1. CDAE 266 - Class 02 August 31 Last class: Syllabus Student information sheet 1. Introduction Today: 1. Introduction Next class: 1. Introduction 2. Review of economic and business concepts Assignment: Visit the web page: http://www.sba.gov

2. 1. Introduction 1.1. Small businesses in the U.S. 1.2. A global perspective of entrepreneurship 1.3. Quantitative methods for business decision making 1.4. Decision making process 1.5. Applications of quantitative methods 1.6. Decision making for community entrepreneurs 1.7. Writing business reports (memos)

3. 1.1. Small businesses in the U.S. economy 1.1.1. What is the definition of a small business? 1.1.2. Small businesses in the U.S. 1.1.3. Contributions of small businesses in the U.S.

4. Small businesses in the U.S. economy Factors contributing to the development of small businesses in the United States: -- History -- Social respect of people who run their own businesses -- Education -- Policy and regulations -- easy to start a business -- Competitive markets -- Horizontal and vertical integrations -- Government support: Small Business Administration (SBA) -- Support and assistance from many other organizations -- Diversified customers -- Relatively inelastic demand with respect to prices …...

5. Small businesses in the U.S. economy Survey : groups that have had mainly good influence on America: -- Movies and TV shows (30%) -- Congress (38%) -- Business executives (40%) -- Unions (48%) -- Courts (52%) -- Local and state government (60%) -- Women’s movement (67%) -- Newspapers (72%) -- Churches (85%) -- People who run their own businesses (90%)

6. Small businesses in the U.S. economy Support and assistance to small businesses -- U.S. Small Business Administration (SBA) -- Other federal agents (e.g., USDA) -- State and local government agents -- Universities (research, education and extension) -- Private foundations (e.g., Kauffman Foundation) ……

7. Small businesses in the U.S. economy U.S. Small Business Administration (SBA) -- Established in 1953 -- Provides financial, technical & management assistance to help Americans start, run, and grow their businesses. -- Has a portfolio of about $50 billion of business loans, loan guarantees and disaster loans -- Has helped almost 435,000 small businesses get more than $94.6 billion in loans during 1991 to 2000 -- Provides service to more than one million small business owners each year. -- Provides grants to support small business research (SBIR)

8. Small businesses in the U.S. economy University extension system -- Land grant universities -- Agricultural experiment station -- Extension system -- Education programs -- Small business development

9. Small businesses in the U.S. economy Advantages of going into small business: -- Individual goals and “dreams” -- Independence and flexibility -- Financial opportunities -- Community service -- Job security -- Family employment -- Challenge …...

10. Small businesses in the U.S. economy Disadvantages of going into small business: -- Risk and uncertainty -- Sale (income) fluctuations -- Competition -- Increased responsibilities -- Financial losses -- Employee relations -- Laws and regulations …...

11. 1.2. A global perspective of entrepreneurship 1.2.1. What is entrepreneurship? 1.2.2. Myths about entrepreneurs 1.2.3. Characteristics of entrepreneurs 1.2.4. Small business & entrepreneurial education

12. What is entrepreneurship? -- “Entrepreneur is derived from the French word “entreprendre” -- meaning “to undertake” -- Entrepreneurship: the dynamic process of vision, change, and creation of incremental wealth and welfare through products or service. -- Factors associated with entrepreneurship: -- Entrepreneurship  small businesses

13. Myths about entrepreneurs: -- Myth 1: Entrepreneurs are doers, not thinkers -- Myth 2: Entrepreneurs are born, not made -- Myth 3: Entrepreneurs are always inventors -- Myth 4: Entrepreneurs are academic & social misfits -- Myth 5: All Entrepreneurs need is money -- Myth 6: All Entrepreneurs need is luck -- Myth 7: Entrepreneurs are gamblers ……

14. Top 10 characteristics of entrepreneurs: -- Recognize and take advantage of opportunities -- Resourceful -- Creative -- Visionary -- Independent thinker -- Hard worker -- Optimistic -- Innovator -- Risk taker -- Leadership

15. Small business & entrepreneurial education in the U.S. -- Two-thirds of college students intend to be entrepreneurs at some point in their careers -- Individuals with more education are more likely to become entrepreneurs -- Business education vs. small business and entrepreneurship education

16. Small business and entrepreneurial education at UVM A short history Results from our alumni survey -- Why did you choose small business? Interesting introductory course: 24.7% Word of mouth from other students: 32.3% Consider the SB courses were more practical: 58.1% Advice and/or relatives: 14.0% Interest in owning and operating a SB: 65.6% Others: 24.7% -- Do you own your own business? Yes: 24.7% No: 72.0% NA: 3.2% -- If yes, how did you obtain ownership of the business? Inherited Purchased Started it from "scratch" 4.4%8.8%78.3%

17. The global entrepreneurship monitor (GEM) study -- A study of entrepreneurship and economic growth conducted by Babson College and London Business School, and funded by the Ewing Marion Kauffman Foundation. -- Number of nations included in the study: 1999: 10 2000: 20 2001: 37 2002: 41 -- Data collection: interview of 113,000 individuals in 2002

24. 1.3. Quantitative methods for decision making 1.3.1. Examples of business decision problems -- What product or service to produce and sell? -- How to produce and in what quantity? -- What are the best strategies to reduce risk? -- How to use the limited resources? -- When should inventory be restocked and how much should be restocked? -- How to choose the optimal combination of service quality and cost?.......

25. 1.3. Quantitative methods for decision making 1.3.2. Management science

26. 1.3. Quantitative methods for decision making 1.3.3. Two examples: (a) Suppose there are two projects with the same capital investment: the first one promises a profit of $10,000 in each of the next four years, and the second project promises a profit of $8,000 in each of the next six years. If the interest (discount) rate is 8%, what is your choice? (b) Linear programming and resource allocation: a small furniture manufacturer needs to decide how many chairs and tables to produce

27. 1.4. Decision making process 1.4.1. General process 1.4.2. Four-step process Step 1. Define the problem Step 2. Build a mathematical model Step 3. Solve the mathematical model Step 4. Communicate and monitor the results

28. Step 1. Define the problem -- Observe operations -- Ask simple questions -- Decide what is really wanted -- Identify constraints -- Recognize political realities -- Work with management and get feedback.

29. Step 2. Build a mathematical model -- Identify variables: -- What variables can be changed? -- What factors can not be changed? -- Quantify the objective and constraints -- Formulate the function to be max. or min. -- Formulate the requirements and/or restrictions. -- Construct model (general relations first) -- Collect data and complete the model

30. Step 3. Solve the mathematical model -- Choose an appropriate solution technique -- Generate model solutions -- Test model results –Is the solution reasonable? –Can the solution be implemented? –Does it fit present and future plans? -- Return to the first step if the results are not acceptable -- Perform “What-If” analyses

31. Step 4. Communicate & monitor the results -- Prepare a business report or presentation -- Monitor the progress of the implementation

32. 1.5. Applications of quantitative methods and successful stories 1.6. Decision making for community entrepreneurs

33. 1.7. How to write business reports or memos -- General guidelines -- Be neat -- Get to the point -- Supporting materials in attachment -- Major components of a business memo -- Introduction - problem statement -- Analysis and results -- What-if analysis -- Overall recommendations -- Appendices