6-1 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. NickelsMcHughMcHugh With help from Timothy Nickels Cover

6-2 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 66 Entrepreneurship and Starting a Small Business 6-2

6-3 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Learning Goals 1.Entrepreneurship 2.Small businesses’ role in the economy 3.How to learn and avoid early mistakes 4.What it takes to start a small business 5.Small businesses selling outside the USA

6-4 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 1. Entrepreneurship Entrepreneurship- Accepting the risk of starting and running a business.Entrepreneurship- Accepting the risk of starting and running a business. Entrepreneurial teams: group of experienced managers from different skills/fieldsEntrepreneurial teams: group of experienced managers from different skills/fields Intrapreneurs: working as an entrepreneur but inside a large companyIntrapreneurs: working as an entrepreneur but inside a large company Micropreneurs: home-based business, no less job security than working for large firmMicropreneurs: home-based business, no less job security than working for large firm

6-5 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Entrepreneurship DefinitionDefinition Characteristics of Successful EntrepreneursCharacteristics of Successful Entrepreneurs IntrapreneurIntrapreneur Micropreneur vs. Home-BasedMicropreneur vs. Home-Based Corporation Entrepreneur

6-6 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Entrepreneurial Attributes A.Self-Directed & Self- Disciplined B.Self-Nurturing C.Action-Oriented D.Highly Energetic E.Tolerant of Uncertainty

6-7 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Why People Start Their Own Businesses Source: BFIB/VISA Card Primer

6-8 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Reasons Women Leave Jobs in Big Companies to Start Business Source: FSB, March 2001

6-9 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Who Starts New Businesses? % % % % 55+ 2% AGE AT START-UP

6-10 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Hours per Week Entrepreneurs Worked 1st Year hours 8% hours15% hours23% hours28% hours13% 80 + hours12%

6-11 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Government Support Good legal and economic environment (Ch2)Good legal and economic environment (Ch2) SBASBA Enterprise zonesEnterprise zones IncubatorsIncubators

6-12 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Government Efforts  Immigration Act of Investor Visa  Enterprise Zones  Incubators

6-13 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 2. Small Business’s Role In The Economy Create 75% of the new jobs in the USCreate 75% of the new jobs in the US Generate 45% of GDP (Ch2)Generate 45% of GDP (Ch2) Offer more personalized customer- service than large companies, so fill niches in marketsOffer more personalized customer- service than large companies, so fill niches in markets

6-14 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. What is Small Business?  Independent  Not Dominant  ( Except in  small niche market)  < 500 Employees

6-15 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. U.S. Small Businesses  20 Million Full/Part-Time Businesses  75% of New Jobs  45% of Gross Domestic Product  Jobs  80% of Americans = 1 st Job in Small Business  75% of New Jobs = Small Business  Women-Owned Growing Rapidly

6-16 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Small Business- Advantages  Personalized Service/ Personal Contact  Flexibility  Lower Costs  Innovation Opportunities

6-17 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Small Business- Disadvantages - Limited Experience - Long Hours - Insufficient Capital - High Failure Rate

6-18 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3. How to learn and avoid early mistakes Classes like this one and those more oriented to small business practicalitiesClasses like this one and those more oriented to small business practicalities Talk to experienced small business owners and gain from their experiencesTalk to experienced small business owners and gain from their experiences Gain experience in same field working fro someone elseGain experience in same field working fro someone else

6-19 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Small Business Success  Learn from Others  Get Experience  Take Over Successful Firm

6-20 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 4. What it Takes to Start a Small Business Business Plan (see page 191):Business Plan (see page 191): –Nature of business: what good or service you will provide –Target market: what need you will fill –Advantages over competition –Resources available: money, capital, people –Skills available

6-21 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. What it takes (part 2) Financing:Financing: –Bank loan –Venture Capitalist: part-ownership as condition of financing Venture Capitalists: Individuals or companies that invest in new business in exchange for partial ownership of those businesses.Venture Capitalists: Individuals or companies that invest in new business in exchange for partial ownership of those businesses.

6-22 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Capital Sources of Successful Entrepreneurs SOURCE: FSB, March 2001

6-23 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. What it takes (part 3) Define Your Market: People with unsatisfied needs who have both the resources and willingness to buy.Define Your Market: People with unsatisfied needs who have both the resources and willingness to buy. Keep track of how you are doing(profit/loss): record keeping and accountingKeep track of how you are doing(profit/loss): record keeping and accounting Staff: pick people you can trust and make it worth their whileStaff: pick people you can trust and make it worth their while

6-24 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Successful Business Management Requirements Business Plan Business Plan Adequate Funding Adequate Funding Lenders/Investors Lenders/Investors “Angels” “Angels” Venture Capitalists Venture Capitalists Professional Advice/Help Professional Advice/Help Know Your Customer Know Your Customer Manage Human Resources Manage Human Resources Keep Good Records Keep Good Records

6-25 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Advantages of Working for a Small Firm More empowerment to use own ideas and take initiative, as boss has to rely on you for more tasks and a more important proportion of all work done (than in a large company)-> boss shows more respect and job is more challengingMore empowerment to use own ideas and take initiative, as boss has to rely on you for more tasks and a more important proportion of all work done (than in a large company)-> boss shows more respect and job is more challenging

6-26 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Help From: Small Business AdministrationSmall Business Administration SCORE: Service Corps of Retired ExecutivesSCORE: Service Corps of Retired Executives

6-27 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Small Business Collaborators  Small Business Administration (SBA)  Microloan program  SBICs  SBDCs  Service Corps of Retired Executives (SCORE)  Active Corps of Executives (ACE)

6-28 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Small Business Administration (SBA): A U.S. government agency that advises and assist small businesses by providing management training and financial advice and loans.A U.S. government agency that advises and assist small businesses by providing management training and financial advice and loans.

6-29 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 5) Small Businesses Selling Outside the USA World market is many times larger than USWorld market is many times larger than US Internet allows small businesses to reach potential customers all over the globeInternet allows small businesses to reach potential customers all over the globe