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Nickels_12e_UB_PPT_Student_Ch06.pptxChapter 6
Entrepreneurship and Starting a Small Business
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Learning Objectives
LO 6-1 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.
LO 6-2 Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
LO 6-3 Summarize ways to learn about how small businesses operate.
LO 6-4 Analyze what it takes to start and run a small business.
LO 6-5 Outline the advantages and disadvantages small businesses have in entering global markets.
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The Job-Creating Power of Entrepreneurs in the United States
Entrepreneurship — Accepting the risk of starting and running a business.
Notable Entrepreneurs
French immigrant Élruthère Irènèe du Pont de Nemours started Du Pont in 1802.
David McConnell borrowed $500 from a friend to start Avon.
George Eastman started Kodak with a $3,000 investment in 1880.
Jeff Bezos started Amazon.com with investments from his family and friends.
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Why People Take the Entrepreneurial Challenge 1 of 9
Reasons to Take the Entrepreneurial Risk
Opportunity
Profit
Independence
Challenge
What Does It Take to be an Entrepreneur?
Self-directed and self-nurturing
Action-oriented
Highly energetic
Tolerant of uncertainty
LO 6-1
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Why People Take the Entrepreneurial Challenge 2 of 9
LO 6-1
Turning Your Passions and Problems into Opportunities
An idea is a good opportunity if:
It fills customers’ needs.
You have the skills and resources to start a business.
You can sell the product or service at a reasonable price and still profit.
You can get your product or service to customers before the window of opportunity closes.
You can keep the business going.
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Why People Take the Entrepreneurial Challenge 3 of 9
LO 6-1
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.
An entrepreneurial team (Steve Jobs, Steve Wozniak, and Mike Markkula) was key to Apple’s success.
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Why People Take the Entrepreneurial Challenge 4 of 9
LO 6-1
Entrepreneurship within Firms
Intrapreneurs — Creative people who work as entrepreneurs within corporations.
Intrapreneurs use a company’s existing resources to launch new products for the company.
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Why People Take the Entrepreneurial Challenge 5 of 9
LO 6-1
Micropreneurs and Home-Based Businesses
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 them a balanced lifestyle.
About half of U.S. micropreneurs are home-based business owners—writers, consultants, video producers, architects, bookkeepers, etc.
Nearly 60 percent of home-based micropreneurs are men.
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Why People Take the Entrepreneurial Challenge 6 of 9
LO 6-1
Micropreneurs and Home-Based Businesses continued
Computer technology has leveled the playing field.
Corporate downsizing has led many to venture on their own.
Social attitudes have changed.
New tax laws have loosened restrictions on deducting expenses for home offices.
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Why People Take the Entrepreneurial Challenge 7 of 9
LO 6-1
Micropreneurs and Home-Based Businesses continued
Challenges of working at home:
Getting new customers is difficult.
Managing your time requires self-discipline.
Work and family tasks are sometimes not separated.
Government ordinances may restrict your business.
Homeowner’s insurance may not cover business-related claims.
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Why People Take the Entrepreneurial Challenge 8 of 9
LO 6-1
Online Businesses
Online sales reached over $381 billion in 2016, about 8 percent of all retail sales.
Forrester Research predicts online sales to reach $500 billion by 2020.
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Why People Take the Entrepreneurial Challenge 9 of 9
LO 6-1
Encouraging Entrepreneurship: What Government Can Do
Immigration Act passed in 1990 created a category of “investor visas” that encourage entrepreneurs to come to the U.S.
Enterprise zones — Specific geographic areas to which governments try to attract private business investment by offering lower taxes and other government support.
Incubators — Centers that offer new businesses low-cost offices with basic business services.
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Getting Started in Small Business 1 of 3
LO 6-2
Small versus Big Business
Small business — A business that is independently owned and operated, is not dominant in its field of operation, and meets certain standards of size (set by the Small Business Administration) in terms of employees or annual receipts.
Businesses are “small” in relation to other businesses in their industries.
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Getting Started in Small Business 2 of 3
LO 6-2
Small versus Big Business continued
Small business statistics:
There are 28 million small businesses in the U.S.
Of all nonfarm businesses in the U.S., almost 97% are considered small.
Small businesses account for over 50% of the GDP.
Nearly 600,000 businesses are started every year.
Small businesses have generated 65% of new jobs since 1995.
Small businesses employ about half of all private-sector employees.
About 80% of U.S. workers’ first jobs were in small businesses.
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Getting Started in Small Business 3 of 3
LO 6-2
Importance of Small Businesses
More personal customer service
Ability to respond quickly to opportunities
Small-Business Success and Failure
Business failures are lower than the reports because:
Owner closing a business to start another is reported as a “failure.”
Changing forms of ownership is reported as a “failure.”
Retirement is reported as a “failure.”
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Figure 6.3 Causes of Small-Business Failure
LO 6-2
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Figure 6.4 Situations for Small-Business Success
LO 6-2
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Learning about Small-Business Operations
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.
Start a part-time small business.
Take Over a Successful Firm
Serve as an apprentice and eventually take over once the owner steps down.
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Managing a Small Business 1 of 13
LO 6-4
Major Business Functions
Planning
Financing
Knowing customers
Managing employees
Keeping records
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Managing a Small Business 2 of 13
LO 6-4
Planning Your Business
Business plan — A detailed written statement that describes the nature of the business, the target market, the advantages the business will have in relation to competition, and the resources and qualifications of the owner(s).
