Entrepreneurship and Small Business Management CHAPTER 6 Entrepreneurship and Small Business Management 6-1 Becoming an Entrepreneur 6-2 Small Business Basics 6-3 Starting a Small Business

Becoming an Entrepreneur 6-1 Becoming an Entrepreneur Goals Identify characteristics of successful entrepreneurs. Recognize the importance of entrepreneurship in the economy. Describe opportunities and risks of entrepreneurship.

Key Terms Entrepreneur~ someone who takes a risk in starting a business to earn a profit Entrepreneurship~ process of starting, organizing, managing, and assuming the responsibility for a business Venture capital~ money provided by large investors to finance new products and new businesses that have a good chance to be very profitable. Innovation~ an invention or creation that is brand new Improvement~ a design change that increases the usefulness of a product, service, or process. Chapter 6

CHARACTERISTICS OF ENTREPRENEURS Desire to be your own boss Special skills and abilities Chapter 6

ENTREPRENEURS IN ACTION Pankaj Arora Rich Stachowski Jeffrey Rodriguez and John Serrano Abbey Fleck Chapter 6

WHAT DOES IT TAKE? Entrepreneurs are more persistent inquisitive energetic goal oriented independent self-confident creative reliable competitive Chapter 6

WHAT DOES IT TAKE? Entrepreneurs have problem-solving skills (continued) Entrepreneurs have problem-solving skills tolerance for ambiguity strong integrity personal initiative ability to secure resources capability to learn from failure willingness to work hard Chapter 6

Checkpoint >> What personal characteristic are common to most successful entrepreneurs? Answer Any characteristics listed in Figure 6-1 are acceptable, such as persistence, inquisitiveness, self-confidence, creativity, and so forth. Chapter 6

ENTREPRENEURSHIP AND THE ECONOMY Employment- Small businesses are responsible for most new employment. (Over 60% of new jobs were created by businesses with fewer than 500 employees.) Financing Most money to needed to start a new business comes from the entrepreneur and his/her friends and family. Venture capital Productivity New and small businesses produce a large volume of goods and services (over $600 billion in sales annually). Chapter 6

Employment Growth by Business Size Source: U.S. Bureau of Labor Statistics Employment Growth by Business Size Chapter 6

Checkpoint >> What are the sources of financing that entrepreneurs use for their new businesses? Answer personal savings friends and family venture capital bank loans Chapter 6

OPPORTUNITIES Innovation~ invention or creation of something new Innovation vs invention http://wistechnology.com/articles/4184/ Innovation vs improvement http://www.creativityincubator.com/showModule.php?category=10&module=63 Innovation Life Cycle http://www.creativityincubator.com/showModule.php?category=10&module=55 Improvement~ design change that can increase the usefulness of a product, service, or process Chapter 6

RISKS Recognizing risks Lack of adequate capital Low sales Higher than expected expenses Competitive pressure An owner unprepared to manage a growing business Operations requiring more time than the owner is willing to commit Chapter 6

Checkpoint >> Where do entrepreneurship opportunities begin? Answer Opportunities begin with innovations (ideas about new products and services) or improvements (ideas for changes to existing products, services, or processes). Chapter 6

6-2 Small Business Basics Goals Identify important characteristics of small businesses. Recognize the competitive advantages of small businesses. Identify problems faced by many small businesses.

Key Terms small business Small Business Administration (SBA) Chapter 6

SMALL BUSINESS OWNERSHIP Description of a small business Owner is usually the manager Operates in one or very few locations Typically serves a small market Not dominant in its field Small business employment Ownership diversity Chapter 6

COMMON TYPES OF SMALL BUSINESSES Source: Small Business Administration and U.S. Census Bureau Chapter 6

Checkpoint >> What percentage of employees in the United States work for small businesses? Answer Nearly 50 percent of the American workforce is employed by small businesses. Small businesses are also responsible for 60–80 percent of all new jobs. Chapter 6

SMALL BUSINESS ADVANTAGES Meeting customer needs Providing unique services Chapter 6

Checkpoint >> How can small businesses compete successfully with larger businesses? Answer Smaller businesses are able to provide more personalized products and services to their customers. They are able to provide products and services where smaller orders and projects are required and tend to fill unique customer needs, which larger companies do not provide. Chapter 6

