1. Entrepreneurship and Starting a
Chapter 06
Entrepreneurship and Starting a
Small Business
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. LEARNING GOALS
Chapter Six
Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
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3. LEARNING GOALS
Chapter Six
Summarize the ways to learn about how small businesses operate.
Analyze what it takes to start and run a small business.
Outline the advantages and disadvantages small businesses have in entering global markets.
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4. WHAT is ENTREPRENEURSHIP?
The Age of the Entrepreneur
Entrepreneurship -- Accepting the risk of starting and running a business. (Ex. Zynga)
Learning Goal 1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
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5. NOTABLE ENTREPRENEURS
The Job-Creating Power of Entrepreneurship in the U.S.
French immigrant Élruthère Irènèe du Pont de Nemours started Du Pont in 1802.
David McConnell borrowed $500 from a friend to start Avon.
George Eastman started Kodak with a $3,000 investment in 1880.
Jeff Bezos started Amazon.com with investments from his family and friends.
Learning Goal 1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
This slide will help in starting the chapter discussion. Students enjoy stories about how companies began.
Ask the students: Do you know of any interesting stories about how some other businesses got started? (This can also be assigned as a team project to generate a good discussion.)
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6. WHY TAKE the RISK? Opportunity Different Skill Sets No Limitations
Why People Take the Entrepreneurial Challenge
LG1
Opportunity
Different Skill Sets
No Limitations
Profit
Independence
Different Structure
Personal Satisfaction
Challenge
See Learning Goal 1: Explain why people take the risks of entrepreneurship, list the attributes of successful entrepreneurs, and describe entrepreneurial teams, intrapreneurs, home-based and web-based businesses.
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7. WHAT DOES IT TAKE to be an ENTREPRENEUR?
Why People Take the Entrepreneurial Challenge
WHAT DOES IT TAKE to be an ENTREPRENEUR?
LG1
Self-directed: Organized and responsible
Self-nurturing: Enthusiastic and optimistic
Action-oriented: Not just ideas. Work toward goals
Highly energetic: Physical and mental commitment, hard work
Tolerant of uncertainty: Risk $$
See Learning Goal 1: Explain why people take the risks of entrepreneurship, list the attributes of successful entrepreneurs, and describe entrepreneurial teams, intrapreneurs, home-based and web-based businesses.
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8. FIVE STEPS to STARTING YOUR BUSINESS in SCHOOL
Why People Take the Entrepreneurial Challenge
FIVE STEPS to STARTING YOUR BUSINESS in SCHOOL
LG1
Find a problem or need.
Zero in on specifics.
Do research on campus, test products with students.
Move forward with your ideas. Don’t wait!
Sacrifice.
See Learning Goal 1: Explain why people take the risks of entrepreneurship, list the attributes of successful entrepreneurs, and describe entrepreneurial teams, intrapreneurs, home-based and web-based businesses.
Five Steps to Starting Your Business in School
Just because you’re still in school doesn’t mean that starting a business is beyond grasp. Many students have turned their time in college into business creation.
Ask students: Have you had an idea for a business? What triggered it? Why did you or did you not pursue it further?
Source: Entrepreneur, May 2010.
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9. OPPORTUNITY GOOD IDEAS: Fill a customer or marketplace need
Turning Your Passion and Problems into Opportunities
OPPORTUNITY
LG1
GOOD IDEAS: Fill a customer or marketplace need
In addition, you need:
The skills and resources to start a business
To sell at a reasonable price and still make a profit
To get to customers before competitors
To keep the business going
Learning Goal 1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
Apple Inc. competes on service and product variety
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10. ENTREPRENEURIAL TEAMS
LG1
Entrepreneurial team: Group of experienced people from different areas of business who join to form a managerial team w/skills to develop, make and market a new product.
Steve Jobs: Vision Steve Wozniak: Technology Mike Markkula: Business (all key to Apple’s success)
Learning Goal 1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
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11. MICROPRENEURS
Micropreneurs
and Home-Based Businesses
LG1
Micropreneur: Entrepreneur who is willing to accept the risk of starting and managing a business that remains small. This allows them to do the work they want to do and offers a balanced lifestyle.
Home-based business owners: Writers, attorneys, consultants, architects, CPAs, bookkeepers. Over 50% of home-based Micropreneurs are men.
Learning Goal 1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
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12. HOME-BASED BUSINESS GROWTH
Micropreneurs
and Home-Based Businesses
LG1
Computer technology: has leveled the playing field
Corporate downsizing: many have ventured out on their own
Social attitudes: have changed
New tax laws: have loosened restrictions on deducting expenses for home offices.
