Entrepreneurship and Starting a Small Business

Chapter 06

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

• Entrepreneurship -- Accepting the risk of starting and running a business.

WHAT is ENTREPRENEURSHIP?

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Source: Entrepreneurship, April 2010.

YOU’RE NEVER TOO YOUNG to be an ENTREPRENEUR

Five reasons to start your business right away:

1. You don’t have a mortgage or kids to take care of.

2. You can survive on little funds and work long hours.

3. No disruption to your career path. It hasn’t started yet!

4. Use of your alma mater for resources.

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Source: U.S. News and World Report, October 2010.

YOU’RE NEVER TOO OLD to be an ENTREPRENEUR EITHER!

• The highest rate of entrepreneurship activity is in the 55-64 age group!

• Since 1996, older Americans have opened businesses at a higher rate than 20-34 year olds.

• Older entrepreneurs have greater experience and more financial resources.

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• Opportunity

• Profit

• Independence

• Challenge

WHY TAKE the RISK?

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• French immigrant Élruthère Irènèe du Pont de Nemours started Du Pont in 1802.

• David McConnell borrowed $500 from a friend to start Avon.

• George Eastman started Kodak with a $3,000 investment in 1880.

• Jeff Bezos started Amazon.com with investments from his family and friends.

NOTABLE ENTREPRENEURS

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• Leanna Archer – At 12 years old, she has her own hair care line.

• Alexis Holmes – Started baking for a fundraiser, now the 16-year-old owns her own bakery.

• Jack Short & Daniel Lyons – The two medical students started Factory Green, a carbon neutral apparel company, as undergrads.

• Mark Zuckerberg – Launched Facebook as a Harvard freshman.

YOU’RE NEVER TOO YOUNG to be an ENTREPRENEUR

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18 - 24 8%25 - 34 71%35 - 44 13%45 - 54 6%

55+ 2%

AGE AT START-UP

Who Starts New Businesses?

• Self-directed

• Self-nurturing

• Action-oriented

• Highly energetic

• Tolerant of uncertainty

WHAT DOES IT TAKE to be an ENTREPRENEUR?

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Source: Entrepreneur, May 2010.

FIVE STEPS to STARTING YOUR BUSINESS in SCHOOL

1. Find a problem or need.

2. Zero in on specifics.

3. Do research on campus, test products with students.

4. Move forward with your ideas. Don’t wait!

5. Sacrifice.

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• It fills customers’ needs.

• You have the skills and resources to start a business.

• You can sell the product or service at a reasonable price and still profit.

An IDEA is a GOOD OPPORTUNITY IF…

• You can get your product or service to customers before the window of opportunity closes.

• You can keep the business going.

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• Entrepreneurial team -- A group of experienced people from different areas of business who join to form a managerial team with the skills to develop, make and market a new product.

• An entrepreneurial team (Steve Jobs, Steve Wozniak and Mike Markkula) was key to Apple’s success.

ENTREPRENEURIAL TEAMS

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• Micropreneur -- Entrepreneurs willing to accept the risk of starting and managing a business that remains small, lets them do the work they want to do, and offers a balanced lifestyle.

• Many micropreneurs are home-based business owners – writers, consultants, video producers, architects, bookkeepers, etc.

• Nearly 60% of home-based micropreneurs are men.

MICROPRENEURS

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• Intrapreneur -- A creative person who works as an entrepreneur within a corporation.

• Intrapreneurs use a company’s existing resources to launch new products for the company.

• Art Fry of 3M developed Post-Its when he was trying to mark pages of his hymnal without damage.

INTRAPRENEURS

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• Computer technology has leveled the playing field.

• Corporate downsizing has led many to venture on their own.

HOME-BASED BUSINESS GROWTH

• New tax laws have loosened restrictions on deducting expenses for home offices.

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• Getting new customers is difficult.

• Managing your time requires self-discipline.

• Work and family tasks are sometimes not separated.

• Government ordinances may restrict your business.

• Homeowner’s insurance may not cover business-related claims.

HOME-BASED BUSINESS ISN’T EASY

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• Ability to start your business immediately

• Minimal start-up capital needed• No rent or excessive set-up

charges• Comfortable working conditions• Reduced wardrobe expenses• No commuting• Tax benefits• Elimination of office politics• Low risk for trial and error

BENEFITS of HOME-BASED BUSINESSES

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• Difficult to establish work habits

• Limited support system

• Isolation

• Work space may be limited

• Clients may be uncomfortable coming to your home

• Zoning restrictions

• Success is based 100% on your efforts

DOWNSIDES of HOME-BASED BUSINESSES

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Source: Entrepreneur, June 2010.

THINK YOU’RE READY to WORK from HOME?

Yes? No?

If I don’t know the answer, I can figure it out.

I’m hardworking, self-directed and disciplined.

I’m organized and can multitask.

I don’t mind working long hours or weekends.

I regularly set goals and measure progress.

I’m happy being alone.

I’m an excellent communicator.

I can create relationships with people I’ve never met.

I’m productive on my own.

My family and friends don’t expect me to be available when I’m working at home.

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ONLINE BUSINESS

• Online sales reached $172.9 billion in 2010, 7% of all retail sales.

• All retail sales were up 2.5% in 2010. However, online retail sales grew 11%.

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• Affiliate Marketing -- An Internet-based marketing strategy in which a business rewards individuals or other businesses for each visitor or customer the affiliate sends to its website.

AFFILIATE MARKETING

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Source: Entrepreneur, May 2010.

• Establish an identity.

• Be easy to find.

• Steal good ideas and make them your own.

• Look out for opportunities.

• Remember other forms of marketing.

• Be friendly!

BOOSTING YOUR BUSINESS’SONLINE PRESENCE

Photo Courtesy of: Marc Wathieu

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• Immigration Act passed in 1990 created a category of “investor visas” that encourage entrepreneurs to come to the U.S.

• Enterprise Zones -- Specific geographic areas to which governments attract private business investment by offering lower taxes and other government support.

• Incubators -- Offer new businesses low-cost offices with basic services.

GOVERNMENT and ENTREPRENEURSHIP

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McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

What is a Small Business?

• Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size.

• Businesses are “small” in relation to other businesses in their industries.

SMALL BUSINESSES

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• There are 27.8 million small businesses in the U.S.

• Of all nonfarm businesses in the U.S., almost 97% are considered small.

• Small businesses generate 60-80% of new jobs.

• About 80% of U.S. workers’ first jobs were in small business.

SMALL BUSINESS STATISTICS

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• Personalized Service• Personal Contact• Flexibility• Lower Costs

ADVANTAGES of SMALL OVER BIG BUSINESS

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• Limited Experience

• Long Hours

SMALL BUSINESS DISADVANTAGES

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1 - 39 hours 8%40 - 49 hours 15%50 - 59 hours 23%60 - 69 hours 28%70 - 79 hours 13%80 + hours 12%

Hours per Week Entrepreneurs Worked 1st Year

• Insufficient Capital

• High Failure Rate

SMALL BUSINESS DISADVANTAGES cont.

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SMALL BUSINESS FAILURE RATES

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• Owner closing a business to start another is reported as a “failure.”

• Changing forms of ownership is reported as a “failure.”

• Retirement is reported as a “failure.”

BUSINESS FAILURES are LOWER THAN the REPORTS BECAUSE…

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Source: World Features Syndicate, 2009.

• Tommy Hilfiger – First store went bankrupt

• Milton Hershey – First confectionary failed

• H.J. Heinz – Company went bankrupt six years after start

THEY DID WHAT?Famous Business Failures

• Walt Disney – First film company went bankrupt

• Henry Ford – First two car companies failed

• L.L. Bean – Almost went bankrupt in first year

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• Learn from Others – Investigate your local colleges for classes on small business and entrepreneurship; talk to and work for successful local entrepreneurs.

• Get Some Experience – Gain three years experience in the field; then start a part-time small business.

• Take Over a Successful Firm – Serve as an apprentice and eventually take over once the owner steps down.

LEARNING ABOUT SMALL BUSINESS

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• Planning

• Financing

• Knowing customers

• Managing employees

• Keeping records

MAJOR BUSINESS FUNCTIONS

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*

*

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Business Plan

Successful Business Management Requirements

• Business Plan -- A detailed written statement that describes the nature of the business, the target market, the advantages the business will have over competition, and the resources and owners qualifications.

• A business plan forces potential owners to be specific about what they will offer.

• A business plan is mandatory for talking with bankers or investors.

BUSINESS PLANS

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• A good plan takes a long time to prepare.

• A good executive summary catches interest and tempts potential investors to read on.

WRITING a BUSINESS PLAN

• Getting the plan into the right hands is almost as important as getting the right information in it.

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• Personal savings

• Relatives

• Former employers

• Banks & finance companies

• Government agencies

• Venture capitalists -- Individuals or companies that invest in new businesses in exchange for partial ownership.

• Angel investors

SOURCES of CAPITAL

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Source: Business Week Small Biz, www.businessweek.com, February/March, 2008.

• Clarify Expectations – What will each person contribute?

• Discuss Work/Family Boundaries – What is the line that separates work from personal relationships?

• Develop Good Communication – Agree about types of decisions you’ll make jointly and on own.

• Clarify Long-Term Intentions – Discuss how long everyone will work full time and goals for the business.

• Have an Escape Hatch – Have a Plan B.

A FAMILY AFFAIRWhat to Consider Before Starting a Family Business

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• Kickstarter and Lending Club connect loan seekers to potential lenders.

• Administrators assign interest rates between 6.78% and 24.95% based on credit history, how much money is needed, and what the person is using it for.

SOCIAL LENDING(Social Media in Business)

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• Market -- Consumers with unsatisfied wants and needs who have both resources and willingness to buy. (MAD)

• Set out to fill the market’s needs by offering top quality and great service at a fair price.

• One of the great advantages of small businesses is the ability to know the market and quickly adapt to market needs.

The MARKET

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• Marketing decisions need to be made long before introducing a product or opening a store.

• A marketing research study can help you:- Determine where to locate.- Whom to select as your target market.- What is an effective strategy for reaching the

market.

MARKETING RESEARCH

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• Hiring, training and motivating employees is critical.

• Employees of small companies are often more satisfied with their jobs – they feel challenged and respected.

• Entrepreneurs best serve themselves and the business if they recruit and groom employees for management positions.

MANAGING EMPLOYEES

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• Computers simplify the process by helping with inventory control, customer records and payroll.

• A good accountant can help in:- Deciding whether to buy or lease equipment. - Deciding whether to own or rent a building.- Tax planning.- Financial forecasting.- Choosing sources of financing.- Writing requests for funds.

ACCOUNTING ASSISTANCE

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• Owners need outside consulting advice early in the process.

• Small and medium-sized firms cannot afford to hire experts as employees.

• A competent attorney can help with:- Leases- Contracts- Partnership agreements- Protection against liabilities

LEGAL HELP

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• A commercial loan officer can help:- Design an acceptable business plan.- Give financial advice.- Lend money.

• An insurance agent can help you:- Know the risks associated with the business.- How to cover risks with insurance.- How to prevent risks with safety devices.

OTHER FORMS OF HELP

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• Small Business Administration (SBA) -- A U.S. government agency that advises and assists small businesses by providing management training and financial advice.

• SBA started a microloan program in 1991 that provides very small loans to small business owners.

• Program judges worthiness on belief of the borrower’s integrity and soundness of their business ideas.

The SMALL BUSINESS ADMINISTRATION

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• Small Business Investment Company (SBIC) -- A program through which private investment companies licensed by the SBA lend money to small businesses.

• SBICs are able to identify a business’s trouble spots early, giving entrepreneurs advice, and in some cases rescheduling loan payments.

The SMALL BUSINESS INVESTMENT COMPANY

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• Small Business Development Centers (SBDC) are funded jointly by the federal government and individual states.

• SBDCs are able to evaluate the feasibility of your idea, develop your business plan and complete your funding application – for no charge.

SMALL BUSINESS DEVELOPMENT CENTERS

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• Service Corps of Retired Executives- More than 10,500 volunteers from industry, trade

associations, and education who counsel small business at no cost.

MORE SOURCES OF HELP

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Small Business Resources

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•www.sba.gov

•www.entrepreneur.com

• Small and medium-sized businesses accounted for 99% of recent export growth.

• Advantages of global trade for small businesses:- Overseas buyers enjoy dealing with individuals.- Small companies can usually begin shipping

much faster.- They provide a wide variety of suppliers.- They can give more personal service and

attention.

SMALL BUSINESS PROSPECTS ABROAD

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