COMMON REASONS FOR SMALL BUSINESS FAILURE Not keeping adequate records Not having enough start-up money Lack of management experience Lack of experience with the type of business Not controlling operating expenses Poor location for the business Failure to manage credit offered to customers http://www.businessknowhow.com/startup/business-failure.htm http://www.businesspundit.com/the-25-worst-business-failures- in-history/ Chapter 6

SMALL BUSINESS ASSISTANCE Faculties of universities and colleges Local groups of business people Small Business Administration (SBA) SCORE http://www.score.org/small_biz_stats.html Small Business Failure Example – Kell on Earth http://www.currentmom.com/currentmom/2010/02/kell- on-earth-teaches-about-small-business-failure.html Chapter 6

Checkpoint>> List common reasons for small business failure. Answer not keeping adequate records insufficient start-up money lack of management experience lack of experience with the type of business not controlling operating expenses poor location failure to manage credit Chapter 6

Starting a Small Business 6-3 Starting a Small Business Goals Recognize important factors to be considered when starting a business. Describe the elements of a business plan. Identify types and sources of financing for a small business.

Key Terms business plan start-up financing short-term financing long-term financing Chapter 6

THE BUSINESS DECISION An idea plus experience ~hobbies, interests, and business experiences Right place and time ~location should attract a large number of people who are interested in the products and should be in a safe and pleasant area (‘Work as a Team’, p 139) Team approach ~employees feel valued and motivated to take personal responsibility for the benefit of the business. Preparation and research ~gather enough info to make decisions (info on customers, competitors, operations, gov’t regulations, etc.) Chapter 6

Checkpoint >> Why is it important to use a team approach when starting a new business? Answer A team approach allows employees to feel valued and motivated to take personal responsibility for the benefit of the business. Owners cannot expect to be able to do everything alone. Building a team will allow the business to increase productivity and, ultimately, profits. Chapter 6

WHAT IS A BUSINESS PLAN? A business plan is a written description of the business idea and how it will be carried out, including all major business activities. www.sba.gov Chapter 6

ELEMENTS OF A BUSINESS PLAN Description of the Business The business idea Major products and services Ownership structure Strengths/weaknesses Long- and short-term goals Chapter 6

ELEMENTS OF A BUSINESS PLAN (continued) Description of Competition Characteristics of the industry Condition of the economy Strengths and weaknesses of major competitors Chapter 6

ELEMENTS OF A BUSINESS PLAN (continued) Customer Analysis Description of customers Location, number, and resources of customers Sales forecasts Chapter 6

ELEMENTS OF A BUSINESS PLAN (continued) Operations Plan Organization of the company Description of major operations Analysis of resources needed Human resource plans Chapter 6

ELEMENTS OF A BUSINESS PLAN (continued) Marketing Plan Description of major marketing activities Description of resources needed Schedule of marketing activities Chapter 6

ELEMENTS OF A BUSINESS PLAN (continued) Financial Plans Start-up costs Short- and long-term financial needs Sources of financing Budgets and financial statements Chapter 6

STEPS IN DEVELOPING THE BUSINESS PLAN Gather and review information Develop the strategic alternatives Write the plan Ask an expert to review the plan Chapter 6

Checkpoint >> What is the “strategic alternatives” in a business plan? Answer Strategic alternatives are alternative plans for production, staffing, financing, and so on. Even the best business plan cannot predict every possible circumstance. An alternate plan allows a business to be prepared for the unforeseeable. Chapter 6

FINANCING THE SMALL BUSINESS Types of financing Start-up financing ~amt of $ needed to open (building, equipment, inventory, supplies, licenses, etc) Short-term financing ~ pays for current operating activities (less than a year) Long-term financing ~ funds main resources that will last for years (land, building, equipment) Sources of financing Owner-supplied funds Borrowed funds Chapter 6

Checkpoint >> In addition to owner-supplied capital, what are several other sources of financing for a small business? Answer Borrowed money may come from banks, finance companies, or other individuals, such as friends and family. Some suppliers may also be willing to extend credit. Chapter 6