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*Chapter Six

Entrepreneurship

and Starting aSmall Business

McGraw-Hill/Irwin Copyri ght 2010 by the McGraw-Hil l Companies, Inc. All ri ghts reserved.

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First African-American womanto become a billionaire and firstto own 3 professional sportsteams.

BET debuted in 1980.

Johnson developed many ofthe networks most successful

shows like, Teen Summit. Now a part owner in Mistral and

CEO of Salamander Hospitality.

ProfileSHEILA C. JOHNSON

Black Entertainment Television (BET)

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*The Job-Creating

Power of

Entrepreneurship

in the U.S.

Entrepreneurship --Accepting the risk of startingand running a business.

WHAT is ENTREPRENEURSHIP?

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*The Job-Creating

Power of

Entrepreneurship

in the U.S.

French immigrant lruthre Irne du Pont deNemours started Du Pont in 1802.

David McConnell borrowed $500 from a friend tostart 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 ArcherAt 12 years old, she has her ownhair care line.

Alexis HolmesStarted baking for a fundraiser,now the 16-year-old owns her own bakery.

Jack Short & Daniel LyonsThe two medical

students started Factory Green, a carbon neutralapparel company, as undergrads.

Mark ZuckerbergLaunched Facebook as aHarvard freshman.

YOURE 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 RangePercent Identified as

Self-Employed55 to 59 28%

60 to 65 36%

66 to 70 42%

YOURE NEVER TOO OLD to bean 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

LG1

WHAT DOES IT TAKE to be anENTREPRENEUR?

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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 reasonableprice and still profit.

LG1

An IDEA is aGOOD OPPORTUNITY IF

You can get your product orservice to customers before

the window of opportunitycloses.

You can keep the businessgoing.

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Gary Hirshberg of StonyfieldYogurt wanted to run a profitablebusiness that didnt hurt the

environment. Stonyfield Yogurt is a 100%

organic operation.

Its green practices save the

company millions of dollars eachyear.

After just 15 years, Stonyfieldoutsells Kraft Foods yogurt.

THINKINGGREENLOGO

SOCIAL ENTREPRENEURSHIP:RESPONSIBLE and PROFITABLE

(Thinking Green)

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*Entrepreneurial

Teams

Entrepreneurial team --Agroup of experienced people

from different areas of business

who join to form a managerialteam with the skills to develop,

make and market a new

product.

An entrepreneurial team(Steve Jobs, Steve Wozniakand Mike Markkula) was keyto Apples success.

LG1

ENTREPRENEURIAL TEAMS

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*Micropreneurs and

Home-Based

Businesses

Micropreneur -- Entrepreneurs willing to accept therisk 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 businessowners writers, consultants, video producers,

architects, bookkeepers, etc.

Nearly 60% of home-based micropreneurs aremen.

LG1

MICROPRENEURS

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*Micropreneurs and

Home-Based

Businesses

Computer technology has leveled the playingfield.

Corporate downsizing has led many to venture ontheir own.

Social attitudes have changed.

New tax laws have loosened restrictions ondeducting expenses for home offices.

LG1

HOME-BASED BUSINESSGROWTH

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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-BASEDBUSINESSES

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-BASEDBUSINESSES

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The latest outsourcing trend is using the Internetto find affordable labor around the world.

Elance provides small businesses with a hub tofind low-cost contractors.

Thanks to the inexpensive freelancers, Elancenow has 48,500 clients, up 70% since 2007.

OUTSOURCING YOUR SMALLBUSINESS

(Reaching Beyond Our Borders)

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*Web-Based

Businesses

Affiliate Marketing --An Internet-based marketingstrategy 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 havemore unique products thanmost brick and mortar stores.

Online sales reached $165.9billion in 2007, 8% of all retailsales.

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*Entrepreneurship

Within Firms

Intrapreneur --A creative person who works as anentrepreneur within a corporation.

Intrapreneurs use a companys existingresources to launch new products for thecompany.

Art Fry of 3M developed Post-

Its when he was trying to markpages of his hymnal withoutdamage.

LG1

INTRAPRENEURS

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*EncouragingEntrepreneurship:

What Government

Can Do

Immigration Act passed in 1990 created acategory 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 officeswith basic services.

LG1

GOVERNMENT andENTREPRENEURSHIP

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*Progress

Assessment

Why are people willing to take the risks ofentrepreneurship?

What are the advantages of entrepreneurialteams?

How do micropreneurs differ from other

entrepreneurs? What are some opportunities and risks of web-

based businesses?

PROGRESS ASSESSMENT

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*Small Versus

Big Business

Small Business -- Independently owned andoperated, not dominant in its field of operation and

meets certain standards of size.

