Chapter 3
Entrepreeurship,
New Ventures,
and Business
Ownership
“Entrepreneurs are simply
those who understand
that there is little
difference between
obstacle and opportunity
and are able to turn both
to their advantage.”
—Victor Kiam, Remington
PowerPoint Presentation by Charlie Cook
Copyright © 2005 Prentice Hall, Inc.
All rights reserved.
Business 44:
Intro to Business Ownership/Management
• Practical Focus
• Organizing & Managing a successful small
business enterprise
• How to finance your new business
• Specific business profiles
• Business Operations
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–2
Key Topics
• Small business and its importance in the
economy
• Entrepreneurship versus small business
• Starting and funding a small business
• Sole proprietorships, partnerships, and
corporations
• Creating and managing corporations
• Corporate trends and issues
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–3
Evolution of American Business
• Agricultural
• Manufacturing
• Service Industries
• Future???
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–4
Looking to the Future
Four Major Forces:
• The information revolution
continues evolving.
• Technological breakthroughs
will create new industries.
• Increasing globalization will
create larger markets and
tougher competition.
• Increasing instability in energy
costs create danger and
opportunity
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–5
What Is “Small Business”?
• Independently owned and
managed business that
does not dominate its
market
• # of employees varies
• Sales dollars varies
• - Link to SBA definition
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–6
Small business plays a critical role in
the U.S. economy.
Job Creation
Innovation
Importance to Big
Businesses
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–7
Most businesses are small businesses,
and they employee most U.S. Workers
9.16
Percentage of All U.S. Workers
Percentage of All U.S. Businesses
86.02
1.50
0.15
Under
20
2099
100499
25.60 29.10
25.50
12.70
7.10
0.22
500- 1000 or
1000 more
Total Employees
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Under
20
2099
100499
500- 1000 or
1000 more
Total Employees
Figure 3–2
3–8
Small business produces about 40% of
the US GDP.
• See the data for yourself:
 http://www.census.gov/epcd/www/smallbus.html
 Use table 2b.
• At 40% of gdp, the USA small business sector is
tremendously valuable.
• Still, at 60% of GDP, the relatively few large
firms account for far more production per firm
than the little guys do.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–9
Small Businesses by Industry
Can you explain the differences?
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Figure 3–3
3–10
Degrees of Competition (p16)
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Table 1–1
3–11
Small business advantages over
larger businesses
Personalized Service/
Personal Contact especially
in niche markets
Flexibility
Lower Cost structure
Freedom to innovate
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–12
Small Business disadvantages
versus big business
- Limited Experience /
Resources
- Long Work Hours Required
- Insufficient Capital
- High Failure Rate
- Economies of scale lacking
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–13
Key Topics
• Small business and its importance in the
economy
• Entrepreneurship versus small business
• Starting and funding a small business
• