Transcript Entrepreneurship and Small Business Management

CHAPTER
6
SLIDE 1
CHAPTER
6
Entrepreneurship and
Small Business Management
6-1
Becoming an Entrepreneur
6-2
Small Business Basics
6-3
Starting a Small Business
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Principles of Business, 8e
6-1
Becoming an
Entrepreneur
Goal 1 Identify characteristics of successful
entrepreneurs.
Goal 2 Recognize the importance of
entrepreneurship in the economy.
Goal 3 Describe opportunities and risks of
entrepreneurship.
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SLIDE 2
CHAPTER
6
SLIDE 3
KEY TERMS
● entrepreneur
● entrepreneurship
● venture capital
● innovation
● improvement
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Principles of Business, 8e
CHAPTER
6
SLIDE 4
KEY TERMS
● Entrepreneur● is someone who takes a risk in starting a
business to earn a profit.
● Entrepreneurship
● the process of starting, organizing, managing,
and assuming the responsibility for a
business.
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Principles of Business, 8e
CHAPTER
6
SLIDE 5
KEY TERMS
● venture capital –
● is money provided by large investors to
finance new products and new businesses
that have a good chance to be very profitable
● Innovation● Is an invention or creation that is brand new.
● Improvement –
● is a designed change that increases the
usefulness of a product, service, or process.
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Principles of Business, 8e
CHAPTER
CHARACTERISTICS OF
ENTREPRENEURS
6
SLIDE 6
● Desire to be your own boss
● Special skills and abilities
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CHAPTER
ENTREPRENEURS IN ACTION
6
SLIDE 7
● Joshua Moore - developed an idea for a
baby stroller braking system.
● Ben Cathers - At age 12 he started a web
marketing and advertising business.
● Rich Stachowski - an avid scuba diver he
invented water talkies to be able to
communicate underwater
● Abbey Fleck - developed a pan that would
microwave bacon while letting the grease
drain out below.
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CHAPTER
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SLIDE 8
WHAT DOES IT TAKE?
● Not all business owners and managers are
entrepreneurs.
● Entrepreneurs have unique skills and
personal characteristics.
● Entrepreneurs come from all age
cataeories and educational backgrounds
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Principles of Business, 8e
CHAPTER
6
SLIDE 9
ENTREPRENEURS ARE MORE
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Decisive
Inquisitive
Energetic
Goal-oriented
Independent
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Self-confident
Creative
Reliable
Competitive
Persistent
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SLIDE 10
ENTREPRENEURS HAVE
● Problem-solving skills
● Tolerance for ambiguity and risk
● Strong integrity
● Personal initiative
● Ability to secure resources
● Capability to learn from failure
● Willingness to work hard
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Principles of Business, 8e
CHAPTER
6
SLIDE 11
Checkpoint 
● What personal characteristic are
common to most successful
entrepreneurs?
● Any characteristics listed in Figure 6-1 are
acceptable, such as persistence,
inquisitiveness, self-confidence, creativity,
and so forth.
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Principles of Business, 8e
CHAPTER
ENTREPRENEURSHIP
AND THE ECONOMY
6
SLIDE 12
● More than 625,000 new businesses are
created annually
● Employment
● Small businesses are responsible for most
new employment. Over 60 percent of new
jobs are created by businesses with fewer
than 500 employees.
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CHAPTER
Employment Growth by
Business Size, 1990–2005
24.9%
36.3%
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SLIDE 13
1-9 employees
20-99 employees
100-499 employees
20.1%
500 or more employees
18.7%
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CHAPTER
ENTREPRENEURSHIP
AND THE ECONOMY
6
SLIDE 14
● Productivity
● Businesses with just a single owner and no
staff account for more than $770 billion in
sales annually.
● Small businesses are responsible for more
than half of the U.S. gross domestic product
each year.
● They account for more than half of all
innovative products and services developed
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CHAPTER
ENTREPRENEURSHIP
AND THE ECONOMY
6
SLIDE 15
● Financing
● Most new businesses start on $10,000 or
less.
● 75 percent of startup capital comes from
owner savings, bank loans, and credit card
debt. Funding also comes from the
entrepreneur’s family and friends
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Principles of Business, 8e
CHAPTER
6
SLIDE 16
Financing continued
● Another source of money for some new
businesses is venture capital. Venture
capital is 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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Principles of Business, 8e
CHAPTER
6
SLIDE 17
Checkpoint 
● What are the sources of financing that
entrepreneurs use for their new
businesses?
● Personal savings
● Friends and family
● Venture capital
● Bank loans
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6
SLIDE 18
OPPORTUNITIES AND RISKS
● Before deciding to start a business, you
need to think about the opportunities and
risks.