Businesses are small in relationship to otherbusinesses in their industries.

LG2

SMALL BUSINESSES

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*Small Versus

Big Business

There are 26.8 million small businesses in theU.S.

Of all nonfarm business in the U.S., almost 97%are considered small.

Small businesses account for over 50% of theGDP.

Small businesses generate 60-80% of new jobs.

About 80% of U.S. workers first jobs were insmall business.

LG2

SMALL BUSINESS STATISTICS

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*Importance of

Small Business

More personal customer service.

The ability to respond quickly to opportunities.

LG2

ADVANTAGES of SMALL OVERBIG BUSINESS

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*Small Business

Success &

Failure

Owner closing a business tostart another is reported as a

failure. Changing forms of ownership

is reported as a failure.

Retirement is reported as afailure.

LG2

BUSINESS FAILURES are LOWERTHAN 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 afterstart

Small Business

Success &

Failure

LG2

THEY DID WHAT?Famous Business Failures

Walt Disney First film companywent bankrupt

Henry Ford First two carcompanies failed

L.L. Bean Almost went bankruptin first year

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*Learning About

Small Business

Operations

Learn from OthersInvestigate your localcolleges for classes on small business andentrepreneurship; talk to and work for successfullocal entrepreneurs.

Get Some ExperienceGain three yearsexperience in the field; then start a part-time smallbusiness.

Take Over a Successful FirmServe as anapprentice and eventually take over once the ownersteps down.

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LEARNING ABOUTSMALL BUSINESS

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Suppose you worked in a company for two years andyou see signs of it faltering. You and a coworker haveideas about how to succeed and are considering

quitting to start your own company.

Should you approach other coworkers about working foryour 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 --A detailed written statement thatdescribes the nature of the business, the target

market, the advantages the business will have

over competition, and the resources and ownersqualifications.

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 summarycatches interest and

tempts potential investors to read on.

LG4

WRITING a BUSINESS PLAN

Getting the plan intothe right hands isalmost as important

as getting the rightinformation in it.

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Source: Business Week Small Biz, www.businessweek.com, February/March, 2008.

Clarify Expectations What will each personcontribute?

Discuss Work/Family Boundaries What is the

line that separates work from personal relationships? Develop Good Communication Agree about

types of decisions youll make jointly and on own.

Clarify Long-Term Intentions Discuss how longeveryone 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) --AU.S. government agency that advises and assists

small businesses by providing management training

and financial advice.

SBA started a microloan program in 1991 thatprovides very small loans to small businessowners.

Program judges worthiness on belief of theborrowers integrity and soundness of their

business ideas.

LG4

The SMALL BUSINESSADMINISTRATION

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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 foreach $1 of capital it has.

SBICs are able to identify a businesss trouble

spots early, giving entrepreneurs advice, and insome cases rescheduling loan payments.

LG4

The SMALL BUSINESSINVESTMENT 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 ofyour idea, develop your business plan and

complete your funding application for nocharge.

LG4

SMALL BUSINESSDEVELOPMENT CENTERS

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*Knowing Your

Customers

Market -- Consumers with unsatisfied wants andneeds who have both resources and willingness to

buy.

Set out to fill the markets needs by offering top

quality and great service at a fair price.

One of the great advantages of smallbusinesses is the ability to know the market andquickly adapt to market needs.

LG4

The MARKET

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*Managing

Employees

Hiring, training and motivating employees iscritical.

Employees of small companies are often moresatisfied with their jobs they feel challengedand respected.

Entrepreneurs best serve themselves and thebusiness if they recruit and groom employeesfor management positions.

LG4

MANAGING EMPLOYEES

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*Keeping Records

Computers simplify the process by helping withinventory 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 inthe 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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LEGAL HELP

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*Looking for Help

Marketing decisions need to be made long beforeintroducing 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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MARKETING RESEARCH

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*Looking for Help

A commercial loan officer can help:- Design an acceptable business plan.- Give financial advice.- Lend money.

An insurance agent can help you:- Know the risks associated with the business.- How to cover risks with insurance.- How to prevent risks with safety devices.

Service Corps of Retired Executives- More than 10,500 volunteers from industry, trade

associations, and education who counsel small

business at no cost.

LG4

OTHER FORMS OF HELP

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*Progress

Assessment

Can you describe at least five sections of a

business plan?

PROGRESS ASSESSMENT

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*GoingInternational:

Small Business

Prospects

Small and medium-sized businesses accountedfor 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 PROSPECTSABROAD

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Progress

Assessment

Why do many small businesses avoid doingbusiness overseas?

What are some of the advantages smallbusinesses have over large businesses in sellingin global markets?

PROGRESS ASSESSMENT