Chapter 6

Chapter 6Entrepreneurship and Starting a Small Business

WHAT is ENTREPRENEURSHIP?Entrepreneurship -- Accepting the risk of starting and running a business.OpportunityProfitIndependenceChallenge

WHAT DOES IT TAKE to be an ENTREPRENEURSelf-directedSelf-nurturingAction-orientedHighly energeticTolerant of uncertainty

ENTREPRENEURIAL TEAMSEntrepreneurial 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 Apples success.

MICROPRENEURSMicropreneurs -- 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.About half of U.S. micropreneurs are home-based business owners writers, consultants, video producers, architects, bookkeepers, etc. Nearly 60% of home-based micropreneurs are men.

HOME-BASED BUSINESS GROWTHComputer 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.Comes with challengesand benefitsINTRAPRENEURSIntrapreneur -- A creative person who works as an entrepreneur within a corporation.Intrapreneurs use a companys existing resources to launch new products for the company.

SMALL BUSINESSESSmall Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size.Businesses are small in relation to other businesses in their industries.Statistically small business add economic stability and wealth

ADVANTAGES of SMALL OVER BIG BUSINESSMore personal customer service.The ability to respond quickly to opportunities.Business failures are less failures are used as new opportunities

THEY DID WHAT?Famous Business FailuresTommy Hilfiger First store went bankrupt

Milton Hershey First confectionery failed

H.J. Heinz Company went bankrupt six years after startWalt Disney First film company went bankruptHenry Ford First two car companies failedL.L. Bean Almost went bankrupt in first year

SMALL BUSINESS AND MAJOR BUSINESS FUNCTIONSPlanningFinancingKnowing customersManaging employeesKeeping recordsBUSINESS PLANSBusiness Plan -- A detailed written statement that describes the nature of the business, the target market, the advantages the business will have over competition, and the 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.

WRITING a BUSINESS PLANA 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.

A FAMILY AFFAIRWhat to Consider Before Starting a Family BusinessClarify 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 youll 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.

SOURCES of CAPITALPersonal savingsRelativesFormer employersBanks & finance companiesGovernment agenciesAngel investorsVenture capitalists -- Individuals or companies that invest in new businesses in exchange for partial ownership.Community Development Financial InstitutionsSocial LendingCommunity Advantage and Small Loan Advantage Program

The SMALL BUSINESS ADMINISTRATIONSmall Business Administration (SBA) -- A 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 based on the borrowers integrity and soundness of their business ideas.

The SMALL BUSINESS INVESTMENT COMPANYSmall Business Investment Company (SBIC) -- A program through which private investment companies licensed by the SBA lend money to small businesses.Small Business Development Centers (SBDC) -- evaluate the feasibility of your idea, develop your business plan and complete your funding application for no charge.

The MARKETMarket -- Consumers with unsatisfied wants and needs 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 small businesses is the ability to know the market and quickly adapt to market needs.

MANAGING EMPLOYEESHiring, 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.

ACCOUNTING ASSISTANCEComputers 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.LEGAL HELPOwners 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:LeasesContractsPartnership agreementsProtection against liabilitiesMARKETING RESEARCHMarketing 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.

OTHER FORMS OF HELPA 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 ExecutivesMore than 10,500 volunteers from industry, trade associations, and education who counsel small business at no cost.

EMERGING MARKETS, EMERGING ENTREPRENEURSHIPSmall Business prospects abroadIn emerging markets, entire industries and services are wide open for innovation.Many entrepreneurs in the developing world hold degrees and have worked at high-level companies.Entrepreneurs must often expand into different areas of business in order for their venture to grow.