CHAPTER 6 Entrepreneurship & Small Business Management

6-1 Becoming an Entrepreneur CHARACTERISTICS OF ENTREPRENEURS Entrepreneur – someone who takes a risk in starting a business to earn a profit. Entrepreneurship – is the process of starting, organizing, managing, and assuming the responsibility for a business.

6-1 Becoming an Entrepreneur CHARACTERISTICS OF ENTREPRENEURS Entrepreneurs in Action – Cameron Johnson – Adam Hilderth – Juliette Brindak – Ashley Qualls – John Magennis – Adam Horwitz – Jon Koon – Tyler Dikman – Michael Dunlop – Maddie Bradshaw

IN-CLASS GROUP ASSIGNMENT From a group of three Research your assigned entrepreneur and answer the following questions: 1.How old were they when they got their start? 2.What did they do to become an entrepreneur? Were they an improver or an innovator? 3.What are they worth now?

6-1 Becoming an Entrepreneur CHARACTERISTICS OF ENTREPRENEURS What Does it Take? ENTREPRENEURS AREENTREPRENEURS HAVE CompetitiveAbility to partner CreativeAbility to secure resources EnergeticAbility to spot opportunity Goal OrientedCapability to learn from failure IndependentPersonal initiative InquisitiveProblem-solving skills PersistentStrong integrity ReliableTolerance for ambiguity Self-ConfidentWillingness to work hard

6-1 Becoming an Entrepreneur ENTREPRENEURSHIP AND THE ECONOMY Employment – Small businesses are responsible for most new employment – Between 1990 and 2005 over 60% of new jobs were created by businesses with fewer that 500 employees

6-1 Becoming an Entrepreneur ENTREPRENEURSHIP AND THE ECONOMY Financing – Most new businesses start on $10,000 or less – 75% of startup capital comes from owner savings, bank loans & credit card debt – Venture Capital – money provided by large investors to finance new products and new businesses Late 1990s they supplied more $100 billion each year to new business By 2009 that dropped to $16 billion per year

6-1 Becoming an Entrepreneur ENTREPRENEURSHIP AND THE ECONOMY Productivity – Small businesses are responsible for more than half of the U.S. gross domestic product each year – They account for more than half of all innovative products and services developed

6-1 Becoming an Entrepreneur OPPORTUNITIES AND RISKS New Business Opportunities – Innovation – an invention or creation that is brand new Steven Jobs & Stephen Wozniak Arthur Fry & Spencer Silver – Improvement – A designed change that increases the usefulness of a product, service or process. Henry & Richard Bloch

6-1 Becoming an Entrepreneur OPPORTUNITIES AND RISKS Recognizing Risks – 1/3 of all new businesses are profitable – 1/3 are not profitable, but continue to operate – 1/3 lose money – Over a 10 year period more than 50% of all new businesses are discontinued

6-1 Becoming an Entrepreneur OPPORTUNITIES AND RISKS Recognizing Risks Primary reasons that businesses fail – 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

6-2 Small Business Basics SMALL BUSINESS OWNERSHIP Small Business – An independent business with fewer than 500 employees – The owner is usually the manager – It operates in one or very few locations – It typically serves a small market – It is not dominate in its field

6-2 Small Business Basics SMALL BUSINESS OWNERSHIP Small Business Employment – Small businesses are responsible for 60-80% of all new jobs

6-2 Small Business Basics SMALL BUSINESS OWNERSHIP Ownership Diversity – Women own more than 25% – Minorities own 17% – 14% of owners are under 35 – 50% of all businesses are home based

6-2 Small Business Basics SMALL BUSINESS ADVANTAGES Meeting Customer Needs – They often serve customers where the number of products and services needed is small or the requirements are too specialized for large businesses to make a profit – They serve fewer customer and have more frequent contact – They get direct information from their customers about likes and dislikes

6-2 Small Business Basics SMALL BUSINESS ADVANTAGES Provide Unique Services – Suited to provide unique services for customers – They have the expertise to plan and deliver the services that satisfy the customer

6-2 Small Business Basics COMMON SMALL BUSINESS PROBLEMS Reasons for 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

6-2 Small Business Basics COMMON SMALL BUSINESS PROBLEMS Small Business Assistance – Local colleges and universities have faculty members who can give advise and support – Local Chambers of Commerce have members who can help with business problems – Small Business Administration (SBA) – a government agency that helps small business owners develop business plans and obtain financing and other support for their companies

6-3 Starting a Small Business THE BUSINESS DECISION An Idea Plus Experience – Hobbies, interests, experiences – Books, magazines

6-3 Starting a Small Business THE BUSINESS DECISION Right Place and Time – Retail business needs good customer traffic – Wholesalers need easy access to manufacturers – Transportation systems must also be easy to reach for distributing finished products

6-3 Starting a Small Business THE BUSINESS DECISION Team Approach – Part-time or full-time employees – Bankers – Lawyers – Accountants

6-3 Starting a Small Business THE BUSINESS DECISION Preparation & Research – Having enough information to make good decisions – Research customers, competitors, operations, government regulations

6-3 Starting a Small Business DEVELOPING A BUSINESS PLAN What is a business plan? – Business Plan – a written description of the business idea and how it will be carried out, including all major business activities.

6-3 Starting a Small Business DEVELOPING A BUSINESS PLAN Elements of the Business Plan – Description of the Business – Customer Analysis – Operation Plans – Marketing Plan – Financial Plans

6-3 Starting a Small Business FINANCING THE SMALL BUSINESS Types of Financing – Start-up financing – the amount of money needed to open the business. Cost of buildings Equipment Inventory Supplies licenses

6-3 Starting a Small Business FINANCING THE SMALL BUSINESS Types of Financing – Short-term financing – the amount of money needed to pay for the current operating activities of a business Obtained for a period of less than one year, usually for one or two months

6-3 Starting a Small Business FINANCING THE SMALL BUSINESS Types of Financing – Long-term financing – money needed for the main resources of a business Land, buildings, equipment These resources require large amounts of money and will be paid over many years

6-3 Starting a Small Business FINANCING THE SMALL BUSINESS Sources of Financing – Personal Savings – Borrowed funds (banks, financials institutions, family or friends) – Credit