© 2009 South-Western, a division of Cengage Learning1

Chapter 7: SMALL BUSINESS AND ENTREPRENEURSHIP

Economic Rocket Fuel

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LOOKING AHEAD

• Why do individuals start businesses?

• What is the mindset of an entrepreneur?

• What are the opportunities and threats for small businesses?

• What are options for starting a new business?

• Where can entrepreneurs get assistance?

• What are funding sources for small businesses?

• What contribution does small business make to the economy?

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LAUNCHING NEW VENTURES: WHAT’S IN IT FOR ME?

• Greater Financial Success

• Independence

• Flexibility

• Challenge

• Survival

On any given day in the United States, more people

are trying to start a new business than are getting

married or having children.

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ENTREPRENEURS

Entrepreneurs – People

who risk their time,

money, and other

resources to start and

manage a business.

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THE ENTREPRENEUR: A DISTINCTIVE PROFILE

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OPPORTUNITIES FOR SMALL BUSINESS

• Opportunities:

– Market Niches

– Personal Customer Service

– Lower Overhead Cost

– Technology

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THREATS FOR SMALL BUSINESS

• Threats:

– Higher Risk of Failure

– Lack of Knowledge and Experience

– Too Little Money

– Bigger Regulatory Burden

– Higher Health Insurance Costs

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SMALL BUSINESS FAILURE

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DOT-COM DEBACLES

Webvan: the value of this early online grocer peaked at $1.2 billion, but Webvan

left 2,000 people out of work when it closed its

doors in the middle of 2001.

Pets.com: Shutting down only nine months after its

$82.5 million IPO, Pets.com hawked pet care products from doggie treats to kitty

litter, but lacked a workable plan for high shipping costs.

iSmell: The idea is to develop a

digital scent device that lets customers smell

the aromas of the web (whatever those may be!).

How long do you think it will last?

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FAILING WITH STYLE

• Walt Disney was fired from an ad agency for a “singular lack of drawing ability.”

• Ray Kroc, McDonald’s founder, failed at real estate, he didn’t discover the McDonald brothers’ hamburger stand until he was 52 years old.

• Steve Jobs, founder of Apple computer, was dumped by his board of directors, but returned a decade later to launch the iMac and the iPod.

Your failure may be the first step of the next big thing.

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LAUNCH OPTIONS

• Starting from scratch

• Buying an established business

• Buying a franchise

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STARTING A BUSINESS FROM SCRATCH

Key Pros: Key Cons:

• It’s all you : Your concept, your decisions, your structure.

• You don’t have to deal with the prior owner’s bad decisions.

• It’s all you. That’s a lot of pressure.

• It can be hard to get credit.

• Logistics can be challenging

• It takes time, money, and sheer sweat to build a customer base.

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BUYING AN ESTABLISHED BUSINESS

Key Pros: Key Cons:

• The concept, organizational structure, and operating practices are in place.

• Relationships are established.

• Obtaining financing is less challenging.

• Working with someone else’s idea may not be fun.

• You may inherit old mistakes.

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BUYING A FRANCHISE

Key Pros: Key Cons:

• Partnering with established brand

• Possibility of assistance with management and financing

• Low failure rate

• Less opportunity for creativity

• Tied to national brand’s mistakes

• Purchase price and on-going royalties can be steep

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TOOLS FOR BUSINESS SUCCESS

• Small Business Administration

• Gain Experience

• Learn from Others

• Educate Yourself

• Business Plan

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BUSINESS PLANS: THE ROADMAP

! Executive Summary

! Description of Business

! Competitive and Industry Research

! Marketing Strategies

! Operating Procedures

! Personnel

! Financial Projections

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FINDING THE MONEY: FUNDING OPTIONS

• Personal Resources

• Loans

• Angel Investors

• Venture Capital

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SMALL BUSINESS AND THE ECONOMY: AN OUTSIZED IMPACT

• Creating New Jobs

• Fueling Innovation

• Vitalizing Inner Cities

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ECONOMIC IMPACT

Just 9.8% of the world’s entrepreneurs expect to create almost 75% of the jobs generated by new business ventures in

the next five years.

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LESS IS MORE

Eric Truran, founder of a small New England manufacturing firm and retail store, eventually closed his retail store to focus strictly on online and telephone sales.

– His income dropped by about 50%, but his free time more than quadrupled.

– He went from working 80 to 90 hours a week to working 15 to 20 hours a week.

– He uses his free time to pursue other passions, such as playing guitar with his two bands.

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THE ENTREPRENEURIAL SPIRIT

Intrapreneurs - are innovative workers who focus

on launching new products and generating new profit

streams for the company that employ them.

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MINIPRENEURS

Minipreneurs – individuals launching super small scale

enterprises. Include microbusiness, freelancers, side

businesses, weekend entrepreneurs, web-driven

entrepreneurs, free agents and more..

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ENTREPRENEURSHIP AROUND THE WORLD

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ENTREPRENEURSHIP, A WORLD OF DIFFERENCE

• Entrepreneurship has an economic impact in countries around the world

• 1 out of 10 adults worldwide start businesses every year

• Three key factors drive entrepreneurship globally:– Per Capita Income

– Opportunity Cost

– Cultural/Political Environment

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LOOKING BACK

• Why do individuals start businesses?

• What is the mindset and characteristics of an entrepreneur?

• What are the opportunities and threats for small businesses?

• What are options for starting a new business?

• Where can entrepreneurs get assistance and tools for success?

• What are funding sources for small businesses?

• What contribution does small business make to the economy?