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CHAPTER
NEW BUSINESS
OPPORTUNITIES
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SLIDE 19
● Innovation – a completely new idea
(invention)
● Improvement – an existing product or
service made better
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RECOGNIZING RISKS
● Nearly as many small businesses close as begin
each year.
● 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
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CHAPTER
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SLIDE 21
Checkpoint 
● Where do entrepreneurship opportunities
begin?
● Opportunities begin with invention/innovations
(ideas about new products and services) or
improvements (ideas for changes to existing
products, services, or processes).
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
6-2
Small Business
Basics
Goal 1 Identify important characteristics of
small businesses.
Goal 2 Recognize the competitive
advantages of small businesses.
Goal 3 Identify problems faced by many
small businesses.
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SLIDE 22
CHAPTER
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SLIDE 23
KEY TERMS
● small business
● Small Business Administration (SBA)
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CHAPTER
SMALL BUSINESS OWNERSHIP
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SLIDE 24
● a small business is an independent business
with fewer than 500 employees.
● Using that standard, 99.9 percent of the roughly
26 million U.S. businesses are small businesses.
● 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
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CHAPTER
Small business employment
6
SLIDE 25
● On average, small businesses are
responsible for creating 60–80 percent of
all new jobs.
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CHAPTER
Ownership diversity
6
SLIDE 26
● Women own more than one-fourth (25%)
of all small businesses.
● More than 17 percent of small businesses
have African- American, Asian-American,
or Hispanic- American ownership.
● Today, almost all people starting small
businesses have at least a high school
diploma.
● Nearly 64 percent have finished some
college work.
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CHAPTER 6
Common Types of Small Businesses as
SLIDE 27
Percent of All Small Businesses
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CHAPTER
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Checkpoint 
● Beyond the formal definition of a small
business, what four points can be used
to describe a small business?
● Owner is usually the manager
● Business operates in one or very few
locations
● Business typically serves a small market
● Business is not dominant in its field
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CHAPTER
SMALL BUSINESS
ADVANTAGES
6
SLIDE 29
● Meeting customer needs
● They often serve customers where the
number of products and services needed is
small or the requirements are too specialized
for large businesses to make a profit.
● They can compete by paying attention to their
customers.
● They get direct information from customers
about likes or dislikes / wants and needs
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CHAPTER
SMALL BUSINESS
ADVANTAGES
6
SLIDE 30
● Providing unique services
● They may plan a wedding or design a
customized sound system for your home.
● Providing those types of services means that
business representatives must take a special
interest in the customer.
● They spend time determining needs and
discussing alternatives.
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Principles of Business, 8e
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Checkpoint 
● How can small businesses compete
successfully with larger businesses?
● 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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Principles of Business, 8e
CHAPTER
COMMON REASONS FOR
SMALL BUSINESS FAILURE
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Failure to PLAN including:
Poor location for the business
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
Failure to manage credit offered to customers
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CHAPTER
SMALL BUSINESS
ASSISTANCE
6
SLIDE 33
● University and college faculty members
● Local groups of business people
● Small Business Administration (SBA)
● The SBA sponsors the Service Corps of
Retired Executives (SCORE). Members of
SCORE are retired local businesspeople who
volunteer their services to counsel and mentor
new business owners.
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Principles of Business, 8e
CHAPTER
SMALL BUSINESS
ASSISTANCE cont.
6
SLIDE 34
● Small Business Administration (SBA)
● The is a government agency that helps small
business owners develop business plans and
obtain financing and other support for their
companies.
● The SBA sponsors the Service Corps of
Retired Executives (SCORE). Members of
SCORE are retired local businesspeople who
volunteer their services to counsel and mentor
new business owners.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
6
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Checkpoint 
● List common reasons for small business
failure. Failure to Plan or Preparation
including:
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Poor location
Not keeping adequate records
Insufficient start-up money
Lack of management experience
Lack of experience with the type of business
Not controlling operating expenses
Failure to manage credit
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
6-3
Starting a Small
Business
Goal 1 Recognize important factors to be
considered when starting a business.
Goal 2 Describe the elements of a business
plan.
Goal 3 Identify types and sources of financing
for a small business.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 36
CHAPTER
6
SLIDE 37
KEY TERMS
● business plan
● start-up financing
● short-term financing
● long-term financing
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Principles of Business, 8e
CHAPTER
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SLIDE 38
Why Plan?
● The owners of businesses that fail often
do not have a business plan.
● Planning forces the owner to think about
important activities, the amount of time
they will take, and their cost. This process
may identify potential problems. The plan
also serves as a guide to keep the
business on track.
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Principles of Business, 8e
CHAPTER
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SLIDE 39
THE BUSINESS DECISION
● An idea plus experience
● Business ideas come from many sources.
