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Entrepreneur in the Classroom Module 1: The Role of Small Businesses

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1 Entrepreneur in the Classroom Module 1: The Role of Small Businesses

2 @Copyright Katherine Korman Frey www.kathykormanfrey.com
Module 1 Objectives Define Entrepreneurship and Small Business Identify Major characteristics Learn Role in the U.S. In this first of three lessons for the future entrepreneur, we will examine the definition of entrepreneurship and small business. We will also provide an overview of the fascinating past and present of small business. The objectives for this module are: 1. Define entrepreneurship and small business, including the definitions of “small business” and why this is important. 2. Identify major characteristics of an entrepreneur, and to 3. Learn about the role small business plays in the U.S. Modules 2 & 3 will cover the following areas: Module 2 will explore… Turning an idea into a business Researching the market Weighing the risks of starting a small business Module 3 will explore nuts and bolts of starting a business such as… Writing a business plan Obtaining funding Interacting business-related agencies @Copyright Katherine Korman Frey

3 @Copyright Katherine Korman Frey www.kathykormanfrey.com
Module 1 Objectives Define Entrepreneurship and Small Business Identify Major Characteristics of Entrepreneurs Learn Role of Small Business in the U.S. Let’s start by understanding entrepreneurship and small business a bit better. @Copyright Katherine Korman Frey

4 What is an Entrepreneur?
Dictionary: Entreprenedre = to undertake Anyone who wants to work for him/herself Someone who sees problems as opportunities, then takes action to identify a solution to the problem Dictionary - The word entrepreneur originates from the French word, entreprenedre, which means “to undertake.” In a business context, it simply means to start a business. The Merriam-Webster Dictionary presents the definition of an entrepreneur as one who organizes, managers, and assumes the risks of a business or enterprise.” Perception - The concept of entrepreneurship has a wide range of meanings. It can be seen as someone who sees problems as opportunities and then takes action (like starting a business) to solve the problem. The problem can be a need not being met in the market. It can be a social need as well, we’ll talk about social entrepreneurs and see an example in a little bit. Sometimes, an entrepreneur is just someone who wants to work for himself or herself. @Copyright Katherine Korman Frey

5 What is an Entrepreneur?
(Instructor: You can just press play on this or do an intro…the video needs no introduction. Inside scoop: As a backgrounder, “Grasshopper” is a company which provides services to start up entrepreneurs. The entrepreneur who founded the venture has a wife with a creative design firm on Twitter – her firm did this movie. A family of entrepreneurs. It was so successful, large companies started copying it.) @Copyright Katherine Korman Frey

6 Thinking Entrepreneurially Exercise 1-1
Who is one person, famous or not, who has made a difference? Sometimes, it’s important to realize that just one person CAN make a difference with an idea, and their actions – no matter how big or small. That is the basis for this discussion. It will also lead into a larger discussion of entrepreneurship. @Copyright Katherine Korman Frey

7 What is a Small Business? Exercise 1-2
What are examples of small businesses in your community (or elsewhere)? What makes them successful? We pass businesses on the street everyday, and click on them, they are the apps on our phone. Think of a few. Think about why you like them and what they do well. (Instructor: This will relate to a quiz question showing that small businesses can be just about anything, and are everywhere!) @Copyright Katherine Korman Frey

8 Definition of a Small Business
According to the Small Business Administration (SBA), a rule of thumb definition is: < 1,500 employees < $21,500, in revenue Optional Exercise 1-2a: Does the size of a small business matter? Business size - Business size can be assessed in a number of ways, including number of employees and revenues. The Small Business Administration – The SBA is a federally-funded government agency providing loans and assistance to small businesses. (www.SBA.gov) The Small Business Act and NAICS - The SBA adheres to The Small Business Act which states that a small business concern is "one that is independently owned and operated and which is not dominant in its field of operation."  The law also states that in determining what constitutes a small business, the definition will vary from industry to industry to reflect industry differences accurately.  The SBA produces a table of size standards, matched to North American Industry Classification System (NAICS) industries, to guide the definition of a small business. What does it mean, exactly? Independently owned and operated – For example, the company could not be a part of Coca Cola, it must be independent. Not dominant in its field of operation – Google, for instance, is dominant in its field of operation. The definition will vary from industry to industry, and the SBA defines this. Rule of thumb – A few years ago - the SBA defined most small businesses as having 500 or fewer employees, and revenues not exceeding $6 to $8 million. Today, it’s less than 1,500 employees and less than $21 million! So, don’t get too comfortable …size definitions vary widely depending on the industry and are always changing. Small business owners have to track this if they work with the Federal Government. INSTRUCTOR DISCUSSION GUIDE: A great discussion can take place here as students share their perceptions of small business. One helpful hint is for the instructor to be prepared with the size (in revenues and employees) of one or two businesses known to the students. For instance, take the Burger King franchise down the street. If it is a million-dollar business, that example can give the students great perspective and context. Don’t be afraid to ask in the name of education! You might get a great guest speaker out of it. 1-2a Assignment helper: The answer to the Millenial Staffing case study set forth (in which a $17 million dollar company wonders if it has grown too much to apply for a federal contracting opportunity) is below: The company is NOT too big. The chart shows that, within the services category, companies can be up to $21.5 million in size. Discussion: Students may be surprised to find that companies can be so large and still considered a “small business” by the Small Business Administration. @Copyright Katherine Korman Frey