Learning Goal 1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
In the United States home-based businesses have experienced growth due to a variety of reasons. One of the most important reasons for the growth in home-based businesses is that technology has made it easier for home-based businesses to compete against their larger competitors.
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13. BENEFITS of HOME-BASED BUSINESSES
Micropreneurs
and Home-Based Businesses
LG1
Immediate start-up
Minimal initial investment
No rent or excessive set-up
Comfortable working conditions
Reduced wardrobe expenses
No commuting
Tax benefits
Elimination of office politics
Less (low) risk for trial & error
Learning Goal 1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
Ups of Home-Based Businesses
This slide lists some of the benefits of a home-based business.
Before showing this slide, have students work alone, then with a partner, then with a group (doing all three will help promote discussion of students’ ideas) to see if they can come up with a list of benefits of home-based businesses. Then reveal the slide and have students compare their lists to the slide.
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14. DOWNSIDES: HOME-BASED BUSINESS
Micropreneurs
and Home-Based Businesses
DOWNSIDES: HOME-BASED BUSINESS
LG1
Getting new customers
Managing your time
Keeping work/family tasks separate
City Ordinances/Zoning Restrictions
Networking w/other business people
Difficult to establish work habits
Limited support system
Isolation/Work space may be limited
Success is based 100% on your efforts
Learning Goal 1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
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15. ONLINE BUSINESS
Web-Based Businesses
LG1
Online sales reached $172.9 billion in 2010, or 7% of all retail sales.
All retail sales were up 2.5% in However, online retail sales grew 11%. (a faster rate)
Learning Goal 1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
It’s expected online sales will reach $250 billion by 2014.
Affiliate Marketing: An Internet-based marketing strategy in which a business rewards individuals or other businesses for each visitor or customer the affiliate sends to its website. (Amazon, Half.com)
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16. INTRAPRENEURS
Entrepreneurship Within Firms
LG1
Intrapreneur: A creative person who works as an entrepreneur within a corporation. Intrapreneurs use a company’s existing resources to launch new products.
In 1968, Dr. Spencer Silver, a scientist at 3M (with the help of Jesse Kops, a fellow scientist), accidentally developed a "low-tack", reusable pressure sensitive adhesive. For 5 years, Silver promoted his invention within 3M, but without success. In 1974, a colleague, Art Fry, came up with the idea of using the adhesive as a bookmark
Learning Goal 1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
In order to develop new ideas, engineers at Google are allowed to work on projects that interest them for up to twenty percent of their time at work. The idea is to support creative people and ideas in an effort to launch new products. This work can be more motivating than working on someone else’s ideas.
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17. GOVERNMENT and ENTREPRENEURSHIP
Encouraging Entrepreneurship: What Government Can Do
GOVERNMENT and ENTREPRENEURSHIP
LG1
Immigration Act: Passed, in part, to encourage more entrepreneurs to come to the U.S. (1990)
Enterprise Zones: Specific geographic areas to which governments try to attract private business by offering lower taxes and government support.
Incubators: Centers that offer new businesses low-cost offices with basic services.
Learning Goal 1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses.
Small-business is the economic engine of the United States economy. Due to the economic power of small-businesses the government has used “investor visas,” enterprise zones and business incubators to encourage entrepreneurship. A good website to further explore incubators is
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18. SMALL BUSINESSES
Small Versus
Big Business
LG2
Small Businesses are: 1. Independently owned and operated 2. Not dominant in their field of operation 3. Supposed to meet certain standards of size
Businesses are “small” in relation to other businesses in their industries.
See Learning Goal 2: Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
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19. SMALL BUSINESS STATS 27.8 million small businesses in the U.S.
Small Versus
Big Business
LG2
27.8 million small businesses in the U.S.
97% of all nonfarm businesses in the U.S.-small
50% of GDP contributed by small businesses
60-80% of new jobs generated by small business
80% of workers’ first jobs were in small business
Standards of Size-Employees and Revenue
Less than $2 million for service businesses
Less than $20 million for wholesale businesses
See Learning Goal 2: Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
The power of small business is immense. Students are often shocked to see how small businesses contribute to the U.S. economy.
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20. ADVANTAGES of SMALL vs. BIG BUSINESS
Importance of Small Business
LG2
Offer more personal customer service
Have the ability to respond quickly to opportunities
Often fill a niche
Bigger is not always better
See Learning Goal 2: Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
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21. BUSINESS FAILURES are LOWER THAN REPORTED BECAUSE…
Small Business Success & Failure
BUSINESS FAILURES are LOWER THAN REPORTED BECAUSE…
LG2
Owner closing a business to start another is reported as a “failure.”
Changing forms of ownership is reported as a “failure.”
Retirement is reported as a “failure.”