● Hobbies, interests, and business experiences
often give people ideas for new businesses.
● Before starting a business you should work for
some time in a small business.
● Several years of training in a range of business
operations
● Responsibility for decisions and opportunities to
manage people is a key part of that experience.
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Principles of Business, 8e
CHAPTER
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SLIDE 40
THE BUSINESS DECISION
● Right place and time
● Most retail businesses need good customer
traffic.
● If the business is not easy to find or requires a
great deal of travel time, many potential
customers will stay away.
● Location, location, location
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CHAPTER
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SLIDE 41
THE BUSINESS DECISION
● Team approach
● A business is not easy to run without the help
of others.
● Even the smallest businesses need a few fullor part-time employees to grow or cover
extended hours.
● The employees must be chosen carefully for
their ability to work as a team. Choosing the
“team” members becomes one of the most
important initial business decisions
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Principles of Business, 8e
CHAPTER
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SLIDE 42
THE BUSINESS DECISION
● Preparation and research
● The most important step in starting a business
is preparation.
● Preparation includes having enough
information to make good decisions about the
business.
● Establish good working relationships with
professionals such as bankers, lawyers, and
accountants.
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Principles of Business, 8e
CHAPTER
6
SLIDE 43
Checkpoint 
● Why is it important to use a team approach
when starting a new business?
● 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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Principles of Business, 8e
CHAPTER
WHAT IS A
BUSINESS PLAN?
6
SLIDE 44
● A business plan is a written description of
the business idea and how it will be
carried out, including all major business
activities.
● The most popular use of business plans is
to persuade lenders and investors to
finance the venture.
● The first step in developing the business
plan is to gather and review information.
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Principles of Business, 8e
CHAPTER
WHAT IS A
BUSINESS PLAN? cont
6
SLIDE 45
● Even if the business plan is not needed for
providing funding it is essential for the
owner to create the plan as it is the
roadmap they intend to use to become
successful.
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Principles of Business, 8e
CHAPTER
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SLIDE 46
Business Plan Elements
● Description of the Business
● Description of Competition
● Customer Analysis
● Operations Plan
● Marketing Plan
● Financial Plans
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CHAPTER
ELEMENTS OF A
BUSINESS PLAN
6
SLIDE 47
● Description of the Business
● The business idea
● Major products and services
● Ownership structure
● Strengths/weaknesses
● Long- and short-term goals
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Principles of Business, 8e
CHAPTER
ELEMENTS OF A
BUSINESS PLAN
6
SLIDE 48
(continued)
● Description of Competition
● Characteristics of the industry
● Condition of the economy
● Strengths and weaknesses of major
competitors
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Principles of Business, 8e
CHAPTER
ELEMENTS OF A
BUSINESS PLAN
6
SLIDE 49
(continued)
● Customer Analysis
● Description of customers
● Location, number, and resources of
customers
● Sales forecasts
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Principles of Business, 8e
CHAPTER
ELEMENTS OF A
BUSINESS PLAN
6
SLIDE 50
(continued)
● Operations Plan
● Organization of the company
● Description of major operations
● Analysis of resources needed
● Human resource plans
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Principles of Business, 8e
CHAPTER
ELEMENTS OF A
BUSINESS PLAN
6
SLIDE 51
(continued)
● Marketing Plan
● Description of major marketing activities
● Description of resources needed
● Schedule of marketing activities
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CHAPTER
ELEMENTS OF A
BUSINESS PLAN
6
SLIDE 52
(continued)
● Financial Plans
● Start-up costs (The amount of money needed
to open a business )
● Short-term (less than 1 year)
● Long-term (money needed for the main
resources of a business that will last for many
years.) financial needs
● Sources of financing
● Budgets and financial statements
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CHAPTER
STEPS IN DEVELOPING THE
BUSINESS PLAN
6
SLIDE 53
● Gather and review information
● Develop the strategic alternatives
● Write the plan
● Ask an expert to review the plan
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Principles of Business, 8e
CHAPTER
6
SLIDE 54
Checkpoint 
● What are the “strategic alternatives” in a
business plan?
● 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.
● If the original plan is not succeding the owner has
already developed options to put in place.
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Principles of Business, 8e
CHAPTER
FINANCING
THE SMALL BUSINESS
6
SLIDE 55
● Types of financing
● Start-up financing
● Short-term financing
● Long-term financing
● Sources of financing
● Owner-supplied funds
● Borrowed funds
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Principles of Business, 8e
CHAPTER
6
SLIDE 56
Checkpoint 
● In addition to owner-supplied capital,
what are several other sources of
financing for a small business?
● 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.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e