Small Business Management

1. Small Business Management • Class I • Overview of course • Review of materials/resources • Group Formation/Brainstorming • Chapter 1 summary • Class II expectations

2. Course Overview • Objective • Provide an environment, resources, and encouragement to allow students to explore the nature and function of small business management • Assignments • 2 exams, 2 cases • Business Plan – everyone will be involved in the development of a business plan for YOUR business • Expectations/Outcomes • Have fun, see how business functions fit together (marketing, HR, finance, operations, etc.) • Learn how to assess and evaluate business opportunities

3. Resources & Materials • Web Pages: • UNCG page - www.uncg.edu/~mthagenb/ • Prentice Hall Page - www.prenhall.com/scarborough/ • Contacting Mark • e-mail – mthagenb@uncg.edu • AOL Instant Messenger – UNCGMGT470 • Phone – 336.334.5211 (work)

4. Group Work • Groups will work on the following kinds of projects: • Class Project - business plan for new venture • In-class projects - quizzes, exercises, discussion of cases and assignments distributed during class and on-line • In-class reporting of progress on business plan and other work

5. Example • Here is an example of a business concept presented by some undergraduate students. You don’t have to worry about being this technical, but look at how they found an opportunity to provide something that people want or need in a way that is unique.

6. The Age of the Entrepreneur • More than 35 million U.S. households - 37% of the U.S. total - “have an intimate involvement in a new or small business.” • Survey of college seniors: 49% of men and 31% of women said they were interested in pursuing entrepreneurship after graduation.

8. What is an Entrepreneur? • According to Raymond Smilor, an entrepreneurial researcher, an entrepreneur is a person who: • Pursues opportunity • Acts with a passion for a purpose • Lives proactively • Builds teams, and • Enjoys the journey to create lasting value

9. Characteristics of Entrepreneurs • Desire for responsibility. • Preference for moderate risk. • Confidence in their ability to succeed. • Desire for immediate feedback. • High level of energy. • Future orientation. • Skilled in organization. • Value achievement over money.

10. Benefits of Small Business Ownership • The opportunity to gain control over your own destiny. • The opportunity to make a difference. • The opportunity to reach your full potential. • The opportunity to reap unlimited profits. • The opportunity to contribute to society and to be recognized for your efforts. • The opportunity to do what you enjoy.

13. Drawbacks of Small Business Ownership • Uncertainty of income • Risk of losing your entire invested capital • Long hours and hard work • Lower quality of life until the business gets established • High levels of stress • Complete responsibility

14. Feeding the Entrepreneurial Fire • Entrepreneurs as heroes. • Entrepreneurial education. • Economic and demographic factors. • Shift to a service economy. • Technological advancements. • Independent lifestyles. • The World Wide Web. • International opportunities.

15. Trends in Entrepreneurship • Women • Minority enterprises • Immigrant entrepreneurs • Part-time entrepreneurs • Home-based businesses • Family businesses • Copreneurs • Corporate castoffs • Corporate dropouts

17. Statistics • Small Businesses: • represent over 99% of all employers • employ 52% of the private workforce • receive 35% of federal contract dollars • account for 97% of firms that export

18. The Typical American Small Business • Has 3 employees • Generates between $150-$200K in annual revenue • Is owned by a white male (53.4%) • Operates at 1.3 locations • Has an owner who works 50.4 hours per week on average

19. Women & Minority Ownership • Women started businesses at twice the rate of men in 1997 and received 2% of institutional venture capital monies. • Fewer than 1 in 5 female entrepreneurs (18%) plan to seek venture capital in the next 2 years, compared to 35% of male entrepreneurs.

21. Minority Small Businesses are: • 62% more likely to invest in computer equipment • 41% more likely to use the Internet for business research • 90% more likely to invest in advertising and marketing • 46% less likely to use commercial bank loans to finance their business (and 5 times more likely to use loans from family and friends!)

22. In North Carolina... • Small business employment accounts for 47.3% of the state’s total employment • North Carolina ranks #11 nationally for Largest Number of Minority-owned firms (170,736) • North Carolina supports more than 290,000 self-employed persons running a business with no paid employees.

23. The Small Business Failure Record • 24% of new businesses fail after two years. • 51% fail within four years. • 63% fail within six years.

26. Putting Failure Into Perspective • Failure is a natural part of the creative process. • Failures are simply stepping stones along the path to success. • The “secret” to success is the ability to fail intelligently, learning why you failed so that you can avoid making the same mistake again.

27. Avoiding the Pitfalls of Small Business Failure • Know your business in depth. • Prepare a business plan. • Manage financial resources. • Understand financial statements. • Learn to manage people effectively. • Set your business apart from the competition. • Keep in tune with yourself.

28. 6 Myths of Business Ownership • I can boot strap it. • Probably not; under-capitalization (too little money invested in the business) is the biggest cause of small business failure. While you might be able to bootstrap a small business, why take the risk when you can calculate the amount of capital investment needed to make your venture succeed? This cash reserve makes you sleep better, helps avoid panicky decisions, and gives you breathing room that you’ll need.

29. 6 Myths of Business Ownership • I can start living off the business immediately. • Forget it; most business owners find that it takes between 6 months and a year before their business can pay them a decent wage. Early expenses always outrun early revenues. For this reason alone, consider starting your business as a part-time or weekend venture if possible, or be prepared to live on savings (or have another income supporting you) until your business can afford to pay you. Home-based companies are a great way to start, as you can minimize your cash needs.

30. 6 Myths of Business Ownership • I’ll be my own boss. • Not likely; the business and its customers will be your boss and keep you occupied 60 or more hours a week. Your other bosses include employees, vendors, bankers, and investors.

31. 6 Myths of Business Ownership • I’ll get rich overnight. • You won’t; the get-rich-quick stories are either bogus (the many years of preparation are hidden) or so unusual that your chances of winning the lottery are higher. Small businesses are a great way to build wealth, but it takes time. More than 1/3 of businesses that grow significantly don’t do so until they’ve been active 10 or more years!

32. 6 Myths of Business Ownership • I have nothing to lose: I’ll incorporate and use other people’s money. • In a word: Hogwash. The “corporate shield” only exists in rare cases where the business is strongly capitalized and big enough to make creditors (suppliers, bankers, investors) rest easy. Start-ups seldom meet these criteria. The same applies to using OPM (Other People’s Money). In spite of all the books and articles urging your to borrow your way to wealth, it isn’t that easy to find OPM. More important, it seldom makes business sense to take on debt if you can avoid it.

33. 6 Myths of Business Ownership • It takes money to make money. • This one’s a half-truth. Good business ideas attract money. Bad ones don’t, and shouldn’t. There are businesses where the hurdle to entry is so high that substantial capital is needed. Printing, for example, and most manufacturing businesses call for such great investments in machinery, plant, and equipment that for all intents and purposes it does take money to make money. Many businesses don’t have such high barriers to entry. Service businesses, some retail businesses, and some wholesale or distribution businesses fit this low capital criterion. If you lack capital, you should try to find such a business. People have made fortunes in all kinds of businesses.

34. Class II • Chapter 2: Strategic Management & the Entrepreneur; • Chapter 21 – Ethics & Social Responsibility; • Chapter 6 – Business Plan; pages 158-173; • Review of helpful resources and discussion about potential business concepts; • Complete Assignment 1 from the class web page – e-mail me your contact information and be prepared to discuss the mini-case.