* * Chapter Six Entrepreneurs hip and Starting a Small Business McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
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*Chapter Six
Entrepreneurship and Starting a
Small Business
McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
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*
• First African-American woman to become a billionaire and first to own three professional sports teams.
• BET debuted in 1980.
• Johnson developed many of the network’s most successful shows like, Teen Summit.
• Now a part owner in Mistral and CEO of Salamander Hospitality.
ProfileSHEILA C. JOHNSONBlack Entertainment Television (BET)
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*The Job-Creating Power of Entrepreneurship in the U.S.
• Entrepreneurship –
• Accepting the risk of starting and running a business.
WHAT is ENTREPRENEURSHIP?
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*The Job-Creating Power of Entrepreneurship in the U.S.
• 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.
NOTABLE ENTREPRENEURS
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• Leanna Archer – At 12 years old, she has her own hair care line.
• Alexis Holmes – Started baking for a fundraiser, now the 16-year-old owns her own bakery.
• Jack Short & Daniel Lyons – The two medical students started Factory Green, a carbon neutral apparel company, as undergrads.
• Mark Zuckerberg – Launched Facebook as a Harvard freshman.
YOU’RE NEVER TOO YOUNG to be an ENTREPRENEUR
(Spotlight on Small Business)
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Source: Entrepreneur, www.entrepreneur.com, March 2009.
The Job-Creating Power of Entrepreneurship in the U.S.
Age Range Percent Identified as Self-Employed
55 to 59 28%
60 to 65 36%
66 to 70 42%
YOU’RE NEVER TOO OLD to be an ENTREPRENEUR EITHER!
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*Why People Take the Entrepreneurial Challenge
• Opportunity
• Profit
• Independence
• Challenge
LG1
WHY TAKE the RISK?
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*Why People Take the Entrepreneurial Challenge
• Self-directed
• Self-nurturing
• Action-oriented
• Highly energetic
• Tolerant of uncertainty (risk-tolerant)
LG1
WHAT DOES IT TAKE to be an ENTREPRENEUR?
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*Turning Your Passion and Problems into Opportunities
• 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.
LG1
An IDEA is a GOOD OPPORTUNITY IF…
• 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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*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.
LG1
ENTREPRENEURIAL TEAMS
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*Micropreneurs and Home-Based Businesses
• Micropreneur -- 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.
• Many micropreneurs are home-based business owners – writers, consultants, video producers, architects, bookkeepers, etc.
• Nearly 60% of home-based micropreneurs are men.
LG1
MICROPRENEURS
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*Micropreneurs and Home-Based Businesses
• 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.
LG1
HOME-BASED BUSINESS GROWTH
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Source: St. Louis Small Business Monthly, February, 2004.
• Ability to start your business immediately• Minimal startup capital needed• No rent or excessive set-up charges• Comfortable working conditions
Micropreneurs and Home-Based Businesses
LG1
BENEFITS of HOME-BASED BUSINESSES
• Reduced wardrobe expenses• No commuting• Tax benefits• Elimination of office politics• Low risk for trial and error
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Source: St. Louis Small Business Monthly, February, 2004.
• Difficult to establish work habits
• Limited support system
• Isolation
• Work space may be limited
• Disruption of personal life
• Clients may be uncomfortable coming to your home
• Zoning restrictions
• Success is based 100% on your efforts
Micropreneurs and Home-Based Businesses
LG1
DOWNSIDES of HOME-BASED BUSINESSES
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• The latest outsourcing trend is using the Internet to find affordable labor around the world.
• Elance provides small businesses with a hub to find low-cost contractors.
• Thanks to the inexpensive freelancers, Elance now has 48,500 clients, up 70% since 2007.
OUTSOURCING YOUR SMALL BUSINESS
(Reaching Beyond Our Borders)
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*Web-Based Businesses
• Affiliate Marketing -- An Internet-based marketing strategy in which a business rewards individuals or other businesses for each visitor or customer the affiliate sends to its website.
LG1
ONLINE BUSINESS
• Web-based businesses have more unique products than most brick and mortar stores.
• Online sales reached $165.9 billion in 2007, 8% of all retail sales.
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*Entrepreneurship Within Firms
• Intrapreneur -- A creative person who works as an entrepreneur within a corporation.
• Intrapreneurs use a company’s existing resources to launch new products for the company.
• Art Fry of 3M developed Post-Its when he was trying to mark pages of his hymnal without damage.
LG1
INTRAPRENEURS
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*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 attract private business investment by offering lower taxes and other government support.
• Incubators -- Offer new businesses low-cost offices with basic services.
LG1
GOVERNMENT and ENTREPRENEURSHIP
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*Small Versus Big Business
• Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size.
• Businesses are “small” in relationship to other businesses in their industries.
LG2
SMALL BUSINESSES
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*Small Versus Big Business
• There are 26.8 million small businesses in the U.S.
• Of all nonfarm business in the U.S., almost 97% are considered small.
• Small businesses account for over 50% of the GDP.
