CHAPTER
6
Entrepreneurship and
Small Business
Management
6-1
Becoming an Entrepreneur
6-2
Small Business Basics
6-3
Starting a Small Business
SLIDE 1
6-1 Becoming an Entrepreneur
Goals
1. Identify
characteristics of successful
entrepreneurs
2. Recognize
the importance of
entrepreneurship in the economy
3. Describes
opportunities and risks
Characteristics of
Entrepreneurs

Entrepreneur – someone who takes a risk in
starting a business to earn a profit
 Being
your own boss
 Developing a good initial plan
 Special skills and abilities and coming up with
innovative ideas

Entrepreneurship – the process of starting,
organizing, managing, and assuming the
responsibility for a business
What Does it Take?

Not all business owners and managers are
entrepreneurs.

Entrepreneurs have unique skills and personal
characteristics.
Entrepreneurs Are:

Persistent

Self-confident

Inquisitive

Creative

Energetic

Reliable

Goal-oriented

Competitive

Independent
Entrepreneurs Have:

Problem-solving skills

Tolerance for ambiguity

Strong integrity

Personal initiative

Ability to secure resources

Capability to learn from failure

Willingness to work hard
Checkpoint #1
 What
personal characteristic are common
to most successful entrepreneurs?
 persistence,
inquisitiveness, self-confidence,
creativity, and so forth.
Entrepreneurship and
the Economy

Employment


Small businesses are responsible for most new employment.
Financing

Most new businesses start on $10,000 or less.

75% of startup capital comes from owner savings, bank
loans, credit card debt.

Venture Capital – money provided by large investors to
finance new products and new businesses that have a goods
chance to be very profitable.
Entrepreneurship and
the Economy

Productivity
 New
and small businesses produce a large volume of
goods and services for the economy.
 Businesses
with just a single owner and no staff
account for more than $770 billion in sales annually
 Responsible
year.
for more than half of the U.S. GDP each
Checkpoint #2
 What
are the sources of financing that
entrepreneurs use for their new businesses?
 Personal
savings
 Friends
and family
 Venture
capital
 Bank
loans
Opportunities and Risks

Before deciding to start a business, you need to
think about the opportunities and risks.

New Business Opportunities
 Innovation
– an invention or creation that is brand new
 Improvement
– a designed change that increases the
usefulness of a product, service, or process
Opportunities and Risks

Recognizing Risks
 The
primary reasons that businesses started by
entrepreneurs close are:
1. Lack of adequate capital
2. Low sales
3. Higher than expected expenses
4. Competitive pressure
5. An owner unprepared to manage a growing
business
6. Operations requiring more time than the owner is
willing to commit
Checkpoint #3
 Where
do entrepreneurship
opportunities begin?
Opportunities
begin with innovations
(ideas about new products and services)
or improvements (ideas for changes to
existing products, services, or processes).
6-2 Small Business Basics
Goals
1. Identify
important characteristics of a
small business
2. Recognize the competitive advantages of
small businesses
3. Identify problems faced by many small
businesses
Small Business Ownership

Small Business – an independent business with
fewer than 500 employees.
 99.9%
of roughly 26 million U.S. Businesses are small
businesses

Description of a Small Business:
The owner is usually the manager
2. It operates in one or very few locations
3. It typically serves a small market
4. It is not dominant in its field
1.
Small Business Ownership


Small Business Employment

Responsible for 60-80% of all new jobs

Large number of small businesses

Professional and Technical (Construction Companies)
Ownership Diversity

Women own more than 1/4th of all small businesses

More than 17% have African-American, Asian-American, or
Hispanic ownership

14% of owners are under 35 years-old
Small Business Ownership

Ownership Diversity

64% have finished some college work

Half are home based businesses

Average $5,000 or less to start up the business (Part-Time)
Checkpoint #4

Beyond the formal definition of a small business,
what four points can be used to describe a small
business?
1.
The owner is usually the manager
2.
It operates in one or very few locations
3.
It typically serves a small market
4.
It is not dominant in its field
Small Business Advantages


Meeting customer needs

Serve customers where the number of products and services
needed is small or the requirements are too specialized for
large businesses

Get direct information from their customers
Providing Unique Services

Spend time determining needs and discussing alternatives

Unique needs, more individual attention, and willing to pay
more.
Checkpoint #5

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.
Common Small
Business Problems

Reasons for failure
1.
2.
3.
4.
5.
6.
7.
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
Poor location for the business
Failure to manage credit offered to customers
Common Small
Business Problems

Small Business Assistance
 Small
businesses can get help from a number of
sources:
1.
Universities and colleges
2.
Local Group of business people
3.
Small Business Administration
A
government agency that helps small business owners
develop a business plans and obtain financing and other
support for their companies.
Checkpoint #6
 List
common reasons for small business failure.
 Not
keeping adequate records
 Insufficient start-up money
 Lack of management experience
 Lack of experience with the type of business
 Not controlling operating expenses
 Poor location
 Failure to manage credit
6-3 Starting a Small
Business
Goals
1. Recognize
important factors to be
considered when starting a business
2. Describe
3. Identify
elements of a business plan
types and sources of financing a
small business
The Business Decision

An Idea Plus Experience

Business ideas come from many sources
 Hobbies,


interests, business experiences, books, Magazines
Several years of training in a range of business operations
will prepare you for the role of owner.
Right place right time

If the business is not easy to find or requires a great deal of
travel time, many potential customers will stay away.
The Business Decision


Team Approach

Even small businesses need a few full – or part –time
employees to grow or cover extended hours.

Choosing the team members become one of the most
important initial business decisions.
Preparation and Research

Includes having enough information to make good decisions
about the business.

Information is needed on customers, competitors, important
operations, government regulations, and many more
Checkpoint #7

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.
Developing a Business Plan

What is a business plan?


A written description of the business idea and how it will be
carried out, including all major business activities.
Key Features:

General description of the company

The credentials of the owners

Description of the product or service

Analysis of the market

Financial plan
Elements of a Business Plan

Description of the Business
 The
business idea
 Major
products and services
 Ownership
structure
 Strengths/weaknesses
 Long-
and short-term goals
Elements of a Business Plan

Description of Competition
 Characteristics

of the industry
 Condition
of the economy
 Strengths
and weaknesses of major competitors
Customer Analysis
 Description
 Location,
 Sales
of customers
number, and resources of customers
forecasts
Elements of a Business Plan

Operations Plan
 Organization
of the company
 Description of major operations
 Analysis of resources needed
 Human resource plans

Marketing Plan
 Description
of major marketing activities
 Description of resources needed
 Schedule of marketing activities
Elements of a Business Plan
 Financial
 Start-up
 Short-
Plans
costs
and long-term financial needs
 Sources
of financing
 Budgets
and financial statements
Steps in Developing the
Business Plan

Gather and review information

Develop the strategic alternatives

Write the plan

Ask an expert to review the plan
Checkpoint #8

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.
Financing The Small Business

Types of financing
 Start-up
financing
 Short-term
 Long-term

financing
financing
Sources of financing
 Owner-supplied
 Borrowed
funds
funds
Checkpoint #9

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.