See Learning Goal 2: Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
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22. BUSINESS FAILURES Plunging in w/o testing Under or over pricing
Small Business Success & Failure
BUSINESS FAILURES
LG2
Plunging in w/o testing
Under or over pricing
Too little working capital
Little/no experience
Borrowing w/o planning
Trying to do too much
Buying too much on credit
Extending credit too
freely and rapidly
Incomplete and/or inaccurate records
Not understanding business cycles
Forgetting about taxes, insurances, etc
Owner working or not, according to whims
See Learning Goal 2: Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
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23. FAMOUS BUSINESS FAILURES
Small Business Success & Failure
LG2
Tommy Hilfiger – First store went bankrupt
Milton Hershey – First confectionery failed
H.J. Heinz – Company went bankrupt six years after start
Walt Disney – First film company went bankrupt
Henry Ford – First two car companies failed
L.L. Bean – Almost went bankrupt in first year
See Learning Goal 2: Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
They Did What?
Starting a successful new business is never easy and many famous entrepreneurs failed at their first and subsequent attempts.
Ask students: How can a business failure actually be a positive experience? (While failure is never a goal, it often gives the entrepreneur an invaluable experience. Old adage: Learn from your mistakes.)
Ask the student: If your first business failed, would you try again? Why or why not?
How can businesses survive such poor performances? (Determination and passion of the owners and founders plays a big role.)
Source: World Features Syndicate.
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24. LEARNING ABOUT SMALL BUSINESS
Learning About Small Business Operations
LG3
Learn from Others – Investigate your local colleges for classes on small business and entrepreneurship; talk to and work for successful local entrepreneurs.
Get Some Experience – Gain 3 years experience in the field; then start a part-time small business.
Take Over a Successful Firm – Serve as an apprentice and eventually take over once the owner steps down.
See Learning Goal 3: Summarize ways to learn about how small businesses operate.
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25. MAJOR BUSINESS FUNCTIONS
Managing a Small Business
LG4
Planning
Financing
Knowing customers
Managing employees
Keeping records
Knowing suppliers
See Learning Goal 4: Analyze what it takes to start and run a small business.
Starting a business is when the real work begins. It is important that entrepreneurs understand the major business functions such as planning, financing, understanding your customer, managing employees and keeping good records. Many entrepreneurs create business plans which may in part outline the major business functions.
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26. BUSINESS PLANS A Business Plan: is a detailed written statement that
Begin with Planning
LG4
A Business Plan: is a detailed written statement that
-describes the nature of the business -defines the target market -states advantages the business has over competitors -defines the resources and owners qualifications
forces potential owners to be specific about the products or services they intend to offer.
mandatory for talking with bankers or investors.
See Learning Goal 4: Analyze what it takes to start and run a small business.
The business plan is the entrepreneur’s road map to success. While a well-designed business plan will not guarantee success, the lack of one may lead to failure. To borrow money or to seek investors a business plan is a must.
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27. 1-WRITING a BUSINESS PLAN
LG4
A 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.
See Learning Goal 4: Analyze what it takes to start and run a small business.
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28. FAMILY BUSINESSES What to Consider Before Starting a Family Business
Writing a Business Plan
LG4
Clarify 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 you’ll 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.
See Learning Goal 4: Analyze what it takes to start and run a small business.
A Family Affair
This slide illustrates what needs to be considered before starting a business with family members.
Communication and the establishment of clear expectations are the keys to making a family business work.
Ask students: Why do family businesses need extra care?
Source: Bloomberg Businessweek, accessed June 2011.
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29. 2-FINANCING or SOURCES of CAPITAL
Getting Money to Fund a Small Business
2-FINANCING or SOURCES of CAPITAL
LG4
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.
See Learning Goal 4: Analyze what it takes to start and run a small business.
One reason that businesses fail is a lack of capital. Capital can come from internal sources (personal saving, employees, etc.) or from external sources (relatives, banks and angel investors). One source of external funding is venture capital. Venture capitalists are individuals or companies that invest in new businesses in exchange for a stake in ownership. Many well-known businesses, such as Google, Zappos and Apple, received a first round of funding from venture capitalists.
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30. SOCIAL LENDING (Social Media in Business)
Kickstarter and Lending Club connect loan seekers to potential lenders.
Administrators assign interest rates between 6.78% and 24.95% based on their credit history, how much money is needed, and what the person is using it for.
See Learning Goal 4: Analyze what it takes to start and run a small business.
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31. The SMALL BUSINESS ADMINISTRATION
LG4
SBA: A U.S. government agency that advises and assists small businesses by providing loans, management training and financial advice.
1991: Started a microloan program that provides very small loans to small business owners.
“Worthiness” is judged on belief of the borrower’s integrity and soundness of their business ideas.