• Small businesses generate 60-80% of new jobs.
• About 80% of U.S. workers first jobs were in small business.
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SMALL BUSINESS STATISTICS
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*Importance of Small Business
• More personal customer service.
• The ability to respond quickly to opportunities.
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ADVANTAGES of SMALL OVER BIG BUSINESS
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*Small Business Success & Failure
• 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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BUSINESS FAILURES are LOWER THAN the REPORTS BECAUSE…
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Source: World Features Syndicate, 2009.
• Tommy Hilfiger – First store went bankrupt
• Milton Hershey – First confectionary failed
• H.J. Heinz – Company went bankrupt six years after start
Small Business Success & Failure
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THEY DID WHAT?Famous Business Failures
• Walt Disney – First film company went bankrupt
• Henry Ford – First two car companies failed
• L.L. Bean – Almost went bankrupt in first year
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*Learning About Small Business Operations
• 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.
LG3
LEARNING ABOUT SMALL BUSINESS
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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.
• Should you approach other coworkers about working for your new venture?
• Will you try to lure your old boss’ customers?
• What are the alternatives?
• What are the consequences?
• What is the most ethical choice?
GOING DOWN WITH the SHIP(Making Ethical Decisions)
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*Managing a Small Business
• Planning
• Financing
• Knowing customers
• Managing employees
• Keeping records
LG4
MAJOR BUSINESS FUNCTIONS
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*Begin with Planning
• Business Plan –
• Detailed written statement that describes nature of business, target market, advantages business will have over competition, and resources and owners qualifications.
• 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.
LG4
BUSINESS PLANS
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*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.
LG4
WRITING a BUSINESS PLAN
• Getting the plan into the right hands is almost as important as getting the right information in it.
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Source: Business Week Small Biz, www.businessweek.com, February/March, 2008.
• 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 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.
Writing a Business Plan
LG4
A FAMILY AFFAIRWhat to Consider Before Starting a Family Business
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*Getting Money to Fund a Small Business
• Personal savings
• Relatives
• Former employers
• Banks & finance companies
• Government agencies
• Angel investors
• Venture capitalists -- Individuals or companies that invest in new businesses in exchange for partial ownership.
LG4
SOURCES of CAPITAL
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Source: CFO Magazine, www.cfo.com, September 2008.
Getting Money to Fund a Small Business
LG4
ANGELS ABOVEIndustry Sectors Favored by Angel Investors
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*The Small Business Administration
• Small Business Administration (SBA) –
• U.S. government agency that advises and assists small businesses by providing management training and financial advice.
• SBA started a microloan program in 1991 that provides very small loans to small business owners.
• Program judges worthiness on belief of the borrower’s integrity and soundness of their business ideas.
LG4
The SMALL BUSINESS ADMINISTRATION
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*The Small Business Administration
• Small Business Investment Company (SBIC) -- A program through which private investment companies licensed by the SBA lend money to small businesses.
• A 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.
LG4
The SMALL BUSINESS INVESTMENT COMPANY
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*The Small Business Administration
• 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.
LG4
SMALL BUSINESS DEVELOPMENT CENTERS
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*Knowing Your Customers
• Market -- Consumers 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.
LG4
The MARKET
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*Managing Employees
• Hiring, training and motivating employees is critical.
• Employees of small companies are often more satisfied with their jobs – they feel challenged and respected.
• Entrepreneurs best serve themselves and the business if they recruit and groom employees for management positions.
LG4
MANAGING EMPLOYEES
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*Keeping Records
• Computers simplify the process by helping with 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.
LG4
ACCOUNTING ASSISTANCE
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*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
LG4
LEGAL HELP
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*Looking for Help
• 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.
LG4
MARKETING RESEARCH
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*Looking for Help
LG4
OTHER FORMS OF HELP
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• Gary Hirshberg of Stonyfield Yogurt wanted to run a profitable business that didn’t hurt the environment.
• Stonyfield Yogurt is a 100% organic operation.
• It’s green practices save the company millions of dollars each year.
• After just 15 years, Stonyfield outsells Kraft Foods yogurt.
THINKING GREEN LOGO
SOCIAL ENTREPRENEURSHIP:RESPONSIBLE and PROFITABLE
(Thinking Green)
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*Going International: Small Business Prospects
• Small and medium-sized businesses accounted for 99% 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.
LG5
SMALL BUSINESS PROSPECTS ABROAD
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*Progress Assessment
• Can you describe at least five sections of a business plan?
PROGRESS ASSESSMENT
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*Progress Assessment
• Why do many small businesses avoid doing business overseas?
• What are some of the advantages small businesses have over large businesses in selling in global markets?
PROGRESS ASSESSMENT
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*Progress Assessment
• Why are people willing to take the risks of entrepreneurship?
• What are the advantages of entrepreneurial teams?
• How do micropreneurs differ from other entrepreneurs?
• What are some opportunities and risks of web-based businesses?
PROGRESS ASSESSMENT
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