Transcript Chapter 7: SMALL BUSINESS AND ENTREPRENEURSHIP

CHAPTER 7: SMALL BUSINESS
AND ENTREPRENEURSHIP
Economic Rocket Fuel
LAUNCHING NEW VENTURES: WHAT’S IN IT
FOR ME?
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Greater Financial Success
Independence
Flexibility
Challenge
Survival
On any given day in the United
States, more people are trying
to start a new business than
are getting married or having
children.
THE ENTREPRENEUR: A DISTINCTIVE PROFILE
Energy
Confidence
Entrepreneurs – People
who risk their time,
money, and other
resources to start and
manage a business.
OPPORTUNITIES AND THREATS FOR
SMALL BUSINESS: A TWO-SIDED COIN
Threats:
Opportunities:
• Higher Risk of Failure
• Market Niches
• Lack of Knowledge and
Experience
• Personal Customer Service
• Too Little Money
• Lower Overhead Cost
• Bigger Regulatory Burden
• Technology
• Higher Health Insurance Costs
SMALL BUSINESS FAILURE
Year in
Business
Survival
Rate
Change vs.
Prior Year (%)
Year 1
81%
19%
Year 2
66%
15%
Year 3
54%
12%
Year 4
44%
10%
Year 5
38%
6%
Year 6
34%
4%
Year 7
31%
3%
DOT-COM DEBACLES
Webvan: the value of this early
online grocer peaked at $1.2
billion, but Webvan left 2,000 Arrangeonline.com,
Funeral.com,
people out of work when it
closed its doors in the middle Heavenly-Door.com
and Plan4ever.com
of 2001.
marketed funeral
Pets.com: Shutting down only
arrangements and
nine months after its $82.5
related services
million IPO, Pets.com hawked
pet care products from doggie
treats to kitty litter, but lacked Petstore.com offered a
a workable plan for high
fish delivery service.
shipping costs.
They were bought out
by Pets.com for $13
million in stock
LAUNCH OPTIONS
• Starting from scratch
• Buying an established business
• Buying a franchise
BUYING AN ESTABLISHED BUSINESS
Key Pros:
Key Cons:
• The concept, organizational
structure, and operating
practices are in place.
• Working with someone
else’s idea may not be fun.
• Relationships are
established.
• Obtaining financing is less
challenging.
• You may inherit old
mistakes.
STARTING A BUSINESS FROM SCRATCH
Key Pros:
Key Cons:
• It’s all you : Your concept,
your decisions, your
structure.
• You don’t have to deal with
the prior owner’s bad
decisions.
• It’s all you. That’s a lot of
pressure.
• It can be hard to get credit.
• Logistics can be challenging
• It takes time, money, and
sheer sweat to build a
customer base.
BUYING A FRANCHISE
Key Pros:
Key Cons:
 Less Risk
 Costs
 Training and Support
 Lack of Control
 Brand Recognition
 Negative Halo Effect
 Access to Funding
 Growth Challenges
 Restriction on Sale
 Poor Execution
ENTERING INTO A FRANCHISE AGREEMENT
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Know all the facts before signing the dotted line:
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Terms and Conditions
Fees and Other Payments
Training and Support
Specific Operational Requirements
Conflict Resolution
Assigned Territory
Franchisors must provide a Franchise Disclosure Document (FDD)
The Federal Trace Commission (FTC) require:
 The FDD must be written in plain English
 The franchisor must be given 14 days to review the FDD
 The Franchisee should have a lawyer review the document
TOOLS FOR BUSINESS SUCCESS
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Small Business Administration
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Gain Experience
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Learn from Others
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Educate Yourself
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Write a Business Plan
The Business Plan
FINDING THE MONEY: FUNDING OPTIONS
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Personal Resources
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Loans
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Angel Investors
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Venture Capital
SMALL BUSINESS AND THE ECONOMY: AN
OUTSIZED IMPACT
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Creating New Jobs
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Fueling Innovation
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Vitalizing Inner Cities
ECONOMIC IMPACT
Just 9.8% of the world’s entrepreneurs expect
to create almost 75% of the jobs generated by
new business ventures in the next five years.
1 out of 10 adults worldwide start businesses
every year
 Three key factors drive entrepreneurship
globally:
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Per Capita Income
Opportunity Cost
Cultural/Political Environment