SMALL BUSINESS,
ENTREPRENEURSHIP,
AND FRANCHISES
CHAPTER-05
1
Dr. Gehan Shanmuganathan, (DBA)
FRANCHISING FEEDS GROWTH OF FIVE
GUYS BURGERS AND FRIES….
2
FRANCHISING FEEDS GROWTH OF FIVE
GUYS BURGERS AND FRIES….

Offer competitively priced generously sized meals
in a family-friendly atmosphere

Jerry and Janie Murrell started one outlet in
Arlington Virginia in 1986

In year 2002, they owned 300 franchised
restaurants in and around metropolitan DC area

Today they have more than 600 franchised
restaurants in North America
3
LEARNING OBJECTIVES
1.
Define what a small business is and recognize the
fields in which small businesses are concentrated.
2.
Identify the people who start small businesses and
the reasons why some succeed and many fail.
3.
Assess the contributions of small businesses to our
economy.
4.
Judge the advantages and disadvantages of
operating a small business.
LEARNING OBJECTIVES
5.
(CONT’D)
Explain how the Small Business
Administration helps small businesses.
6.
Appraise the concept and types of franchising.
7.
Analyze the growth of franchising and the
advantages and disadvantages of franchising.
SMALL BUSINESS: A PROFILE
6
SMALL BUSINESS: A PROFILE

A business that is independently owned and
operated for profit and is not dominant in its
field

SBA “smallness” guidelines-number of employees and size of the turnover (in
US 99.7% of all business considered small)
Industry group
Size standard
Manufacturing, mining
500 employees
Whole sales trade
100 employees
Agriculture
$ 750,000
Retail trade
$ 7 Million
General and heavy
construction
$ 33.5 Million
ESTABLISHING A BUSINESS AROUND THE
WORLD…..
Country
#
procedures
Time/ Days
Cost (US$)
Min.
Capital %
Australia
2
2
402
0
Belgium
7
56
2633
75.1
Canada
2
3
127
0
Denmark
4
4
0
52.3
France
10
53
663
32.1
Germany
9
45
1341
103.8
Greece
16
45
8115
145.3
Ireland
3
12
2473
0
Italy
9
23
4565
49.6
Japan
11
31
3518
71.3
8
SMALL-BUSINESS SECTOR
9
SMALL-BUSINESS SECTOR

In US, easy process to incorporate ($250 and four days-
name registration, tax ID, unemployment and worker’s
compensation insurance). Japan $3500, 31 days and 11
different procedures

There are about 29.6 million businesses in the US. Only
over 17000 of these employ more than 500 workers. During
last decade small businesses in the US increased by 49%

Two- third of new business survive at least two years

44 % survive at least four years

31 % survive at least seven years
10
INDUSTRIES THAT ATTRACT SMALL
BUSINESSES


Attractive small-business industry characteristics

Low investments

Some special skills

Knowledge
Industry categories where small businesses tend to cluster

Distribution industries (33%) - retailing, wholesaling,
communication, and transportation

Service industries (48%) – dental care, watch, shoe

Production industries (19%)- construction, mining,
manufacturing
THE PEOPLE IN SMALL
BUSINESSES:
THE ENTREPRENEURS
12
THE PEOPLE IN SMALL BUSINESSES:
THE ENTREPRENEURS

The entrepreneurial spirit is alive in the US

Study reveals that US population is quite entrepreneurial
when compared to other countries

More than 70% of Americans would prefer being an
entrepreneur to work for someone else

This compares with 46% of adults in Western Europe and
58% of adults in Canada

Another study reveals that United States was in the top
third in entrepreneurial activities and was a leader when
compared with Japan, Canada, and Western Europe
13
CHARACTERISTICS OF ENTREPRENEURS

Why people go into business for themselves

The “entrepreneurial spirit” (desire to create new business)

The desire for independence

The desire to determine one’s own destiny

The willingness to find and accept a challenge and risk

Family background

Age

“Had enough” of working for someone else

High-tech opportunities, especially for teens

Losing a job and deciding to start a business

An idea for a new product
WOMEN AS SMALL-BUSINESS OWNERS

Women are 51% of the total US population and according to
the SBA, they owned at least 50% of all small business in 2008

Already own 66% of the home-based businesses in the country

9.1 million women-owned business in the United States
provide almost 27.5 million jobs and generate $ 3.6 trillion in
sales

They have proven that they are successful: more than 40%
have been in business for 12 years or more

Generally women owned businesses are financially sound,
credit-worthy, older, better educated, and have more
managerial experience
15
HOW OLD IS AN AVERAGE ENTREPRENEUR?
25
21
20
17
18
15
15
10
8
5
9
7
3
1
1
0
Under 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60 or
20
Older
16
WHY SOME ENTREPRENEURS AND SMALL
BUSINESSES FAIL

