Entrepreneurship and Small Business Management

1. Entrepreneurship and Small Business Management CHAPTER 6 6-1Becoming an Entrepreneur 6-2 Small Business Basics 6-3 Starting a Small Business

2. 6-1 Becoming an Entrepreneur Goals Identify characteristics of successful entrepreneurs. Recognize the importance of entrepreneurship in the economy. Describe opportunities and risks of entrepreneurship.

3. Key Terms • Entrepreneur~ someone who takes a risk in starting a business to earn a profit • Entrepreneurship~ process of starting, organizing, managing, and assuming the responsibility for a business • Venture capital~ money provided by large investors to finance new products and new businesses that have a good chance to be very profitable. • Innovation~ an invention or creation that is brand new • Improvement~ a design change that increases the usefulness of a product, service, or process. Chapter 6

4. CHARACTERISTICS OF ENTREPRENEURS • Desire to be your own boss • Special skills and abilities Chapter 6

5. ENTREPRENEURS IN ACTION • Pankaj Arora • Rich Stachowski • Jeffrey Rodriguez and John Serrano • Abbey Fleck Chapter 6

6. WHAT DOES IT TAKE? Entrepreneurs are more • persistent • inquisitive • energetic • goal oriented • independent • self-confident • creative • reliable • competitive Chapter 6

7. WHAT DOES IT TAKE? (continued) Entrepreneurs have • problem-solving skills • tolerance for ambiguity • strong integrity • personal initiative • ability to secure resources • capability to learn from failure • willingness to work hard Chapter 6

8. Checkpoint >> What personal characteristic are common to most successful entrepreneurs? Answer • Any characteristics listed in Figure 6-1 are acceptable, such as persistence, inquisitiveness, self-confidence, creativity, and so forth. Chapter 6

9. ENTREPRENEURSHIP AND THE ECONOMY • Employment- • Small businesses are responsible for most new employment. (Over 60% of new jobs were created by businesses with fewer than 500 employees.) • Financing • Most money to needed to start a new business comes from the entrepreneur and his/her friends and family. • Venture capital • Productivity • New and small businesses produce a large volume of goods and services (over $600 billion in sales annually). Chapter 6

10. Employment Growth by Business Size Source: U.S. Bureau of Labor Statistics Chapter 6

11. What are the sources of financing that entrepreneurs use for their new businesses? Checkpoint >> Answer • personal savings • friends and family • venture capital • bank loans Chapter 6

12. OPPORTUNITIES • Innovation~ invention or creation of something new • Innovation vs invention • http://wistechnology.com/articles/4184/ • Innovation vs improvement • http://www.creativityincubator.com/showModule.php?category=10&module=63 • Innovation Life Cycle • http://www.creativityincubator.com/showModule.php?category=10&module=55 • Improvement~design change that can increase the usefulness of a product, service, or process Chapter 6

13. RISKS Recognizing risks • 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 Chapter 6

14. Where do entrepreneurship opportunities begin? Checkpoint >> Answer • Opportunities begin with innovations (ideas about new products and services) or improvements (ideas for changes to existing products, services, or processes). Chapter 6

15. 6-2 Small Business Basics Goals Identify important characteristics of small businesses. Recognize the competitive advantages of small businesses. Identify problems faced by many small businesses.

16. Key Terms • small business • Small Business Administration (SBA) Chapter 6

17. SMALL BUSINESS OWNERSHIP • Description of a small business • Owner is usually the manager • Operates in one or very few locations • Typically serves a small market • Not dominant in its field • Small business employment • Ownership diversity Chapter 6

18. COMMON TYPES OF SMALL BUSINESSES Common Types of Small Businesses Source: Small Business Administration and U.S. Census Bureau Chapter 6

19. What percentage of employees in the United States work for small businesses? Checkpoint >> Answer • Nearly 50 percent of the American workforce is employed by small businesses. • Small businesses are also responsible for 60–80 percent of all new jobs. Chapter 6

20. SMALL BUSINESS ADVANTAGES • Meeting customer needs • Providing unique services Chapter 6

21. How can small businesses compete successfully with larger businesses? Checkpoint >> Answer • Smaller businesses are able to provide more personalized products and services to their customers. • They are able to provide products and services where smaller orders and projects are required and tend to fill unique customer needs, which larger companies do not provide. Chapter 6