9 @Copyright Katherine Korman Frey www.kathykormanfrey.com
Module 1 Objectives Define Entrepreneurship and Small Business Identify Major Characteristics of Entrepreneurs Learn Role of Small Business in the U.S. Moving from the entity, to the person running the entity – let’s explore major characteristics of the entrepreneur. @Copyright Katherine Korman Frey

10 Characteristics of an Entrepreneur Exercise 1-3
Which item does not belong on the Entrepreneur List? Action oriented Always strives to do things better Drive to achieve results Does not need supervision to get tasks done Likes to work the same hours every day Incredibly persistent Review this list and think about which item does not belong when you think about an entrepreneur? (Instructor: On the next slide is the answer.) @Copyright Katherine Korman Frey

11 Characteristics of an Entrepreneur Exercise 1-3
Which item does not belong on the Entrepreneur List? Answer: “Likes to work the same hours every day” Discuss why you think this does not fit in a description of an entrepreneur. Sure, there might be an entrepreneur who likes to get into work at 8 or 9 and leave at 5 or 6 every day, but what is the main point here? It’s the idea that if an emergency arises, the entrepreneur is responsible for it. The entrepreneur can get calls in the middle of dinner, or the night, or the weekend. Someone who works for someone does not necessarily receive these calls. It might be their boss, who gets these calls. There is a lot of responsibility that comes with being an entrepreneur, as well as the reward. @Copyright Katherine Korman Frey

12 Entrepreneurial Passion Exercise 1-4
Let’s Raise Kids to be Entrepreneurs with Cameron Herold (Instructor: You can refrain from commenting and play video or give an intro. Note – the speaker makes comments about not fitting into the public school system, so, be aware – if you play the entire video – of a potentially “spicy” discussion) Intro: What did you notice about Cameron and his journey into entrepreneurship? Potential points: Didn’t feel he fit in. Learning problems, was successful at business. Creative, saw ideas for businesses everywhere Let the students discuss what their takeaways were from the video about one person’s discovery of entrepreneurship as a young person. Play Minutes 6.00 to 8.05 @Copyright Katherine Korman Frey

13 Entrepreneurial Passion Exercise 1-4
Discuss one area about which you are passionate. What are problems you’d like to see solved or areas of need related to this area? How could you make a business out of solving that problem? Optional Homework blog): Students complete Cameron Herold’s Painted Picture About what are you passionate? In thinking about a business to work in, it’s good to start with something you like. We will use this exercise as a way to think about your hobbies and interest areas…In other words, things about which you’re passionate. You will keep this exercise for use in the next module where we’ll brainstorm business ideas.” Instructor: You may need to team students up for the last point “making a business out of solving the problem” if students get stuck or have “business writer’s block. @Copyright Katherine Korman Frey

14 @Copyright Katherine Korman Frey www.kathykormanfrey.com
Module 1 Objectives Define Entrepreneurship and Small Business Identify Major Characteristics of Entrepreneurs Learn Role of Small Business in the U.S. Small business has evolved a great deal in our country. We’re going to just scratch the surface of that now. Some of you might want to do a little extra research on this afterwards who have a personal interest in history, or government and policy. @Copyright Katherine Korman Frey

15 There are 28 Million Small Businesses in the U.S.
Which… Produce 60 – 80 percent of all new jobs. Pay 44 per cent of the U.S. payroll 70 per cent are owned and operated by one person Source: SBA via BusinessInsider.com This may surprise some of you to see what a significant role small business plays in our economy. Who was surprised by these first two bullet points? Who would have thought that 70% of most small businesses were run by one person, raise your hand. That’s a lot of people who just said, “Hey, I’m going to start a business” and they did it. Right? This means only 30% - less than 1/3 – of the small businesses in this country have employees. So, if you went out today and started your own business, you’d be right there with the vast majority of business owners – the 70%. @Copyright Katherine Korman Frey