Planning

Lack of capital and cash-flow problems

Lack of management skills

Overexpansion
US BUSINESS START-UPS, CLOSURES, AND
BANKRUPTCIES IN 2005- 2009
Year
New
Closure
Bankruptcies
2009
N/A
N/A
60840
2008
627200
595600 (94%)
43546 (6%)
2007
663100
571300 (86%)
28322 (4%)
2006
670058
599333 (89%)
19695 (2%)
2005
644122
565745 (87%)
39201 (6%)
18
THE IMPORTANCE OF SMALL
BUSINESSES
IN OUR ECONOMY
19
THE IMPORTANCE OF SMALL BUSINESSES
IN OUR ECONOMY

Providing technical innovation

Innovation and invention are part of our economy

Search for new ways to do “more with less”

Small firms employ 40% of all high-tech workers such as
engineers, and computer specialists

Small firms produce thirteen to fourteen times more
patents per employee than large patenting firms
THE IMPORTANCE OF SMALL BUSINESS
IN OUR ECONOMY (CONT’D)


Providing employment

Small businesses create more new businesses

They provide 67% of workers with their first jobs and training
Providing competition

Challenge larger companies with high customer service

A combined competition makes a significant impact to large
organizations

Filling needs of society and other businesses

Small firms provide variety of goods and services to each other
and to much larger firms
THE PROS AND CONS OF
SMALLNESS
22
THE PRO AND CONS OF SMALLNESS
ADVANTAGES
DISADVANTAGES
Personal relationship with

Risk of failure
customers

Limited potential

Ability to adapt to change

Limited ability to raise

Simplified record keeping

Independence

capital
DEVELOPING A BUSINESS PLAN
24
DEVELOPING A BUSINESS PLAN

Business plan

A carefully constructed guide for the person starting a
business


Three basic purposes of a business plan

Communication

Management

Planning
Accuracy and realistic expectations are crucial
OVERALL PICTURE OF A BUSINESS PLAN

What exactly is the nature and mission of the
new venture?

Why is this new enterprise a good idea?

What are the businessperson’s goals?

How much will the new venture cost?
26
COMPONENTS OF A BUSINESS PLAN
1.
Introduction
2.
Executive summary
3.
Benefits to the community
4.
Company and industry
5.
Management team
6.
Manufacturing and operations plan
7.
Labor force
8.
Marketing plan
9.
Financial plan
10.
Exit strategy- going public (who will take over)
11.
Risk and assumptions
12.
Appendix
27
THE SMALL BUSINESS
ADMINISTRATION
28
THE SMALL BUSINESS ADMINISTRATION
(SBA)

A government agency that assists, counsels, and protects
the interests of small business in the U.S


SBA management assistance

Management courses and workshops

Service corps of retired executives (SCORE)

Help for minority-owned small business

Small business institute

Small business publications
SBA financial assistance

Regular business loans

Small-business investment companies
FRANCHISING
30
FRANCHISING

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
franchising
TYPES OF FRANCHISES

Manufacturer- passenger cars, farm products

Producer – soft drinks, fast food

Services- massage parlors, financial services
FRANCHISING (CONT’D)

The growth of franchising

Are franchises successful?
GLOBAL FRANCHISED BRANDS
34
INDUSTRY TRENDS AND FRANCHISE
COMPANIES

Health consciousness - Subway

Increasing working women- KFC, McDonald

Aging populations – Ocean Medical International

Cost consciousness – Wal-Mart
35
ADVANTAGES OF FRANCHISING
TO THE FRANCHISEE
TO THE FRANCHISOR

Gains fast and well-

with limited capital
controlled distribution
at low cost



Larger coverage
Make use of business
experience of a major
player
Making the product
accessible to clients
Opportunity start business

Business guidance

Already established brand
image
DISADVANTAGES OF FRANCHISING
TO THE
FRANCHISOR

Time to closely
TO THE
FRANCHISEE

monitor customer

Greater deal of control
from the franchisor
service

Contract disputes
Contract disputes

Inability to
manipulate the
marketing mix
GLOBAL PERSPECTIVES IN SMALL
BUSINESS

Growing interdependence of national and international
economies as trade barriers diminish

Instant communications shrinks distances and expands
business opportunities

The Internet is the favored strategy for growth for small
businesses

The SBA offers counseling on how and where to market
overseas

Small businesses must adapt to demographic and
economic changes in the world marketplace
QUESTIONS……..
39
WRITE FIVE KEY THINGS (AREAS)
THAT YOU CAN CRITICALLY
REMEMBER IN TODAY’S
DISCUSSION
40
WHAT WE DISCUSSED……
1.
Define what a small business is and recognize the
fields in which small businesses are concentrated.
2.
Identify the people who start small businesses and
the reasons why some succeed and many fail.
3.
Assess the contributions of small businesses to our
economy.
4.
Judge the advantages and disadvantages of
operating a small business.
WHAT WE DISCUSSED…… CONT…
5.
Explain how the Small Business
Administration helps small businesses.
6.
Appraise the concept and types of franchising.
7.
Analyze the growth of franchising and the
advantages and disadvantages of franchising.
WEEKLY ASSIGNMENT- 05

What are the major components of a business
plan? Why should an entrepreneur develop a
business plan? Discuss with examples.