 55-64 age group!

• Since 1996, older Americans

have opened businesses at

a higher rate than 20-34 year

olds.

• Older entrepreneurs have

greater experience and more

financial resources.

WHY TAKE the RISK?

BIG TIME PROFIT

• Michael Dell could buy 1,100

new laptops for every

student at the University of

Texas at Austin!

• Dietrich Mateschitz could

buy himself a can of Red Bull

every day for the next 11

million years!

• Liliane Bettencourt could buy

a box of L’Oreal hair color for

every woman in the world! Photo Credit: Emran Kassim

WHAT DOES IT TAKE to be an

FIVE STEPS to STARTING YOUR

4 Move forward with your

ideas Don’t wait!

5 Sacrifice.

An IDEA is a GOOD OPPORTUNITY IF…

LO 6-1

business

reasonable price and still profit

before the window of opportunity closes

ENTREPRENEURIAL TEAMS

• Entrepreneurial team A

group of experienced people from

different areas of business who

join to form a managerial team

with the skills to develop, make

and market a new product.

(Steve Jobs, Steve Wozniak

and Mike Markkula) was key to

Apple’s success

• Micropreneurs Entrepreneurs willing to accept

the risk of starting and managing a business that

remains small, lets them do the work they want to do, and offers a balanced lifestyle.

business owners – writers, consultants, video

producers, architects, bookkeepers, etc

men

• Computer technology has leveled the playing

HOME-BASED BUSINESS

ISN’T EASY

LO 6-1

• Minimal start-up capital needed

• No rent or excessive set-up

charges

• Comfortable working conditions

• Reduced wardrobe expenses

• Tax benefits

• Elimination of office politics

• Low risk for trial and error

• Work space may be limited

• Clients may be uncomfortable

coming to your home

• Zoning restrictions

• Success is based 100% on

THINK YOU’RE READY

to WORK from HOME?

LO 6-1

AFFILIATE MARKETING

• Affiliate Marketing An online marketing strategy

in which a business rewards individuals or other

businesses for each visitor or customer the affiliate

sends to its website.

BOOSTING YOUR BUSINESS’S

make them your own

opportunities

of marketing

• Art Fry of 3M developed

Post-Its when he was

trying to mark pages of

his hymnal without

damage

INTRAPRENEURS

• Intrapreneur A creative person who works as an

entrepreneur within a corporation.

resources to launch new products for the

company

GOVERNMENT and ENTREPRENEURSHIP

LO 6-1

category of “investor visas” that encourage

entrepreneurs to come to the U.S

• Enterprise Zones Specific geographic areas to

which governments attract private business

investment by offering lower taxes and other

government support.

• Incubators Offer new businesses low-cost offices

with basic services.

SMALL BUSINESSES

Independently owned and operated, not dominant in its field of operation and meets certain standards of size.

relation to other businesses

in their industries

SMALL BUSINESS STATISTICS

97% are considered small

ADVANTAGES of SMALL OVER

BIG BUSINESS

Photo Credit: Elliot Brown

LO 6-2

• More personal customer service.

• The ability to respond quickly to opportunities.

BUSINESS FAILURES are LOWER

THAN the REPORTS BECAUSE…

LO 6-2

• Owner closing a business

to start another is reported

• Tommy Hilfiger – First store went bankrupt

• Milton Hershey – First confectionery failed

• H.J Heinz – Company went bankrupt six years after

start

THEY DID WHAT?

Famous Business Failures

CAUSES of SMALL BUSINESS

FAILURES

LO 6-2

INCREASING SMALL BUSINESS

SUCCESSES

LO 6-2

LEARNING ABOUT SMALL BUSINESS

LO 6-3

• Learn from Others – Investigate your local

colleges for classes on small business and

entrepreneurship; talk to and work for successful

local entrepreneurs.

• Get Some Experience – Gain three years

experience in the field; then start a part-time small

business.

• Take Over a Successful Firm – Serve as an

apprentice and eventually take over once the owner steps down.

SHOULD YOU STAY or SHOULD YOU GO?

Suppose you worked in a company for two years and

you see signs of it faltering You and a coworker

have ideas about how to succeed and are

considering quitting to start your own company.

your new venture?