16 The Role of Small Business in America
Yesterday: One product at a time, until the Industrial Revolution Let’s watch this video from the History Channel on the evolution of small business in our country about the Industrial Revolution @Copyright Katherine Korman Frey

17 The Role of Small Business Exercise 1-5
From watching the video, discuss ways in which American industry became more efficient, faster, or better. What other “revolutions” have happened since then which have allowed us to become more efficient, faster, or better? (Instructor note for point #1: General industrial revolution notes ) One product at a time - Until the early 1800s, most goods were produced by workers in their cottages or in small artisan studios. Much of the US economy was based on agriculture. (Hatten, Timothy, Small Business Management). The Industrial Revolution & Economies of Scale - What changed it all? The Industrial Revolution. Example: Eli Whitney’s cotton gin, a mechanical device which removed seeds from cotton. A process which had, previously, been very labor intensive. Example: Samuel Slater’s textile machine. This was a yarn-spinning machine which revolutionized the textile industry in America, an industry which was dominated by the English. Under very covert circumstances, Slater accepted a proposal to set up a British-style mill in Rhode Island. INSTRUCTOR DISCUSSION GUIDE: This is, essentially, a very early case of corporate espionage. Some may consider what Slater did to be unethical, while others may say, ‘That’s healthy competition.’ These advancements made it possible to produce more than one item at a time. Factories were created to house the people, materials, and machineries required to make the goods. Economies of scale developed - The more the factories produced, the less each item cost. Example: Henry Ford developed an assembly line system for manufacturing cars. Example: Andrew Carnegie founded US Steel and produced steel in mass quantities. These advancements were so great, that these once small, idea-driven entrepreneurs came to dominate the industry. Source: Hatten, Timothy S. Small Business Management: Entrepreneurship & Beyond. Houghton Mifflin, 2003. (Instructor note: For point #2 Students would likely lead with technology and other types of products used in their everyday lives that have “revolutionized” the way they operate. The instructor may have a little more to offer here with experience of “before/after” product and industry evolutions and revolutions.) Examples: Example: Wal-Mart’s operational efficiencies which drove many competitors out of business. They managed every single aspect of how product was purchased, boxed, inventoried, delivered, loaded onto the dock, stocked, and analyzed. This process drove many suppliers out of business due to its demanding nature, but, it also resulted in cheap prices which is why – in addition to the one-stop-shop concept – Wal-Mart drove so many competitors out of business whenever it would enter a town. Example: The PDA revolutionized the way people kept their calendars and was the predecessor to multi-function PDAs and phones on which you can text message, keep calendars, , and watch videos. Example: The Microsoft operating system, which has had such an enduring impact that Bill Gates is a household name in America. @Copyright Katherine Korman Frey

18 The Role of Small Business in America
Today: Karen Mills of the Small Business Administration Today, small business is front and center. Let’s watch this interview with Karen Mills of the Small Business Administration known as the “SBA.” @Copyright Katherine Korman Frey

19 The Role of Small Business in America: Today
Exercise 1-6 From watching the video, does small business seem to be important in our country? Why or why not? Instructor note: Small business, based on the slide earlier showing economic impact, IS important. However, based on different administrations and policies – the nation actually demonstrates HOW important it thinks small business is in different ways. But the undercurrent of small business’s importance is always there. In this way, there is a “right answer” (YES – it is important), however sometimes not everyone realizes exactly HOW important it is. Now, students can be among this informed group! Feel free to say the previous in your own way. TODAY: Current climate for business growth - Just like the Industrial Revolution, growth and success for businesses is realized largely through greater efficiencies and greater innovations. If you’re not doing it better, faster, or cheaper…you won’t be doing it for long. Small business’s ability to compete - Small businesses have thrown their hats in the ring and, in many cases, are able to compete with larger firms due to advances in technology: “The capital advantage big businesses sometimes have is being eliminated. The technology is helping smaller companies beat up the big guys,” Says Ted Stolberg, venture capitalist. (Source: Hatten, Timothy. Small Business Management, p.11). What this means is the deep pockets of big corporations is no longer as great an advantage. In the past, big companies could essentially buy a small company out of the market by out-advertising them, out-pricing them, or some other strategy which would necessitate a great deal of money. Now, agile and small businesses are out-innovating, out-servicing, and sometimes out-performing larger competitors. Technology is a huge help in leveling the playing field. A small company can launch a website just as easily as a large company. Small companies can track, and act on, key data just like large companies through the use of readily-available software products. Universities and entrepreneurship - Universities recognize the importance of supporting entrepreneurship. “In 1971 only 16 schools in the US offered courses in entrepreneurship. By 1993, that number had grown to 370.” (Hatten, Timothy, Small Business Management, p.10). As of 2003, approximately 1,600 universities offered 2,200 entrepreneurship or new venture courses. (Katz, J.A., “The Chronology and Intellectual Trajectory of American Entrepreneurship.” Journal of Business Venturing, v.18(2): ) By learning about entrepreneurship now, you may select a university based on the availability of entrepreneurship classes or opportunities. You are a part of this growing trend. @Copyright Katherine Korman Frey

