Small Business, Entrepreneurship, and Franchises
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Transcript of Small Business, Entrepreneurship, and Franchises
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 1
Small Business, Entrepreneurship, and Franchises
Chapter
5
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 2
A business that is independently owned and operated for profit and is not dominant in its field
Small Business: A Profile
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 3
Industry Group-Size Standards
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 4
Important facts• In the last decade, the number of small businesses increased
49%.• 70% of new businesses survive at least two years, about 50%
survive at least five years, and 31% survive at least seven years.
• The primary reason for these failures is due to poor management stemming from a lack of business know-how.
• Small businesses provide over 50% of the jobs in the U.S.
Small Business: A Profile (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 5
Characteristics• The “entrepreneurial spirit”• The desire for independence• The desire to determine one’s own destiny• The willingness to find and accept a challenge• Personal background• Age-most are 24-44 years old
Motivation• “Had enough” of working for someone else• High-tech opportunities, especially for teens• Losing a job and deciding to start a business• An idea for a new product• An opportunity presents itself
The Entrepreneurs
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 6
Women• Owned at least 50% of small businesses in 2008• Women have less risk of failure than average
Teenagers• High-tech entrepreneurship is exploding• Face unique pressures juggling schoolwork, social lives,
business workload• Need skills for planning, persistence, patience,
people management, generating profit Successful entrepreneurs under age 30
The People in Small Businesses: The Entrepreneurs (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 7
The Pros and Cons of Smallness
Advantages Personal relationships with
customers and employees Ability to adapt to change Simplified recordkeeping Independence Advantages of sole
proprietorships• Keeping all profits• Ease and low cost of
going into business• Keeping business
information secret
Disadvantages Risk of failure Limited potential Limited ability to raise
capital
Guy Kawasaki from Apple “Make Meaning”
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 8
Sources of Capital for Entrepreneurs
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Business plan—a carefully constructed guide for the person starting a business
Three basic purposes • Communication• Management• Planning
Banking officials’ and investors’ questions• What is the nature and mission of the new venture?• Why is it a good idea?• What are the goals?• How much will it cost?
Developing a Business Plan
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 10
A governmental agency that assists, counsels, and protects the interests of small business in the U.S.
SBA management assistance• Management courses and workshops• Service Corps of Retired Executives (SCORE)• Help for minority-owned small businesses• Small-business institutes (SBIs)• Small-business development centers (SBDCs)• SBA publications
The Small Business Administration
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 11
SBA financial assistance• Regular business loans
– Loans made by private banks but partially guaranteed by the SBA
• Small-business investment companies– Venture capital: money invested in small firms that
have the potential to become very successful
The Small Business Administration (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 12
Franchise• A license to operate an individually owned business
as though it were part of a chain of outlets or stores
Franchising• The actual granting of a franchise
Franchisor• An individual or organization granting a franchise
Franchisee• A person or organization purchasing a franchise
Franchising
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 13
What Is Franchising?
FranchiseAgreement
Franchisee
Franchisor
John Q. Look at Dunkin’ Donuts Franchise Agreement
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 14
Basic Rights & Obligations Delineated in a Franchise Agreement
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 15
The growth of franchising• Franchising has expanded with the growth of the
fast-food industry.
• Franchising is attracting more women and minority business owners than ever before.
• Dual-branded franchising, in which two franchisors offer their products together, is a new trend.
– Example: Taco Bell and KFC
The Growth of Franchising
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 16
Are franchises successful?• The success rate for franchises is significantly higher
than that for other small businesses.
• The vast majority, 94%, of franchise owners report that they are successful.
• Too rapid expansion, inadequate capital or management skills, or other problems can cause franchises to fail.
The Growth of Franchising (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 17
Entrepreneur’s Ten Franchises in 2011
Source: http://www.entrepreneur.com/franchise500/index.html (accessed March 15, 2011).
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 18
Advantages of Franchising
To the franchisor• Fast and well controlled
distribution of its products• No need to construct and
operate its own outlets• More working capital
available for expanded production and advertising
• Franchising agreements maintain product and quality standards
• Motivated work force of franchisees
To the franchisee• Opportunity to start a
proven business with limited capital
• Guaranteed customers
• Franchisor available for advice and guidance
• Materials for local promotional campaigns and participation in national campaigns
• Cost savings when purchasing in cooperation with other franchisees
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 19
Disadvantages of Franchising
To the franchisor• Failure of the franchisee
to operate franchise properly• Disputes with and lawsuits
by franchisees over the terms of the franchise
To the franchisee• Franchisor retains a large
amount of control over the franchisee’s activities
• Franchisor opening competing franchises within the franchisee’s market
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 20
Qualities FranchisorsSeek in Franchisee
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 21
Chapter Quiz
1. Which one of the following would most likely be classified as a service industry?
A. Grocery storeB. Jewelry storeC. Pet shopD. Dry cleaning shopE. Clothing store
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 22
Chapter Quiz
2. Roger Jones, a graduate business student, has decided to open his own consulting firm. Since he is an intelligent and hard-working student with previous management experience, Roger feels he is well prepared to succeed since more new businesses fail due to
A. a lack of adequate financing.B. low consumer demand for their products.C. hostile competition.D. a lack of owner commitment.E. mismanagement and lack of business know-how.
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 23
Chapter Quiz
3. A license to operate an individually owned business as if it were part of a chain of outlets or stores is called a
A. joint venture.B. syndicate.C. franchise.D. SCORE.E. small-business development center.
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 24
Chapter Quiz
4. Jim Moniz is contemplating obtaining a franchise. He would like to purchase a franchise in an industry that has had extensive success with franchising in the past. All of the following are possible choices for Jim except
A. a fast-food industry.B. the semiconductor industry.C. filling stations.D. car dealerships.E. the soft-drink industry.