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Chapter Six

Small Business,Entrepreneurship, and Franchising

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Entrepreneurship andSmall Business

Entrepreneurship

The process of creating and managing a business to achieve a desired objective.

Entrepreneurship

The process of creating and managing a business to achieve a desired objective.

Small BusinessAny independently owned and operated business that is not dominant in its competitive area and employs fewer than 500 people.

Small BusinessAny independently owned and operated business that is not dominant in its competitive area and employs fewer than 500 people.

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Why Do Entrepreneurs Go Into Business?

41%

36%

27%

25%

5%

Joined family business

Wanted more control over future

Tired of working for someone else

Wanted to fulfill longtime goal

Had been downsized or laid off

Source: Dun & Bradstreet 19th Annual Small Business Survey, May 2000 from “The Rewards,” Inc. State of Small Business, vol. 23 (2001), issue 7, p. 50.

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Just What Is A Small Business?

Source: Small Business “Vital Statistics,” Small BusinessAdministration from http://www.sba.gov/aboutsba/ (accessed May 2,2001).

• Represents over 99.7% of all employers.• Employs 53% of the private work force.• Accounts for 47% of all sales in the U.S.• Provides 51% of the private sector output.• Represents 96% of all U.S. exporters of

goods.• Receives 35% of federal contract dollars.

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The Role of Small Business in the American Economy

• Job creation

• Innovation

• Exporting

Fast Fact:9.1 million women-owned businesses employ 27.5 million and contribute 3.6 trillion to the economy.3.25 million minority-owned firms employ 4 million and account for $495 billion in revenues.

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Number of Firms by Employment Size

Source: US Census Bureau from http://www.census.gov/epcd/smallbus.html#EmpSize (accessed July 30, 2001)

Firm Size Number of Firms Percentage of all Firms

0 - 19 employees 4,988,367 89.4%

20 - 49 employees 376,675 6.8%

50 - 99 employees 117,682 2.1%

100 - 499 employees 80,075 1.4%

500+ employees 16,378 0.3%

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What are the Advantages of Owning a Small Business?

• Personal– Independence

• Business– Lower startup costs

– Greater flexibility

– Focus on niche markets

– Easier to build a good reputation

Fast Fact:12% of Internet start-ups were launched in a garage.

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Disadvantages of Small Business Ownership

• High stress level

• High failure rate

• Undercapitalization

• Managerial inexperience or incompetence

• Inability to cope with growth

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Why Do Small Businesses Fail?

39%

28%

6%

27%

20%

19%17%

10%

Outside Business Conditions

Financing

Inside Business Conditions

Tax Problems

Dispute with a Creditor

Personal Reasons

Calamities

Other

Source: Inc. State of Small Business, vol. 23 (2001), issue 7, p. 57..

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The Keys to Small Business Success

• A comprehensive business plan

• The right form of ownership

• Adequate financing

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How to Finance a Small Business

• Equity Financing– Owner’s funds– Venture capitalists

• Debt Financing– Loans & collateral– Lines of credit– Trade credits– Barter

Fast Fact:The online lending agency is the latest trend in debt financing. Live Capital connects borrowers to American Express, GC Capital and other lenders.

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Franchising

• Franchise:– A license to sell another’s products or to

use another’s name in business or both.

• Franchiser:– The company that sells a franchise.

• Franchisee:– The purchaser of a franchise.

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Top Ten Fastest-Growing Franchises for 2001

Source: Entrepreneur’s 22nd Annual Franchise 500, January 2001 from ” http://www.Entrepreneur.com/Your_Business/YB_PrintArticle/0,2361,285156-12----00.html (accessed May 2,2001)

Fastest Growing Franchises

1. McDonald's

2. Coverall North America Inc.

3. Taco Bell Corp.

4. Subway

5. Jani-King

6. Mail Boxes Etc.

7. Quizno’s Corp.

8. ByeByeNow.com Travel Inc.

9. Jiffy Lube International, Inc.

10. Curves for Women

Fast Fact:Franchising grew by 13% in 2000.One of every 3 consumer dollars is spent in a franchise.

