MODULE 8 ENTREPRENEURSHIP AND SMALL BUSINESS “It’s nice to be your own boss” What is entrepreneurship and who are entrepreneurs? What should we know about small business, and how can you start one? Entrepreneurship and Small Business are exciting and can be very rewarding but they are also very risky.

Entrepreneurs are risk takers that spot and pursue opportunities. ENTREPRENEURSHIP AND SMALL BUSINESS Entrepreneurship and Entrepreneurs MODULE GUIDE 8.1 Entrepreneurs are risk takers that spot and pursue opportunities. Entrepreneurs often share similar personal characteristics. Women and minority entrepreneurs are growing in numbers. Social entrepreneurs seek novel solutions to social problems. In this module, we will look at the similarities and differences of each of these groups.

ENTREPRENEURSHIP AND SMALL BUSINESS Entrepreneurship and Entrepreneurs Risk takers that spot and pursue opportunities Entrepreneurship Dynamic, risk-taking, creative, growth-oriented behavior. Necessity-based Entrepreneurship People starting new business because they have no other employment options Social Entrepreneurs Seek Novel Solutions to Social Problems People do different things for different reasons. Sometimes its because they want to; other times its because they have to.

ENTREPRENEURSHIP AND ENTREPRENEURS About Entrepreneurs Profile of Entrepreneurial Characteristics Internal locus of control Believe in control of own destiny; self-directing and like autonomy High energy level Persistent, hard working, willing to exert extraordinary efforts to succeed High need for achievement Motivated to accomplish challenging goals; thrive on performance feedback Tolerance for ambiguity Risk taker; tolerate situations with high degrees of uncertainty Self-confidence Feel competent, believe in themselves, willing to make decisions Action orientation Try to act ahead of problems; want to get things done and not waste time Self-reliance Want independence; want to be their own boss, not work for others Flexibility Willing to admit problems and errors, to change course when plans aren’t working Necessity-based entrepreneurship is when people start new ventures because they have few or no other employment options. This list is a profile of successful entrepreneurs. Most are not successful the first time they try. Some are never successful.

ENTREPRENEURSHIP AND ENTREPRENEURS Minority Entrepreneurs Businesses owned by women create over 27.5 million jobs for U.S. workers. 33% of women starting firms say they weren’t taken seriously by prior employers. 29% of women entrepreneurs say they experienced the “glass ceiling.” Minority-owned businesses are the fastest growing sector of the American economy. Women have the creativity and staying power to be successful small business owners. They also tend to be good at human relations.

ENTREPRENEURSHIP AND SMALL BUSINESS Small Business MODULE GUIDE 8.2 Small businesses are mainstays of the economy. Family-owned businesses can face unique challenges. Most small businesses fail within five years. A small business should start with a sound business plan. There are different forms of small business ownership. There are different ways of financing a small business. Small businesses include the local independently owned shops that you see in every town. They include restaurants, dry cleaners, gift shops and many more types of businesses.

ENTREPRENEURSHIP AND SMALL BUSINESS Small Business One with 500 or fewer employees, is independently owned and operated and does not dominate its industry. Small Business Statistics Employ some 52 percent of private workers Provide 51 percent of private-sector output Receive 35 percent of federal government contract dollars Provide as many as 7 out of every 10 new jobs in the economy Obviously, it is not the size of the business that generates these numbers. It is the shear quantity of them.

ENTREPRENEURSHIP AND SMALL BUSINESS Small Business Failure Rate Most (60% to 80%) of small businesses fail within five years of starting. Common Causes of Small Business Failures Lack of experience Not having sufficient know-how to run a business in the chosen market or area Lack of expertise Not having expertise in the essentials of business operations, including finance, purchasing, selling, and production Lack of strategy Not taking the time to craft a vision and mission, nor to formulate and properly implement strategy Poor financial control Failing to track the numbers and to control business finances Growing too fast Not taking the time to consolidate a position, fine-tune the organization, and systematically meet the challenges of growth Insufficient commitment Not devoting enough time to the requirements of running a competitive business Ethical failure Falling prey to the temptations of fraud, deception, and embezzlement Most of this has to do with lack of experience or education.

SMALL BUSINESS Small Business Life Cycle The main problem in any of these stage is cash flow. Even high growth profitable businesses can run out of cash.

SMALL BUSINESS Family Owned Business Family Business A business that is owned and operated by a family. Family Business Feud A disagreement amongst family members as to how the business should be run or who should manage it. Its surprising, given the stress of running a business and the difficulty of maintaining relationships, that there are as many family owned businesses as there are.

SMALL BUSINESS Types of Small Businesses Sole Proprietorship An individual or married couple pursuing business for a profit. Partnership Two or more people agree to contribute resources to start and operate a business together. General Partnership The owners share management responsibilities. Limited Partnership General partner manages the business Limited partners do not participate in day to day operations Limited partners share profit but losses are limited to the amount of their investment Partnerships are a very common form of family owned businesses.

SMALL BUSINESS Types of Small Businesses Corporation A legal entity that exists separately from its owners Limited Liability Company (LLC) A combination of sole proprietorship, partnership, and corporation. Protects owners against personal loss other than what is invested in the company Treated as a proprietorship or partnership for tax purposes The LLC is fairly new but it is becoming very popular. In addition to providing the protection of a corporation, it avoids the double taxation paid by owners of the corporation.

SMALL BUSINESS Financing Small Businesses Debt Financing involves borrowing money from another person, a bank, or a financial institution. Equity Financing involves exchanging ownership shares for outside investment monies. Venture Capitalists Involves making large investments in new ventures in return for an equity stake in the business. Venture capitalists expect large returns in a short period of time for their investments. They typically demand a large equity position in the companies that they invest in.

SMALL BUSINESS Financing Small Businesses Angel Investor A wealthy individual willing to invest in return for equity in a new venture. Initial Public Offering (IPO) An initial selling of shares of stock to the public at large. Angels typically invest less than $500,000 in a company. They are often the first outside investors.

Management Tips Challenging the myths about entrepreneurs • Entrepreneurs are born, not made. Not true! Talent gained and enhanced by experience is a foundation for entrepreneurial success. • Entrepreneurs are gamblers. Not true! Entrepreneurs are risk takers, but the risks are informed and calculated. • Money is the key to entrepreneurial success. Not true! Money is no guarantee of success. There’s a lot more to it than that; many entrepreneurs start with very little. • You have to be young to be an entrepreneur. Not true! Age is no barrier to entrepreneurship; with age often come experience, contacts, and other useful resources. • You have to have a degree in business to be an entrepreneur. Not true! But, it helps to study and understand business fundamentals. Many of these myths are propagated by rare cases of huge success. Think of Bill Gates.