Chapter Six Small Business, Entrepreneurship, and Franchising Copyright © 2006 by The McGraw-Hill...
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Chapter Six Small Business, Entrepreneurship, and Franchising Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
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Transcript of Chapter Six Small Business, Entrepreneurship, and Franchising Copyright © 2006 by The McGraw-Hill...
Chapter SixChapter SixSmall Business, Entrepreneurship, and Franchising
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
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Entrepreneurship andSmall Business
EntrepreneurshipThe process of creating and managing a business to achieve a desired objective
Small BusinessAny independently owned and operated business that is not dominant in its competitive area and employs fewer than 500 people
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Why Do Entrepreneurs Go Into Business?
Source: Dun & Bradstreet 19th Annual Small Business Survey, May 2000 from “The Rewards,” Inc. State of Small Business, vol. 23 (2001), issue 7, p. 50.
Joined family business
Wanted more control over future
Tired of working for someone else
Wanted to fulfill longtime goal
Had been downsized or laid off
5%
25%
27%
36%
41%
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What Is a Small Business?
Any independently owned and operated business
Not dominant in its competitive area
Does not employ more than 500 people
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Facts About Small Businesses
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The Role of Small Business inthe American Economy
Job creation
Innovation
Exporting
Did You Know? • 9.1 million women-owned businesses employ 27.5 million
and contribute 3.6 trillion to the economy.• 3.25 million minority-owned firms employ • 4 million and account for $495 billion in revenues
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Number of Firms by Employment Size
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Industries That Attract Small Business
Retailing and Wholesaling
Services
Manufacturing
High Technology
Did You Know? 39 percent of high-tech jobs are in small businesses
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What are the Advantages of Owning a Small Business?
PersonalIndependenceFreedom of choiceThe option of working at home
BusinessOften requires less money to start and maintainFlexibilityThe ability to focus on a few key customersThe chance to develop a reputation for quality and service Did You Know?
12% of Internet start-ups were launched in a garage.
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Traits Needed to Succeedin Entrepreneurship
NeuroticismHelps entrepreneurs focus on details
ExtroversionFacilitates network building
ConscientiousnessFacilitates planning
AgreeablenessFacilitates networking
Openness to new ideas
Source: Alex de Noble in Joshua Kurlantzick, “About Face,” Entrepreneur, January 2004, www.entrepreneur.com/article/0,4621,312260,00.html.
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Disadvantages of Small Business Ownership
High stress level
High failure rate
Undercapitalization
Managerial inexperience or incompetence
Inability to cope with growth
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How Hard Do They Work?Hours worked by small business owners
Source: “21st Annual Small Business Survey Summary Report,” Dun & Bradstreet (n.d.), www.sbs.dnb.com/ survey/2002survey.pdf (accessed May 4, 2004).
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Most Common Mistakes Made by Start-up Businesses
1. Failing to spend enough time researching the business idea to see if it’s viable
2. Miscalculating market size, timing, ease of entry, and potential market share
3. Underestimating financial requirements and timing
4. Overprotecting sales volume and timing
5. Making cost projections that are too low
6. Hiring too many people and spending too much on offices and facilities
7. Lacking a contingency plan for a shortfall in expectations
8. Bringing in unnecessary partners
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Most Common Mistakes Made by Start-up Businesses
9. Focusing too much on sales volume and company size rather than profit
10. Hiring for convenience rather than skill requirements.11. Neglecting to manage the entire company as a whole.12. Accepting that it’s “not possible” too easily rather than
finding a way.13. Seeking confirmation of your actions rather than seeking the
truth.14. Lacking simplicity in your vision.15. Lacking clarity of your long-term aim and business purpose.16. Lacking focus and identity.17. Lacking an exit strategy.
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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The Keys to Starting a Small Business Success
A comprehensive business plan
The right form of ownership
Adequate financing
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Financial Resources
Equity FinancingOwner’s funds
Venture capitalists
Debt FinancingLoans & collateral
Lines of credit
Trade credits
Barter
Did You Know? The online lending agency is the latest trend in debt financing. Live Capital connects borrowers to American Express, GC Capital and other lenders.
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Franchising
Franchise:A license to sell another’s products or to use another’s name in business or both
Franchiser:The company that sells a franchise
Franchisee:The purchaser of a franchise
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Top Ten Franchises for 2004
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Fastest Growing and HottestNew Franchises
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Advantages of Franchises
Management training and supportBrand-name appealStandardized quality of goods and servicesNational advertising programsFinancial assistanceProven products and business formatsCentralized buying powerSite selection and territorial protectionGreater chance for success
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Disadvantages of Franchises
Franchise fees and profit sharing with the franchiser
Strict adherence to standardized operations
Restrictions on purchasing
Limited product line
Possible market saturation
Less freedom in business decisions
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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The Marketing and Communication Tools for Small Business Success
E-mail address
Company Web site
Direct mail
Toll-free number
Yellow Pages ads
100%
96%
71%
60%
58%
Source: “Small businesses cite successful tools,” USA Today, November 1, 2001, p. 1b.
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Developing Trends Impacting Small Business
Demographic TrendsBaby boomers & Echo boomers
Technological TrendsIncrease in Internet usage
Major breakthroughs in technology
Economic TrendsEconomic turbulence creates economic threats and new opportunities
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Making Big Businesses Act “Small”
More and more firms are emulating small businesses in an effort to improve their own bottom line by
Downsizing
Making their operating units function more like independent small businesses
• Intrapreneurs
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Solve the Dilemma
1. Evaluate the idea of a low-fat cookie and muffin retail store.
2. Are there any concerns in connection with starting a small business that Jack and Bruce have not considered?
3. What advice would you give Jack and Bruce as they start up their business?
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Explore Your Career Options
What are some of the key qualities required of an individual starting a new small business?
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Additional Discussion Questions and Exercises
1. Assume you wanted to go into business for yourself.
What kind of business would you prefer?
What would be the financial requirements for entering the business?
What type of work or managerial experience would you need?
2. What should be included in a business plan? What is the importance of a business plan to the small-business entrepreneur?
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Additional Discussion Questions and Exercises
3. What are the goals of venture capitalists when they invest in new businesses?
4. Think of your local community. Can you name five new businesses that have started up recently?
Would you consider these new businesses to be small businesses?
Are these new businesses franchises?
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Chapter 6 Quiz
1. A license to sell another’s products or to use another’s name in business, or both, is calleda. a franchise
b. a joint venture.
c. a licensing agreement.
d. a small business license.
2. Which of the following industries is least likely to be entered into by small-business entrepreneurs? a. Services
b. high technology
c. mining and manufacturing
d. retailing
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Chapter 6 Quiz
3. The shortest path to business failure isa. undercapitalization.
b. lack of a business plan.
c. stress.
d. employee turnover
4. The money needed to finance regular business operations is called
a. a line of credit.
b. collateral.
c. undercapitalization.
d. working capital.
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Multiple Choice Questions about the Video
1. Dale Gray’s specialty is a. emerging technology.
b. third-world communications systems.
c. the development and implementation of integrated communications networks.
d. government relations.
2. Dale Gray has _______ security clearance.a. Top Secret 24
b. Top Secret 74
c. CIA G-17
d. HAS G-74
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