A business plan forces potential owners to be specific about what they will offer.
A business plan is mandatory for talking with bankers or investors.
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Managing a Small Business 3 of 13
LO 6-4
Planning Your Business continued
Writing a business plan
A good plan takes a long time to prepare.
A good executive summary catches interest and tempts potential investors to read on.
Getting the plan into the right hands is almost as important as getting the right information in it.
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Managing a Small Business 4 of 13
LO 6-4
Financing Your Small Business
Sources of capital:
Personal savings
Family
Business associates
Banks and finance institutions
Government agencies
Angel investors
Venture capitalists — Individuals or companies that invest in new businesses in exchange for partial ownership of those businesses.
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Managing a Small Business 5 of 13
LO 6-4
Financing Your Small Business continued
Community development financial institutions
CDFIs are playing a big role in the economic recovery.
Only 1% of loans were not paid back in the last 30 years!
CDFIs provide business counseling as well as loans.
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Managing a Small Business 6 of 13
LO 6-4
The Small Business Administration (SBA)
Small Business Administration (SBA) — A U.S. government agency that advises and assists small businesses by providing management training and financial advice and loans.
SBA started a microloan program in 1991 that provides very small loans to small-business owners.
The program judges worthiness based on the borrowers’ integrity and soundness of their business ideas.
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Managing a Small Business 7 of 13
LO 6-4
The Small Business Administration (SBA) continued
Small Business Investment Company (SBIC) — A program through which private investment companies licensed by the SBA lend money to small businesses.
An SBIC must have a minimum of $5 million in capital and can borrow up to $2 from the SBA for each $1 of capital it has.
SBICs are able to identify a business’s trouble spots early, giving entrepreneurs advice, and in some cases rescheduling loan payments.
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Managing a Small Business 8 of 13
LO 6-4
The Small Business Administration (SBA) continued
Small Business Development Centers (SBDC) are funded jointly by the federal government and individual states.
SBDCs are able to evaluate the feasibility of your idea, develop your business plan, and complete your funding application—for no charge.
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Figure 6.5 Types of SBA Financial Assistance
LO 6-4
The SBA may provide the following types of financial assistance:
Guaranteed loans
Microloans
Export Express
Community Adjustment and Investment Program (CAIP)
Pollution control loans
504 certified development company (CDC) loans
CAPLine loans
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Managing a Small Business 9 of 13
LO 6-4
Knowing Your Customers
Market — People with unsatisfied wants and needs who have both resources and willingness to buy.
Set out to fill the market’s needs by offering top quality and great service at a fair price.
One of the great advantages of small businesses is the ability to know the market and quickly adapt to market needs.
Managing Your Employees
Hiring, training, and motivating employees is critical.
Employees of small companies are often more satisfied with their jobs because they feel challenged and respected.
Entrepreneurs best serve themselves and the business if they recruit and groom employees for management positions.
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Managing a Small Business 10 of 13
LO 6-4
Keeping Records
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
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Managing a Small Business 11 of 13
LO 6-4
Looking for Help
Owners need outside consulting advice early in the process.
Small and medium-sized firms cannot afford to hire experts as employees.
A competent lawyer can help with:
Leases
Contracts
Partnership agreements
Protection against liabilities
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Managing a Small Business 12 of 13
LO 6-4
Looking for Help continued
Marketing decisions need to be made long before 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
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Managing a Small Business 13 of 13
LO 6-4
Looking for Help continued
A commercial loan officer can help:
Design an acceptable business plan
Give financial advice
Lend money
An insurance agent can help you know:
Risks associated with the business
How to cover risks with insurance
How to prevent risks with safety devices
Service Corps of Retired Executives (SCORE)
More than 11,000 volunteers from industry, trade associations, and education who counsel small business at no cost.
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Going Global: Small-Business Prospects
LO 6-5
Small and medium-sized businesses accounted for 99 percent of recent export growth.
Advantages of global trade for small businesses:
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.
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Appendix of Long Image Descriptions
©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
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Appendix 1 Figure 6.3 Causes of Small-Business Failure
The following are some of the causes of small-business failure:
Plunging in without first testing the waters on a small scale.
Underpricing or overpricing goods or services.
Underestimating how much time it will take to build a market.
Starting with too little capital.
Starting with too much capital and being careless in its use.
Going into business with little or no experience and without first learning something about the industry or market.
Borrowing money without planning just how and when to pay it back.
Attempting to do too much business with too little capital.
Not allowing for setbacks and unexpected expenses.
Buying too much on credit.
Extending credit too freely.
Expanding credit too rapidly.
Failing to keep complete, accurate records, so that the owners drift into trouble without realizing it.
Carrying habits of personal extravagance into the business.
Not understanding business cycles.
Forgetting about taxes, insurance, and other costs of doing business.
Mistaking the freedom of being in business for oneself for the liberty to work or not, according to whim.
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Appendix 2 Figure 6.4 Situations for Small-Business Success
The following factors increase the chances of small-business success:
The customer requires a lot of personal attention, as in a salon.
The product is not easily made by mass-production techniques (e.g., custom-tailored clothes or custom auto-body work).
Sales are not large enough to appeal to a large firm (e.g., a novelty shop).
The neighborhood is not attractive because of crime or poverty. This provides a unique opportunity for small grocery stores and laundries.
A large business sells a franchise operation to local buyers. (Don’t forget franchising as an excellent way to enter the world of small business.)
The owner pays attention to new competitors.
The business is in a growth industry (e.g., computer services or web design).
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