See Learning Goal 4: Analyze what it takes to start and run a small business.
The importance of small business to the U.S. economy cannot be overstated. The SBA is the government agency that advises and assists small businesses with financial advice and management training. For more information on the SBA visit their website
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32. The SMALL BUSINESS INVESTMENT COMPANY
The Small Business Administration
The SMALL BUSINESS INVESTMENT COMPANY
LG4
SBIC: Private investment companies licensed by the SBA to lend money to small businesses.
SBICs: help identify a business’s trouble spots early, give entrepreneurs advice, and in some cases can help reschedule loan payments.
SBDC: Small business development centers that evaluate the feasibility of ideas, develop business plans, and complete funding applications. They are funded by the federal government and individual states.
See Learning Goal 4: Analyze what it takes to start and run a small business.
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33. HELP PLEASE! More SBA Resources and Other Helpful Groups
The Small Business Administration
LG4
Small Business Investment Companies
The Office of Innovation & Entrepreneurship
SCORE
Entrepreneurship.org
See Learning Goal 4: Analyze what it takes to start and run a small business.
Help Please!
These are other sources for helpful information about starting and running a small business.
Encourage students to go to these websites to learn what services each offers.
Source: Inc., October 2010.
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34. 3-KNOW YOUR CUSTOMERS
Knowing Your Customers
LG4
Market -- Consumers with unsatisfied wants and needs who have both resources and willingness to buy.
Set out to fill the market’s 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.
See Learning Goal 4: Analyze what it takes to start and run a small business.
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35. 4-MANAGING EMPLOYEES
Managing Employees
LG4
Hiring, 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. (“hire from within”)
See Learning Goal 4: Analyze what it takes to start and run a small business.
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36. 5-KEEPING RECORDS
Keeping Records
LG4
Accounting Assistance: Computers 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
See Learning Goal 4: Analyze what it takes to start and run a small business.
Some of the most important assistance to small business owners is in accounting.
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37. OUTSIDE HELP: LEGAL
Looking for Help
LG4
Owners 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:
Leases
Contracts
Partnership agreements
Protection against liabilities
See Learning Goal 4: Analyze what it takes to start and run a small business.
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38. and...MARKETING RESEARCH
Looking for Help
LG4
Marketing 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.
See Learning Goal 4: Analyze what it takes to start and run a small business.
If marketing is about finding and filling customer needs, how can an entrepreneur better understand what customers need? Market research helps determine where to locate customers, whom to target as customers, and how to develop an effective strategy for reaching the market.
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39. OTHER FORMS OF HELP A commercial loan officer can help:
Looking for Help
LG4
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.
See Learning Goal 4: Analyze what it takes to start and run a small business.
Asking good questions is the key to success in any business. Fortunately for entrepreneurs some of the best advice comes free. Commercial loan officers can help with the creation of a business plan as well as financial advice. Insurance agents can help new entrepreneurs understand and insure against risk. One interesting and free source of information is SCORE, Service Corps of Retired Executives. To start a discussion in class, have students research SCORE ( and the programs offered at local SCORE offices.
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40. SMALL BUSINESS PROSPECTS ABROAD
Going International: Small Business Prospects
SMALL BUSINESS PROSPECTS ABROAD
LG5
Small- and medium-sized businesses accounted for 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.
See Learning Goal 5: Outline the advantages and disadvantages small businesses have in entering global markets.
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41. EMERGING MARKETS, EMERGING ENTREPRENEURSHIP (Reaching Beyond Our Borders)
In 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.
See Learning Goal 5: Outline the advantages and disadvantages small businesses have in entering global markets.
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42. IN CONCLUSION
Progress Assessment
Why are people willing to take the risks of entrepreneurship?
What are advantages of entrepreneurial teams?
Can you describe at least five sections of a business plan?
1) Opportunity to share in the American dream.
Profit, the potential to become wealthy and successful.
Independence, becoming you own boss.
Challenge, the desire to take a chance.
2) Whereas an entrepreneur has to wear many hats and take huge responsibility, a team allows members to combine creative skills with production and marketing skills right from the start. Having a team can also ensure more cooperation and coordination later among functions in the business.
3) Most entrepreneurs are committed to the quest for growth in their business. Mircorpreneurs know they can be content even if their companies never appear on a list of top-ranked businesses. Many micropreneurs are home-based businesses.
4) The Internet has opened the world of entrepreneurship wider than ever. Online sales have grown six times faster than retail sales and in 2007 topped over $165 billion. Today anything that can be offered in a retail environment can be offered online. However, a Web-based business is not an automatic ticket to success. It can often be a shortcut to failure. Web-based businesses must remember that they need to offer unique products or services that customers cannot easily purchase at retail locations.
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