Transcript Entrepreneurship and Small Business Management

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CHAPTER 6
E NTREPRENEURSHIP AND
6-2 Small Business Basics
S
MALL B USINESS
6-3 Starting a Small Business
M ANAGEMENT
6-1 Becoming an Entrepreneur
6-1
B ECOMING AN E NTREPRENEUR
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K EY T ERMS
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Entrepreneur~ someone who takes a risk in starting a
business to earn a profit
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Entrepreneurship~ process of starting, organizing,
managing, and assuming the responsibility for a business
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Venture capital~ money provided by large investors to
finance new products and new businesses that have a good
chance to be very profitable.
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Innovation~ an invention or creation that is brand new
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Improvement~ a design change that increases the
usefulness of a product, service, or process.
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CHARACTERISTICS OF
ENTREPRENEURS
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Desire to be your own boss
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Special skills and abilities
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ENTREPRENEURS
IN ACTION
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Pankaj Arora
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Rich Stachowski
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Jeffrey Rodriguez and John Serrano
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Abbey Fleck
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WHAT DOES IT TAKE?
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Entrepreneurs are more
persistent
self-confident
inquisitive
creative
energetic
reliable
goal oriented
competitive
independent
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WHAT DOES IT TAKE?
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(continued)
Entrepreneurs have
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problem-solving skills
tolerance for ambiguity
strong integrity
personal initiative
ability to secure resources
capability to learn from failure
willingness to work hard
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C HECKPOINT >>
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.
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ENTREPRENEURSHIP
AND THE ECONOMY
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Employment
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Small businesses are responsible for most new employment. (Over 60%
of new jobs were created by businesses with fewer than 500
employees.)
Financing
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Most money to needed to start a new business comes from the
entrepreneur and his/her friends and family.
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Venture capital
Productivity
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New and small businesses produce a large volume of goods and
services (over $600 billion in sales annually).
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Source: U.S. Bureau of Labor Statistics
E MPLOYMENT G ROWTH BY B USINESS S IZE
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Checkpoint >>
What are the sources of financing that entrepreneurs use for
their new businesses?
Answer
 personal savings
 friends and family
 venture capital
 bank loans
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OPPORTUNITIES
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Innovation~ invention or creation of something new
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Innovation vs invention
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Innovation vs improvement
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http://www.creativityincubator.com/showModule.php?category=10&module=63
Innovation Life Cycle
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http://wistechnology.com/articles/4184/
http://www.creativityincubator.com/showModule.php?category=10&module=55
Improvement~ design change that can increase the
usefulness of a product, service, or process
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RISKS
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Recognizing risks
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Lack of adequate capital
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Low sales
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Higher than expected expenses
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Competitive pressure
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An owner unprepared to manage a
growing business
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Operations requiring more time than the
owner is willing to commit
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Checkpoint >>
Where do entrepreneurship opportunities begin?
Answer
 Opportunities begin with innovations (ideas about new
products and services) or improvements (ideas for changes to
existing products, services, or processes).
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6-2
S MALL B USINESS B ASICS
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K EY T ERMS
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small business
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Small Business Administration (SBA)
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SMALL BUSINESS
OWNERSHIP
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Description of a small business
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Owner is usually the manager
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Operates in one or very few locations
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Typically serves a small market
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Not dominant in its field
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Small business employment
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Ownership diversity
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COMMON TYPES OF
SMALL BUSINESSES
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Source: Small Business Administration
and U.S. Census Bureau
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Common
Types of
Small
Businesses
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Checkpoint >>
What percentage of employees in the United States work for
small businesses?
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.
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SMALL BUSINESS
ADVANTAGES
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Meeting customer needs
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Providing unique services
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Checkpoint >>
How can small businesses compete successfully with larger
businesses?
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.
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COMMON REASONS FOR
SMALL BUSINESS FAILURE
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Not keeping adequate records
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Not having enough start-up money
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Lack of management experience
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Lack of experience with the type of business
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Not controlling operating expenses
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Poor location for the business
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Failure to manage credit offered to customers
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http://www.businessknowhow.com/startup/business-failure.htm
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http://www.businesspundit.com/the-25-worst-business-failuresin-history/
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SMALL BUSINESS
ASSISTANCE
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Faculties of universities and colleges
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Local groups of business people
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Small Business Administration (SBA)
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SCORE
http://www.score.org/small_biz_stats.html
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Small Business Failure Example – Kell on Earth
http://www.currentmom.com/currentmom/2010/02/kellon-earth-teaches-about-small-business-failure.html
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Checkpoint>>
List common reasons for small business failure.
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
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6-3
S TARTING A S MALL B USINESS
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K EY T ERMS
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business plan
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start-up financing
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short-term financing
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long-term financing
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THE BUSINESS DECISION
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An idea plus experience ~hobbies, interests, and business
experiences
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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)
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Team approach ~employees feel valued and motivated to take
personal responsibility for the benefit of the business.
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Preparation and research ~gather enough info to make
decisions (info on customers, competitors, operations, gov’t
regulations, etc.)
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Checkpoint >>
Why is it important to use a team approach when starting a
new business?
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.
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WHAT IS A
BUSINESS PLAN?
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A business plan is a written description of the
business idea and how it will be carried out,
including all major business activities.
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www.sba.gov
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ELEMENTS OF A
BUSINESS PLAN
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Description of the Business
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The business idea
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Major products and services
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Ownership structure
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Strengths/weaknesses
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Long- and short-term goals
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ELEMENTS OF A
BUSINESS PLAN
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(continued)
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Description of Competition
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Characteristics of the industry
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Condition of the economy
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Strengths and weaknesses of major competitors
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ELEMENTS OF A
BUSINESS PLAN
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(continued)
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Customer Analysis
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Description of customers
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Location, number, and resources of customers
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Sales forecasts
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ELEMENTS OF A
BUSINESS PLAN
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(continued)
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Operations Plan
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Organization of the company
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Description of major operations
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Analysis of resources needed
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Human resource plans
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ELEMENTS OF A
BUSINESS PLAN
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(continued)
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Marketing Plan
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Description of major marketing activities
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Description of resources needed
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Schedule of marketing activities
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ELEMENTS OF A
BUSINESS PLAN
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(continued)
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Financial Plans
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Start-up costs
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Short- and long-term financial needs
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Sources of financing
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Budgets and financial statements
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STEPS IN DEVELOPING
THE BUSINESS PLAN
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Gather and review information
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Develop the strategic alternatives
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Write the plan
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Ask an expert to review the plan
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Checkpoint >>
What is the “strategic alternatives” in a business plan?
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.
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FINANCING
THE SMALL BUSINESS
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Types of financing
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Start-up financing ~amt of $ needed to open
(building, equipment, inventory, supplies, licenses, etc)
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Short-term financing ~ pays for current operating
activities (less than a year)
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Long-term financing ~ funds main resources that
will last for years (land, building, equipment)
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Sources of financing
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Owner-supplied funds
Borrowed funds
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C HECKPOINT >>
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.
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