1. Small Business, Entrepreneurship, and Franchises
Chapter 5

2. Small Business: A Profile
A business that is independently owned and operated for profit and is not dominant in its field

3. Industry Group-Size Standards

4. Small Business: A Profile (cont.)
Important facts
In the last decade, the number of small businesses increased 49%.
70% of new businesses survive at least two years, about 50% survive at least five years, and 31% survive at least seven years.
The primary reason for these failures is due to poor management stemming from a lack of business know-how.
Small businesses provide over 50% of the jobs in the U.S.

5. The Entrepreneurs Characteristics Motivation
The “entrepreneurial spirit”
The desire for independence
The desire to determine one’s own destiny
The willingness to find and accept a challenge
Personal background
Age-most are years old
Motivation
“Had enough” of working for someone else
High-tech opportunities, especially for teens
Losing a job and deciding to start a business
An idea for a new product
An opportunity presents itself

6. The People in Small Businesses: The Entrepreneurs (cont.)
Women
Owned at least 50% of small businesses in 2008
Women have less risk of failure than average
Teenagers
High-tech entrepreneurship is exploding
Face unique pressures juggling schoolwork, social lives, business workload
Need skills for planning, persistence, patience, people management, generating profit
Successful entrepreneurs under age 30

7. The Pros and Cons of Smallness
Advantages
Personal relationships with customers and employees
Ability to adapt to change
Simplified recordkeeping
Independence
Advantages of sole proprietorships
Keeping all profits
Ease and low cost of going into business
Keeping business information secret
Disadvantages
Risk of failure
Limited potential
Limited ability to raise capital
Guy Kawasaki from Apple
“Make Meaning”

8. Sources of Capital for Entrepreneurs

9. Developing a Business Plan
Business plan—a carefully constructed guide for the person starting a business
Three basic purposes
Communication
Management
Planning
Banking officials’ and investors’ questions
What is the nature and mission of the new venture?
Why is it a good idea?
What are the goals?
How much will it cost?

10. The Small Business Administration
A governmental agency that assists, counsels, and protects the interests of small business in the U.S.
SBA management assistance
Management courses and workshops
Service Corps of Retired Executives (SCORE)
Help for minority-owned small businesses
Small-business institutes (SBIs)
Small-business development centers (SBDCs)
SBA publications

11. The Small Business Administration (cont.)
SBA financial assistance
Regular business loans
Loans made by private banks but partially guaranteed by the SBA
Small-business investment companies
Venture capital: money invested in small firms that have the potential to become very successful

12. Franchising Franchise Franchising Franchisor Franchisee
A license to operate an individually owned business as though it were part of a chain of outlets or stores
Franchising
The actual granting of a franchise
Franchisor
An individual or organization granting a franchise
Franchisee
A person or organization purchasing a franchise

13. Look at Dunkin’ Donuts Franchise Agreement
What Is Franchising?
Franchise
Agreement
Franchisee
Franchisor
John Q.
Look at Dunkin’ Donuts Franchise Agreement

14. Basic Rights & Obligations Delineated in a Franchise Agreement

15. The Growth of Franchising
Franchising has expanded with the growth of the fast-food industry.
Franchising is attracting more women and minority business owners than ever before.
Dual-branded franchising, in which two franchisors offer their products together, is a new trend.
Example: Taco Bell and KFC

16. The Growth of Franchising (cont.)
Are franchises successful?
The success rate for franchises is significantly higher than that for other small businesses.
The vast majority, 94%, of franchise owners report that they are successful.
Too rapid expansion, inadequate capital or management skills, or other problems can cause franchises to fail.

17. Entrepreneur’s Ten Franchises in 2011
Source: (accessed March 15, 2011).

18. Advantages of Franchising
To the franchisor
Fast and well controlled distribution of its products
No need to construct and operate its own outlets
More working capital available for expanded production and advertising
Franchising agreements maintain product and quality standards
Motivated work force of franchisees
To the franchisee
Opportunity to start a proven business with limited capital
Guaranteed customers
Franchisor available for advice and guidance
Materials for local promotional campaigns and participation in national campaigns
Cost savings when purchasing in cooperation with other franchisees

19. Disadvantages of Franchising
To the franchisor
Failure of the franchisee to operate franchise properly
Disputes with and lawsuits by franchisees over the terms of the franchise
To the franchisee
Franchisor retains a large amount of control over the franchisee’s activities
Franchisor opening competing franchises within the franchisee’s market

20. Qualities Franchisors Seek in Franchisee

21. Chapter Quiz
Which one of the following would most likely be classified as a service industry?
Grocery store
Jewelry store
Pet shop
Dry cleaning shop
Clothing store

22. Chapter Quiz
Roger Jones, a graduate business student, has decided to open his own consulting firm. Since he is an intelligent and hard-working student with previous management experience, Roger feels he is well prepared to succeed since more new businesses fail due to
a lack of adequate financing.
low consumer demand for their products.
hostile competition.
a lack of owner commitment.
mismanagement and lack of business know-how.

23. Chapter Quiz
A license to operate an individually owned business as if it were part of a chain of outlets or stores is called a
joint venture.
syndicate.
franchise.
SCORE.
small-business development center.

24. Chapter Quiz
Jim Moniz is contemplating obtaining a franchise. He would like to purchase a franchise in an industry that has had extensive success with franchising in the past. All of the following are possible choices for Jim except
a fast-food industry.
the semiconductor industry.
filling stations.
car dealerships.
the soft-drink industry.