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*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.
WHAT is ENTREPRENEURSHIP?
6-2
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*The Job-Creating Power of Entrepreneurship in the U.S.
• French immigrant Élruthère Irènèe du Pont de Nemours started Du Pont in 1802.
• David McConnell borrowed $500 from a friend to start Avon.
• George Eastman started Kodak with a $3,000 investment in 1880.
• Jeff Bezos started Amazon.com with investments from his family and friends.
NOTABLE ENTREPRENEURS
6-3
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*
• Leanna Archer – At 12 years old, she has her own hair care line.
• Alexis Holmes – Started baking for a fundraiser, now the 16-year-old owns her own bakery.
• Jack Short & Daniel Lyons – The two medical students started Factory Green, a carbon neutral apparel company, as undergrads.
• Mark Zuckerberg – Launched Facebook as a Harvard freshman.
YOU’RE NEVER TOO YOUNG to be an ENTREPRENEUR
(Spotlight on Small Business)
6-4
*
*
Source: Entrepreneur, www.entrepreneur.com, March 2009.
The Job-Creating Power of Entrepreneurship in the U.S.
Age Range Percent Identified as Self-Employed
55 to 59 28%
60 to 65 36%
66 to 70 42%
YOU’RE NEVER TOO OLD to be an ENTREPRENEUR EITHER!
6-5
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*Why People Take the Entrepreneurial Challenge
• Opportunity
• Profit
• Independence
• Challenge
LG1
WHY TAKE the RISK?
6-6
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*Why People Take the Entrepreneurial Challenge
• Self-directed
• Self-nurturing
• Action-oriented
• Highly energetic
• Tolerant of uncertainty
LG1
WHAT DOES IT TAKE to be an ENTREPRENEUR?
6-7
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*Turning Your Passion and Problems into Opportunities
• It fills customers’ needs.
• You have the skills and resources to start a business.
• You can sell the product or service at a reasonable price and still profit.
LG1
An IDEA is a GOOD OPPORTUNITY IF…
• You can get your product or service to customers before the window of opportunity closes.
• You can keep the business going.
6-8
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*Micropreneurs and Home-Based Businesses
• Computer technology has leveled the playing field.
• Corporate downsizing has led many to venture on their own.
• Social attitudes have changed.
• New tax laws have loosened restrictions on deducting expenses for home offices.
LG1
HOME-BASED BUSINESS GROWTH
6-9
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*
Source: St. Louis Small Business Monthly, February, 2004.
• Ability to start your business immediately• Minimal startup capital needed• No rent or excessive set-up charges• Comfortable working conditions
Micropreneurs and Home-Based Businesses
LG1
BENEFITS of HOME-BASED BUSINESSES
• Reduced wardrobe expenses• No commuting• Tax benefits• Elimination of office politics• Low risk for trial and error
6-10
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*
Source: St. Louis Small Business Monthly, February, 2004.
• Difficult to establish work habits
• Limited support system
• Isolation
• Work space may be limited
• Disruption of personal life
• Clients may be uncomfortable coming to your home
• Zoning restrictions
• Success is based 100% on your efforts
Micropreneurs and Home-Based Businesses
LG1
DOWNSIDES of HOME-BASED BUSINESSES
6-11
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*
• The latest outsourcing trend is using the Internet to find affordable labor around the world.
• Elance provides small businesses with a hub to find low-cost contractors.
• Thanks to the inexpensive freelancers, Elance now has 48,500 clients, up 70% since 2007.
OUTSOURCING YOUR SMALL BUSINESS
(Reaching Beyond Our Borders)
6-12
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*Web-Based Businesses
• Affiliate Marketing -- An Internet-based marketing strategy in which a business rewards individuals or other businesses for each visitor or customer the affiliate sends to its website.
LG1
ONLINE BUSINESS
• Web-based businesses have more unique products than most brick and mortar stores.
• Online sales reached $165.9 billion in 2007, 8% of all retail sales.
6-13
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*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
INTRAPRENEURS
6-14
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*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
SMALL BUSINESSES
6-15
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*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
SMALL BUSINESS STATISTICS
6-16
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*Importance of Small Business
• More personal customer service.
• The ability to respond quickly to opportunities.
LG2
ADVANTAGES of SMALL OVER BIG BUSINESS
6-17
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*Small Business Success & Failure
• Owner closing a business to start another is reported as a “failure.”
• Changing forms of ownership is reported as a “failure.”
• Retirement is reported as a “failure.”
LG2
BUSINESS FAILURES are LOWER THAN the REPORTS BECAUSE…
6-18
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*
Source: World Features Syndicate, 2009.
• Tommy Hilfiger – First store went bankrupt
• Milton Hershey – First confectionary failed
• H.J. Heinz – Company went bankrupt six years after start
Small Business Success & Failure
LG2
THEY DID WHAT?Famous Business Failures
• Walt Disney – First film company went bankrupt
• Henry Ford – First two car companies failed
• L.L. Bean – Almost went bankrupt in first year
6-19
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*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
LEARNING ABOUT SMALL BUSINESS
6-20
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*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
MARKETING RESEARCH
6-21
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*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
BUSINESS PLANS
6-22
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*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
WRITING a BUSINESS PLAN
• Getting the plan into the right hands is almost as important as getting the right information in it.
6-23
*
*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
SOURCES of CAPITAL
6-24
*
*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
The SMALL BUSINESS ADMINISTRATION
6-25
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*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
SMALL BUSINESS DEVELOPMENT CENTERS
6-26
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*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
ACCOUNTING ASSISTANCE
6-27
*
*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
LEGAL HELP
6-28
*
*Looking for Help
LG4
OTHER FORMS OF HELP
6-29