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1 | 1© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 1Small Business: An Overview
1 | 2© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
After reading this chapter,you should be able to:
• Describe the characteristics of small business.• Recognize the role of small business in the U.S.
economy.• Understand the importance of diversity in the
marketplace and the workplace.• Identify some of the opportunities available to small
business.• Suggest ways to court success in a small business
venture.• Name the most common causes of small business
failure.
1 | 3© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Facts About Small Businesses
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What Is a Small Business
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Figure 1.1: Almost All Established Firms Are Small Businesses
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Small Business and the SBA
• SBA Size Board’s Factors for Business Size Standards:• Industry structure analysis• Degree of competition• Average firm size• Startup cost• Entry barriers, distribution of sales, and employment by
firm size• Effects of different size standard levels on objectives of SBA
programs• Comments from the public on notices of proposed
rulemaking
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Table 1.1: Small Business Size Standards
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Class Exercise
• Using the SBA business size guidelines, which of the following are small businesses?• A car assembly plant that employs 7,000 workers• A local wholesaler with 95 employees• A local retail store with $1.5M in yearly sales receipts• A home builder with annual receipts of $2.8M• A mall developer with a $50M construction contract• A farmer with annual sales of $3M• A farmer with annual sales of $500K• A travel agent with annual sales from $1.2M to $2.5M• A dry cleaning firm with $175K in annual receipts
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Figure 1.2: Small Business Employment Share of NAICS Industries
SOURCE: Small Business Administration, Office of Economic Research, “Research Publications— Small Business Share of NAICS Industries,” Research Summary #218.
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Small Businesses in the U.S. Economy
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Recent Growth Trends
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Recent Growth Trends
• Increased Business Startups• Small business growth (startups) in last 30 years
• 1970 - 264,000 • 1980 - 532,000 • 1990 - 585,000 • 2000 - 574,000• 2006 – 670,100
• Increasing Interest at Colleges and Universities• 1971 – 16 schools offer entrepreneurship courses• 2010 – 2000 schools offer entrepreneurship courses
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Recent Growth Trends: Forces Driving Change in 2011
• Gen Y- Market of 76 million people wanting senior-friendly products such as supermarkets with lower shelves
• Growth of travel and tourism-Industry revenue expected to reach nearly $1.4 trillion
• “Mancession”-Increase in sales of men’s lifestyle products, such as bacon-flavored toothpicks
Source: http://www.entrepreneur.com/trends/index.html
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The Best Industries for Starting a Business Right Now
• Candy• Recession-resistant industry• Snickers, Tootsie Pops, and 3 Musketeers started during the
Great Depression• iPhone Apps
• Marketplace predicted to be worth $1 billion someday• Health-Care Technology
• Employment in field expected to grow by 18 percent between now and 2016, according to the BLS
Source: http://www.inc.com/ss/best-industries-for-starting-a-business
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Work Force Diversity andSmall Business Ownership
Aging population
More women entering the work force
Increased birthrate of
minoritygroups
Needs and abilities of
people with handicaps
Factors Increasing Work Force Diversity
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Secrets of Small Business Success
Identifying Your Competitive Advantage
Remaining Flexible and Innovative
Building Close Relations with Customers
Small Business Success Factors
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Innovation’s Role in Small Business
Product Innovation
Management Innovation
Service Innovation
Types of Innovation
Process Innovation
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Getting Started on the Right Foot
Market size and
definition
Getting accurate
information
Gathering sufficient
capital
Right Tools to Succeed
Finding and
keeping effective
employees
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Understanding the Risks of Small Business Ownership
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Understanding the Risks of Small Business Ownership (cont’d)
Inadequate Management Insufficient Capital
Most Common Causes of Business Failure
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Figure 1.3: The Causes of Business Failures Are Many and Complex
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Understanding the Risks of Small Business Ownership (cont’d)
Termination occurs when a business no longer exists for any reason
Failureoccurs when a business closes with a financial loss to a creditor
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Understanding the Risks of Small Business Ownership (cont’d)
• Common Mistakes That Invite Business Failure• Planning: failing to look toward the future• Understanding what is required: commitment and hard
work• Trying to do it all: not hiring enough employees or not
using employees effectively• Financial myopia: inaccurately estimating cash flows and
capital requirements
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Table 1.2: U.S. Business Startups, Closures, and Bankruptcies
Myth: 90% of all new businesses fail within one year.
Truth: Only about 18% of all businesses are forced to close their doors with a loss to creditors; the rest either close voluntarily or are still in business.
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Figure 1.4: Analysis of Business Closure
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