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Top Ten New Franchises for 2001

New Franchises

1. ACE America’s Cash Express

2. Wetzel’s Pretzels

3. Friendly’s Restaurnats Franchise Inc.

4. Express One

5. Quik Internet

6. New York Burrito-Gourmet Wraps

7. Window Gang

8. Sears Carpet & Upholstery Care Inc.

9. Christmas Décor Inc.

10. Worldsites

Source: “Entrepreneur’s Top Ten New Franchises for 2001,” Entrepreneur.com from http://www.entrepreneur.com/Franchise/Zone/FZ_Special_Listing/1,4731,12-12---TP-,00.html (accessed July 30, 3001)

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Facts about Franchising

• 1,500 estimated franchise systems

• 320,000 estimated franchise outlets

• 66.1% of franchisees own only 1 outlet

• 33.9% of franchisees own more than 1 outlet

• 1,500 estimated franchise systems

• 320,000 estimated franchise outlets

• 66.1% of franchisees own only 1 outlet

• 33.9% of franchisees own more than 1 outlet

• The most popular franchise types:

– Fast food – 18%

– Retail – 11%

– Restaurants – 9%

– Service – 9%

– Automotive – 8%

• The most popular franchise types:

– Fast food – 18%

– Retail – 11%

– Restaurants – 9%

– Service – 9%

– Automotive – 8%

Source: State of Small Business 2001, p. 34 – 35.

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The Marketing and Communication Tools for Small Business Success

E-mail address

Company Web site

Direct mail

Toll-free number

Yellow Pages ads

100%

96%

71%

60%

58%Source: “Small businesses cite successful tools,” USA Today, November 1, 2001, p. 1b.

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Developing Trends Impacting Small Business

• Demographic Trends– Baby boomers & Echo boomers

• Technological Trends– Increase in Internet usage– Major breakthroughs in technology

• Economic Trends– Economic turbulence creates economic threats

AND new opportunities

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Solve the Dilemma

1. Evaluate the idea of a low-fat cookie and muffin retail store.

2. Are there any concerns in connection with starting a small business that Jack and Bruce have not considered?

3. What advice would you give Jack and Bruce as they start up their business?

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Explore Your Career Options

What are some of the key qualities required of an individual starting a new small business?

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Additional Discussion Questions and Exercises

1. Assume you wanted to go into business for yourself. What kind of business would you prefer? What would be the financial requirements for entering the business? What type of work or managerial experience would you need?

2. What should be included in a business plan? What is the importance of a business plan to the small-business entrepreneur?

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Additional Discussion Questions and Exercises

3. What are the goals of venture capitalists when they invest in new businesses?

4. Think of your local community. Can you name five new businesses that have started up recently? Would you consider these new businesses to be small businesses? Are these new businesses franchises?

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Chapter 6 Quiz

1. A license to sell another’s products or to use another’s name in business, or both, is called

a. a franchise.b. a joint venture.c. a licensing agreement.d. a small business license.

2. Which of the following industries is least likely to be entered into by small-business entrepreneurs?a. servicesb. high technologyc. mining and manufacturingd. retailing

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Chapter 6 Quiz

3. The shortest path to business failure isa. undercapitalization.b. lack of a business plan.c. stress.d. employee turnover

4. The money needed to finance regular business operations is called

a. a line of credit.b. collateral.c. undercapitalization.d. working capital.

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Multiple Choice Questions about the Video

1. Which of the following classifies Artists’ Frame Service as a small business?a. It has over 120 employees.b. It is independently owned and operated.c. It is not dominant in its competitive area.d. All of the above.

2. Which of the following does Jay Goltz emphasize was his key to success? a. lack of competitionb. his business planc. his Chicago locationd. his parents’ encouragement