MAJOR BUSINESS FUNCTIONS

BUSINESS PLANS

describes the nature of the business, the target

market, the advantages the business will have over

competition, and the resources and owners’

qualifications.

specific about what they will offer

bankers or investors

• A good plan takes a long time to prepare.

tempts potential investors to read on

WRITING a BUSINESS PLAN

the right hands is

almost as important

as getting the right

information in it

A FAMILY AFFAIR

What to Consider Before Starting a Family Business

• Clarify Expectations – What will each person

contribute?

• Discuss Work/Family Boundaries – What is the line that separates work from personal relationships?

• Develop Good Communication – Agree about

types of decisions you’ll make jointly and on your own.

• Clarify Long-Term Intentions – Discuss how long everyone will work full time and goals for the business.

• Have an Escape Hatch – Have a Plan B.

• Venture capitalists Individuals or companies

that invest in new businesses in exchange for partial ownership.

FUNDING YOUR DREAM

Getting Cash When Financing Isn’t an Option

LO 6-4

1 Get close to your customers.

2 Make clients pay upfront.

3 Outsource tasks on the cheap.

4 Get in front of customers quickly.

5 Become an expert.

6 Ask for help.

7 Be patient.

billion flowed into CDFIs from investment

companies

years!

STATES TEST NEW CROWDINVESTING RULES

• Sites like Kickstarter and

Indiegogo have connected

loan seekers to potential

lenders.

• When the JOBS Act was

passed in 2012, the goal

was to make crowdfunding

more accessible.

• It’s still too early to know

how this will affect

The SMALL BUSINESS

ADMINISTRATION

LO 6-4

• Small Business Administration (SBA) A U.S

government agency that advises and assists small

businesses by providing management training and

financial advice.

provides very small loans to small business

owners

borrowers’ integrity and soundness of their

business ideas

The SMALL BUSINESS INVESTMENT COMPANY

LO 6-4

• Small Business Investment Company (SBIC)

A program through which private investment

companies licensed by the SBA lend money to small businesses.

capital and can borrow up to $2 from the SBA for each $1 of capital it has

spots early, giving entrepreneurs advice, and in

some cases rescheduling loan payments

SMALL BUSINESS DEVELOPMENT CENTERS

LO 6-4

funded jointly by the federal government and

individual states

idea, develop your business plan and complete

your funding application – for no charge

KNOWING the MARKET

• Market Consumers with unsatisfied wants and

needs who have both resources and willingness to

buy.

quality and great service at a fair price

is the ability to know the market and quickly

adapt to market needs

BEYOND KNOWING WHAT YOUR

CUSTOMERS NEED

• Quirky allows customers to

take part in designing

products.

• Anyone in the community

can take part in design,

style, naming, packaging,

and pricing

• Products are sold through

the site and can even be

found in brick and mortar

stores.

MANAGING EMPLOYEES

critical

satisfied with their jobs – they feel challenged

and respected

business if they recruit and groom employees

for management positions

ACCOUNTING ASSISTANCE

inventory control, customer records and payroll

• A good accountant can help in:

- Deciding whether to buy or lease equipment

- Deciding whether to own or rent a building.

- Tax planning.

- Financial forecasting.

- Choosing sources of financing.

- Writing requests for funds.

LEGAL HELP

the process

hire experts as employees

• A competent lawyer can help with:

MARKETING RESEARCH

introducing a product or opening a store

• A marketing research study can help you:

- Determine where to locate.

- Whom to select as your target market.

- What is an effective strategy for reaching the

market.

OTHER FORMS OF HELP

WHAT WENT WRONG?

Five Mistakes Business Owners Make

LO 6-4

1 They’re too afraid to take the leap!

2 They hire the wrong people

3 They don’t want to give up control

4 They become complacent

5 They fail to see new opportunities

TEST PREP

document a small business owner will ever

create There are nine sections in the business plan outline Can you describe at least five

sections of a business plan?

SMALL BUSINESS PROSPECTS

ABROAD

LO 6-5

for 99% of recent export growth

- Overseas buyers enjoy dealing with individuals.

- Small companies can usually begin shipping

much faster.

- They provide a wide variety of suppliers.

- They can give more personal service and

attention.

TEST PREP

business globally?

businesses have over large businesses in selling

in global markets?