1. Chapter Six Small Business, Entrepreneurship, and Franchising Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

3. 6-3 Entrepreneurship and Small Business Entrepreneurship The process of creating and managing a business to achieve a desired objective Small Business Any independently owned and operated business that is not dominant in its competitive area and employs fewer than 500 people Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

4. 6-4 Why Do Entrepreneurs Go Into Business? Source: Dun & Bradstreet 19 th Annual Small Business Survey, May 2000 from “The Rewards,” Inc. State of Small Business, vol. 23 (2001), issue 7, p. 50. Joined family business Wanted more control over future Tired of working for someone else Wanted to fulfill longtime goal Had been downsized or laid off 5% 25% 27% 36% 41%

5. 6-5 What Is a Small Business? Any independently owned and operated business Not dominant in its competitive area Does not employ more than 500 people Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

6. 6-6 Facts About Small Businesses

7. 6-7 The Role of Small Business in the American Economy Job creation Innovation Exporting Did You Know? 9.1 million women-owned businesses employ 27.5 million and contribute 3.6 trillion to the economy. 3.25 million minority-owned firms employ 4 million and account for $495 billion in revenues Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

8. 6-8 Number of Firms by Employment Size

9. 6-9 Industries That Attract Small Business Retailing and Wholesaling Services Manufacturing High Technology Did You Know? 39 percent of high-tech jobs are in small businesses Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

10. 6-10 What are the Advantages of Owning a Small Business? Personal Independence Freedom of choice The option of working at home Business Often requires less money to start and maintain Flexibility The ability to focus on a few key customers The chance to develop a reputation for quality and service Did You Know? 12% of Internet start-ups were launched in a garage. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

11. 6-11 Traits Needed to Succeed in Entrepreneurship Neuroticism Helps entrepreneurs focus on details Extroversion Facilitates network building Conscientiousness Facilitates planning Agreeableness Facilitates networking Openness to new ideas Source: Alex de Noble in Joshua Kurlantzick, “About Face,” Entrepreneur, January 2004, www.entrepreneur.com/article/0,4621,312260,00.html.

12. 6-12 Disadvantages of Small Business Ownership High stress level High failure rate Undercapitalization Managerial inexperience or incompetence Inability to cope with growth Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

13. 6-13 How Hard Do They Work? Hours worked by small business owners Source: “21st Annual Small Business Survey Summary Report,” Dun & Bradstreet (n.d.), www.sbs.dnb.com/ survey/2002survey.pdf (accessed May 4, 2004). www.sbs.dnb.com/

14. 6-14 Most Common Mistakes Made by Start-up Businesses 1.Failing to spend enough time researching the business idea to see if it’s viable 2.Miscalculating market size, timing, ease of entry, and potential market share 3.Underestimating financial requirements and timing 4.Overprotecting sales volume and timing 5.Making cost projections that are too low 6.Hiring too many people and spending too much on offices and facilities 7.Lacking a contingency plan for a shortfall in expectations 8.Bringing in unnecessary partners Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

15. 6-15 Most Common Mistakes Made by Start-up Businesses 9.Focusing too much on sales volume and company size rather than profit 10.Hiring for convenience rather than skill requirements. 11.Neglecting to manage the entire company as a whole. 12.Accepting that it’s “not possible” too easily rather than finding a way. 13.Seeking confirmation of your actions rather than seeking the truth. 14.Lacking simplicity in your vision. 15.Lacking clarity of your long-term aim and business purpose. 16.Lacking focus and identity. 17.Lacking an exit strategy. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

16. 6-16 The Keys to Starting a Small Business Success A comprehensive business plan The right form of ownership Adequate financing Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

17. 6-17 Financial Resources Equity Financing Owner’s funds Venture capitalists Debt Financing Loans & collateral Lines of credit Trade credits Barter Did You Know? The online lending agency is the latest trend in debt financing. Live Capital connects borrowers to American Express, GC Capital and other lenders. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

18. 6-18 Franchising Franchise: A license to sell another’s products or to use another’s name in business or both Franchiser: The company that sells a franchise Franchisee: The purchaser of a franchise Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

19. 6-19 Top Ten Franchises for 2004

20. 6-20 Fastest Growing and Hottest New Franchises

21. 6-21 Advantages of Franchises Management training and support Brand-name appeal Standardized quality of goods and services National advertising programs Financial assistance Proven products and business formats Centralized buying power Site selection and territorial protection Greater chance for success Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

22. 6-22 Disadvantages of Franchises Franchise fees and profit sharing with the franchiser Strict adherence to standardized operations Restrictions on purchasing Limited product line Possible market saturation Less freedom in business decisions Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

23. 6-23 The Marketing and Communication Tools for Small Business Success E-mail address Company Web site Direct mail Toll-free number Yellow Pages ads 100% 96% 71% 60% 58% Source: “Small businesses cite successful tools,” USA Today, November 1, 2001, p. 1b.

24. 6-24 Developing Trends Impacting Small Business Demographic Trends Baby boomers & Echo boomers Technological Trends Increase in Internet usage Major breakthroughs in technology Economic Trends Economic turbulence creates economic threats and new opportunities Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

25. 6-25 Making Big Businesses Act “Small” More and more firms are emulating small businesses in an effort to improve their own bottom line by Downsizing Making their operating units function more like independent small businesses Intrapreneurs

26. 6-26 Solve the Dilemma 1.Evaluate the idea of a low-fat cookie and muffin retail store. 2.Are there any concerns in connection with starting a small business that Jack and Bruce have not considered? 3.What advice would you give Jack and Bruce as they start up their business? Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

27. 6-27 Explore Your Career Options What are some of the key qualities required of an individual starting a new small business? Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

28. 6-28 Additional Discussion Questions and Exercises 1.Assume you wanted to go into business for yourself. What kind of business would you prefer? What would be the financial requirements for entering the business? What type of work or managerial experience would you need? 2.What should be included in a business plan? What is the importance of a business plan to the small-business entrepreneur? Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

29. 6-29 Additional Discussion Questions and Exercises 3.What are the goals of venture capitalists when they invest in new businesses? 4.Think of your local community. Can you name five new businesses that have started up recently? Would you consider these new businesses to be small businesses? Are these new businesses franchises? Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

30. 6-30 Chapter 6 Quiz 1.A license to sell another’s products or to use another’s name in business, or both, is called a.a franchise b.a joint venture. c.a licensing agreement. d.a small business license. 2.Which of the following industries is least likely to be entered into by small-business entrepreneurs? a.Services b.high technology c.mining and manufacturing d.retailing Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

31. 6-31 Chapter 6 Quiz 3.The shortest path to business failure is a.undercapitalization. b.lack of a business plan. c.stress. d.employee turnover 4.The money needed to finance regular business operations is called a.a line of credit. b.collateral. c.undercapitalization. d.working capital. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

32. 6-32 Multiple Choice Questions about the Video 1.Dale Gray’s specialty is a.emerging technology. b.third-world communications systems. c.the development and implementation of integrated communications networks. d.government relations. 2.Dale Gray has _______ security clearance. a.Top Secret 24 b.Top Secret 74 c.CIA G-17 d.HAS G-74 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved