Transcript ©2013 Cengage Learning. All Rights Reserved. o re n pos t eed Lteoa ra n p u b .l i A c l y a.

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©2013 Cengage Learning. All Rights Reserved.
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7
Small Business and
Entrepreneurship:
Economic Rocket Fuel
LO1 Why do entrepreneurs launch small
businesses?
LO2 What is the typical entrepreneurial
mindset and characteristics?
LO3 What are funding options for small
business?
LO4 What are the opportunities and
threats facing small businesses?
LO5 What are ways to become a business
owner and facilitate success?
LO6 What is the size, scope and economic
contribution of small business?
2
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Small Business: A Profile
 A business that is independently owned and operated for profit
and is not dominant in its field
 Relatively small annual sales and less than 500 employees
 SBA developed specific “smallness” guidelines for various
industries
3
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Small Business: A Profile (cont.)
 Small-business sector
•
Approximately 70% fail within first year
– Why? See THREATS and DISADVANTAGES on next slide
•
Over 99% of all businesses in US are considered small
•
There are about 26.9 million businesses in the U.S. (52% of which are
home-based and 2% are franchises_
•
In the last decade, the number of small businesses increased 49%.
•
Part-time entrepreneurs have increased fivefold and account for one-third of
all small businesses.
•
Small businesses provide over 50% of the jobs in the U.S.
•
Small businesses offer unique advantages
– Such as? See OPPORTUNTIES andADVANTAGES on next slide
4
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Opportunities and Threats for Small
Business: A Two-Sided Coin
Disadvantages and Threats:
• Higher Risk of Failure
• Lack of Knowledge and
Experience
• Competition
• Too Little Money
Advantages and Opportunities:
• Market Niches
• Serves the needs of larger
companies
• Personal Customer Service
• High Stress Level
• Lower Overhead Cost
• Bigger Regulatory Burden
• Technology
• Higher Health Insurance
Costs
• Helps our Economy
(employment, competition) 5
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© The Studio Dog/Photodisc/Getty Images
Small Business and the Economy:
An Outsized Impact
• In 2008, 99.9% of businesses
in the U.S. had less than fewer
than 500 employees
• 7% of small business owners
ran their business without any
employees
• Creating New Jobs
• Fueling Innovation
• Vitalizing Inner Cities
• Small businesses generate
about half the U.S. GDP
• Small businesses employ half
of the nation’s private
workforce
Source: “Frequently Asked Questions,” SBA Office of Advocacy, updated September 2009, SBA website
http://www.sba.gov/advo/stats/sbfaq.pde, accessed June 3, 2010.
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6
or
Accidental Invention
• Many great ideas happen by accident
• Penicillin was the result of not cleaning up a
science workstation
• Coca-Cola resulted from efforts to develop a
headache medicine
• Saccharin was discovered from a chemist not
washing his hands
©haveseen/Shutterstock.com
“Luck is what happens when
preparation meets opportunity”
~ Seneca
Source: Top 10 Accidental Inventions, Science Channel website, http://science.discovery.com/brink/top-ten/accidental-inventions/inventions-01.html, accessed March 22, 2011.
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or
Entrepreneurship Plays a Positive Role
in U.S. Economy
• New business creation increased steadily
from 2007 to 2009
• Interest among teenagers in launching a
business is consistent at 40%
• In 2010, U.S. entrepreneurship rates
reached their highest level in 15 years
• Job seekers offer hope as job creators
Source: Despite Recession, Youth Remain Interested in Entrepreneurship, Poll Shows, November 17, 2010, Philanthropy News Digest website, http://foundationcenter.org/pnd/news/story.jhtml;jsessionid=R0ZQZFD52NZNLLAQBQ4CGW15AAAACI2F?id=314900002,
accessed March 18, 2011, “Jobless Entrepreneurship” Tarnishes Steady Rate of U.S. Start-Up Activity, Kauffman Study Shows, March 7, 2011, Kauffman website, http://www.kauffman.org/newsroom/jobless-entrepreneurship-tarnishes-steady-rate-of-us-startupactivity.aspx, accessed March 18, 2011
8
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Why Become an Entrepreneur?
What’s in It For Me?
 Greater Financial Success
 Independence
“
 Flexibility
Business opportunities
are like buses…there’s
always another one
coming.
 Challenge
-- Richard Branson,
Virgin Enterprise
“
 Survival
 Opportunity Lost – there are trade-offs
9
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The Entrepreneur:
A Distinctive Profile
10
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Entrepreneurship:
Do You Have What it Takes?
•
Are you young?
•
Do you come from a family of entrepreneurs?
•
Do you enjoy working?
•
Do you have a good idea?
•
Do you gamble?
•
Can you fake it?
•
Are you good on your feet?
©iStockphoto.com/Neustockimages
Source: Personality Test for Entrepreneurship Success by Andy Swan, Small Biz Survival website, http://www.smallbizsurvival.com/2008/08/personality-test-for-entrepreneurship.html, posted
August 4, 2008, accessed April 3, 2011.
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11
or
Finding the Money:
Funding Options for Small Business
 Personal Resources
 Loans
 Angel Investors
 Venture Capital
©Colin
Anderson/Blend Images/Jupiterimages
©Colin
Anderson/Blend
Images/Jupiterimages
12
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Developing The Business Plan
 Recognize Opportunity
•
New Business, Existing Business, Franchise
 Business Plan
•
•
•
“Blue print for business,”a carefully constructed guide for the person
starting the business
SBA, SBDC, Score
Write on a 4th Grade Level
 Seek Capital
•
•
•
$100,000 avg“seed”money
Lenders/Investors
– What do they look at?
Family or Friends
 File and Register Business
 Operate and Manage
13
Source: Business Plan Basics, U.S. SBA, http://www.sba.gov/starting_business/planning/basic.html, accessed February 15, 2009.
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© The Studio Dog/Photodisc/Getty Images
Small Business Opportunities
 New Business – starting a brand-new business from
scratch
 Existing Business – buying an existing business
 Franchises – the right to operate an individually owned
business as though it was a part of a chain or outlet of stores
14
Source: Focus on Success, Not Failure by Rhonda Abrams, May 7, 2004, USA Today website money section, http://www.usatoday.com/money/smallbusiness/columnist/abrams/2004-05-06-success_x.htm.
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Launching Options: Reviewing
the Pros and Cons
15
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More on Franchises
 Franchise
•
A license to operate an individually owned
business as though it were part of a chain
of outlets or stores
 Franchising
•
The actual granting of a franchise
 Franchisor
•
An individual or organization granting a
franchise
 Franchisee
•
A person or organization purchasing a
franchise
16
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Entrepreneur’s Top Ten Franchises in
2011
Source: http://www.entrepreneur.com/franchise500/index.html (accessed March 15, 2011).
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Advantages of Franchising
To the franchisor
•
•
•
•
•
Fast and well controlled
distribution of its products
No need to construct and
operate its own outlets
More working capital
available for expanded production
and advertising
Franchising agreements
maintain product and quality
standards
Motivated work force of
franchisees
To the franchisee
• Opportunity to start a
proven business with
limited capital
• Guaranteed customers
• Franchisor available for
advice and guidance
• Materials for local
promotional campaigns
and participation in
national campaigns
• Cost savings when
purchasing in cooperation
with other franchisees
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or
Disadvantages of Franchising
To the franchisor
•
•
•
Failure of the franchisee
to operate franchise properly
Disputes with and lawsuits
by franchisees over the
terms of the franchise
Expensive to obtain and operate
– Royalty Fee - % of Franchise
Sales or Profits
– Franchise Fee – Fee paid to
the Franchisor by the
Franchisee
To the franchisee
• Franchisor retains a large
amount of control over the
franchisee’s activities
• Franchisor opening
competing franchises within
the franchisee’s market
19
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7
Looking Back
•
Why do entrepreneurs launch small businesses?
•
What is the typical entrepreneurial mindset and characteristics?
•
What are funding options for small business?
•
What are the opportunities and threats facing small businesses?
•
What are ways to become a business owner and facilitate success?
•
What is the size, scope and economic contribution of small business?
20
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