22. COMMON REASONS FOR SMALL BUSINESS 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 • http://www.businessknowhow.com/startup/business-failure.htm • http://www.businesspundit.com/the-25-worst-business-failures-in-history/ Chapter 6

23. SMALL BUSINESS ASSISTANCE • Faculties of universities and colleges • Local groups of business people • Small Business Administration (SBA) • SCORE http://www.score.org/small_biz_stats.html • Small Business Failure Example – Kell on Earth http://www.currentmom.com/currentmom/2010/02/kell-on-earth-teaches-about-small-business-failure.html Chapter 6

24. List common reasons for small business failure. Checkpoint>> Answer • not keeping adequate records • insufficient start-up money • lack of management experience • lack of experience with the type of business • not controlling operating expenses • poor location • failure to manage credit Chapter 6

25. 6-3 Starting a Small Business Goals Recognize important factors to be considered when starting a business. Describe the elements of a business plan. Identify types and sources of financing for a small business.

26. Key Terms • business plan • start-up financing • short-term financing • long-term financing Chapter 6

27. THE BUSINESS DECISION • An idea plus experience ~hobbies, interests, and business experiences • Right place and time ~location should attract a large number of people who are interested in the products and should be in a safe and pleasant area(‘Work as a Team’, p 139) • Team approach ~employees feel valued and motivated to take personal responsibility for the benefit of the business. • Preparation and research ~gather enough info to make decisions (info on customers, competitors, operations, gov’t regulations, etc.) Chapter 6

28. Why is it important to use a team approach when starting a new business? Checkpoint >> Answer • A team approach allows employees to feel valued and motivated to take personal responsibility for the benefit of the business. • Owners cannot expect to be able to do everything alone. Building a team will allow the business to increase productivity and, ultimately, profits. Chapter 6

29. WHAT IS A BUSINESS PLAN? • A business plan is a written description of the business idea and how it will be carried out, including all major business activities. • www.sba.gov Chapter 6

30. ELEMENTS OF A BUSINESS PLAN • Description of the Business • The business idea • Major products and services • Ownership structure • Strengths/weaknesses • Long- and short-term goals Chapter 6

31. ELEMENTS OF A BUSINESS PLAN (continued) • Description of Competition • Characteristics of the industry • Condition of the economy • Strengths and weaknesses of major competitors Chapter 6

32. ELEMENTS OF A BUSINESS PLAN (continued) • Customer Analysis • Description of customers • Location, number, and resources of customers • Sales forecasts Chapter 6

33. ELEMENTS OF A BUSINESS PLAN (continued) • Operations Plan • Organization of the company • Description of major operations • Analysis of resources needed • Human resource plans Chapter 6

34. ELEMENTS OF A BUSINESS PLAN (continued) • Marketing Plan • Description of major marketing activities • Description of resources needed • Schedule of marketing activities Chapter 6

35. ELEMENTS OF A BUSINESS PLAN (continued) • Financial Plans • Start-up costs • Short- and long-term financial needs • Sources of financing • Budgets and financial statements Chapter 6

36. STEPS IN DEVELOPING THE BUSINESS PLAN • Gather and review information • Develop the strategic alternatives • Write the plan • Ask an expert to review the plan Chapter 6

37. What is the “strategic alternatives” in a business plan? Checkpoint >> Answer • Strategic alternatives are alternative plans for production, staffing, financing, and so on. • Even the best business plan cannot predict every possible circumstance. • An alternate plan allows a business to be prepared for the unforeseeable. Chapter 6

38. FINANCING THE SMALL BUSINESS • Types of financing • Start-up financing ~amt of $ needed to open (building, equipment, inventory, supplies, licenses, etc) • Short-term financing ~ pays for current operating activities (less than a year) • Long-term financing ~ funds main resources that will last for years (land, building, equipment) • Sources of financing • Owner-supplied funds • Borrowed funds Chapter 6

39. Checkpoint >> In addition to owner-supplied capital, what are several other sources of financing for a small business? Answer • Borrowed money may come from banks, finance companies, or other individuals, such as friends and family. • Some suppliers may also be willing to extend credit. Chapter 6