*
*Chapter Six
Entrepreneurship and Starting a
Small Business
McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
*
*The Job-Creating Power of Entrepreneurship in the U.S.
• Entrepreneurship -- Accepting the risk of starting and running a business.
6-2
WHY TAKE ON CHALLENGE OF ENTREPRENEURSHIP????I. Oppty “ start bus freely”II. Profit motiveIII. IndependenceIV. Challenge
What does it take to be an entrepreneurI. self directed – you must be disciplinedII. Self nurturing – you must believe in your
idea when others don’t, you must maintain enthusiasm, remain committed
III. Action oriented – build your dream into reality
IV. Highly energetic – you must be physically, emotionally, and mentally ready all the time
V. Tolerant of uncertainty
What if I can’t do it myselfENTREPRENEURAL TEAMS –
a group of experienced people from different areas of business that form a team to develop, make, and market a product
*
*Entrepreneurship Within Firms
• Intrapreneur -- A creative person who works as an entrepreneur within a corporation.
• Intrapreneurs use a company’s existing resources to launch new products for the company.
• Art Fry of 3M developed Post-Its when he was trying to mark pages of his hymnal without damage.
LG1
6-6
*
*Encouraging Entrepreneurship: What Government Can Do
• Immigration Act passed in 1990 created a category of “investor visas” that encourage entrepreneurs to come to the U.S.
• Enterprise Zones -- Specific geographic areas to which governments attract private business investment by offering lower taxes and other government support.
• Incubators -- Offer new businesses low-cost offices with basic services.
LG1
6-7
*
*Small Versus Big Business
• Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size.
• Businesses are “small” in relationship to other businesses in their industries.
LG2
6-8
*
*Small Versus Big Business
• There are 26.8 million small businesses in the U.S.
• Of all nonfarm business in the U.S., almost 97% are considered small.
• Small businesses account for over 50% of the GDP.
• Small businesses generate 60-80% of new jobs.
• About 80% of U.S. workers first jobs were in small business.
LG2
6-9
*
*Importance of Small Business
• More personal customer service.
• The ability to respond quickly to opportunities.
LG2
6-10
*
*Learning About Small Business Operations
• Learn from Others – Investigate your local colleges for classes on small business and entrepreneurship; talk to and work for successful local entrepreneurs.
• Get Some Experience – Gain three years experience in the field; then start a part-time small business.
• Take Over a Successful Firm – Serve as an apprentice and eventually take over once the owner steps down.
LG3
6-11
*
*Managing a Small Business
• Planning
• Financing
• Knowing customers
• Managing employees
• Keeping records
LG4
6-12
*
*Begin with Planning
• Business Plan -- A detailed written statement that describes the nature of the business, the target market, the advantages the business will have over competition, and the resources and owners qualifications.
• A business plan forces potential owners to be specific about what they will offer.
• A business plan is mandatory for talking with bankers or investors.
LG4
6-13
*
*Writing a Business Plan
• A good plan takes a long time to prepare.
• A good executive summary catches interest and tempts potential investors to read on.
LG4
• Getting the plan into the right hands is almost as important as getting the right information in it.
6-14
*
*
Source: Business Week Small Biz, www.businessweek.com, February/March, 2008.
• Clarify Expectations – What will each person contribute?
• Discuss Work/Family Boundaries – What is the line that separates work from personal relationships?
• Develop Good Communication – Agree about types of decisions you’ll make jointly and on own.
• Clarify Long-Term Intentions – Discuss how long everyone will work full time and goals for the business.
• Have an Escape Hatch – Have a Plan B.
Writing a Business Plan
LG4
6-15
*
*Getting Money to Fund a Small Business
• Personal savings
• Relatives
• Former employers
• Banks & finance companies
• Government agencies
• Angel investors
• Venture capitalists -- Individuals or companies that invest in new businesses in exchange for partial ownership.
LG4
6-16
*
*The Small Business Administration
• Small Business Administration (SBA) -- A U.S. government agency that advises and assists small businesses by providing management training and financial advice.
• SBA started a microloan program in 1991 that provides very small loans to small business owners.
• Program judges worthiness on belief of the borrower’s integrity and soundness of their business ideas.
LG4
6-17
*
*The Small Business Administration
• Small Business Investment Company (SBIC) -- A program through which private investment companies licensed by the SBA lend money to small businesses.
• A SBIC must have a minimum of $5 million in capital and can borrow up to $2 from the SBA for each $1 of capital it has.
• SBICs are able to identify a business’s trouble spots early, giving entrepreneurs advice, and in some cases rescheduling loan payments.
LG4
6-18
*
*The Small Business Administration
• Small Business Development Centers (SBDC) are funded jointly by the federal government and individual states.
• SBDCs are able to evaluate the feasibility of your idea, develop your business plan and complete your funding application – for no charge.
LG4
6-19
*
*Knowing Your Customers
• Market -- Consumers with unsatisfied wants and needs who have both resources and willingness to buy.
• Set out to fill the market’s needs by offering top quality and great service at a fair price.
• One of the great advantages of small businesses is the ability to know the market and quickly adapt to market needs.
LG4
6-20
*
*Managing Employees
• Hiring, training and motivating employees is critical.
• Employees of small companies are often more satisfied with their jobs – they feel challenged and respected.
• Entrepreneurs best serve themselves and the business if they recruit and groom employees for management positions.
LG4
6-21
*
*Keeping Records
• Computers simplify the process by helping with inventory control, customer records and payroll.
• A good accountant can help in:- Deciding whether to buy or lease equipment. - Deciding whether to own or rent a building.- Tax planning.- Financial forecasting.- Choosing sources of financing.- Writing requests for funds.
LG4
6-22
*
*Looking for Help
• Owners need outside consulting advice early in the process.
• Small and medium-sized firms cannot afford to hire experts as employees.
• A competent lawyer can help with:- Leases- Contracts- Partnership agreements- Protection against liabilities
LG4
6-23
*
*Looking for Help
• Marketing decisions need to be made long before introducing a product or opening a store.
• A marketing research study can help you:- Determine where to locate.- Whom to select as your target market.- What is an effective strategy for reaching the
market.
LG4
6-24
*
*Looking for Help
LG4
6-25
Recommended