20 Thinking Ahead to Module 2
Should I start a business? Just starting out: 66 per cent expect the venture to be full time 33 per cent expect the venture to be part time 82.5 per cent seek credit of some kind Sources: SBA and NFIB If you started a business today, and you were not in school, who would want it to be full time – meaning, you did not work for anyone else – you just worked for yourself? Who would want to work for someone else, but do their business on the side? Who thinks they would need to borrow some money? This is what this last bullet point is about – “seeking credit” means going to borrow some money. @Copyright Katherine Korman Frey

21 History of Entrepreneurship in America Optional Bonus Exercise 1-7
Read the quote on the following page by Alexis de Toqueville. How does de Toqueville describe a culture of entrepreneurship? Would the U.S. have been different without this culture? How so? (Instructor: This is an optional bonus exercise. Below are some “food for thought” points): Small Business in the U.S. – a culture of entrepreneurship. Why has such an important small business sector developed in the US? A follow-on to Karen Mills incorporating de Toqueville information and discussion. Opportunity: Most American small business owners start businesses based on the opportunity it provides them personally, professionally, or a combination of both (Source: National Federation of Independent Business, Policy Guide). “Small businesses enable millions of people, including women, minorities, and immigrants, to access the American Dream.” (Source: Small Business Administration, 1998) Culture: Culturally, Americans readily organize around a cause, be it community, commercial, or otherwise: “Americans of all ages, all conditions, and all dispositions, constantly form associations.” (Alexis De Tocqueville, Democracy in America. In no other country has small business played more important a role in the innovative process. This is thought to be due, in part, to the American culture’s ability to tolerate failure as a logical outcome of trying something new. (The National Federation of Independent Business). Future Orientation: “U.S. economy is a dynamic, organic entity always in the process of ‘becoming’ rather than an established one that has already arrived. It is about prospects for the future, not about the inheritance of the past. (Kuratko, Donald. “Entrepreneurship Education: Emerging Trends and Trends for the 21st Century.” 2003.) Public Support: The US enjoys a culture that strongly supports small business and entrepreneurial activity. Those favorable opinions have a significant influence on the ultimate success of small firms. (“The Public Reviews Small Business,” conducted by the NFIB Research Foundation.) @Copyright Katherine Korman Frey

22 “Those associations only which are formed in civil life, without reference to political objects, are here adverted to. The political associations which exist in the United States are only a single feature in the midst of the immense assemblage of associations in that country. Americans of all ages, all conditions, and all dispositions, constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds — religious, moral, serious, futile, extensive, or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found establishments for education, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; and in this manner they found hospitals, prisons, and schools…. I have often admired the extreme skill with which the inhabitants of the United States succeed in proposing a common object to the exertions of a great many men, and in getting them voluntarily to pursue it. The Americans form associations for the smallest undertakings.” Alexis de Tocqueville, Democracy In America Here is the de Tocqueville excerpt – take a moment to read it. @Copyright Katherine Korman Frey

23 @Copyright Katherine Korman Frey www.kathykormanfrey.com
Module 1 Objectives Define Entrepreneurship and Small Business Identify Major Characteristics of Entrepreneurs Learn Role of Small Business in the U.S. In this module, we’ve been introduced to entrepreneurship, and its foundations from people, to definitions, to history and key numbers. We’ve covered. What is an entrepreneur? What is a small business? We’ve learned about major characteristics of an entrepreneur, as well as The important role small business plays in the US and our economy INSTRUCTOR DISCUSSION GUIDE: As a wrap-up, the instructor could close out the session going around the room and each student sharing their biggest “takeaway” from Module 1. @Copyright Katherine Korman Frey

24 Curriculum developed by:
Katherine Korman Frey, Entrepreneur in Residence & Adjunct Professor of Management at The George Washington University School of Business, Center for Entrepreneurial Excellence Contributing content provided by: Dr. George Solomon, Dr. Susan Duffy, Dr. Ayman Tarabishy and Professor Janet Nixdorff.


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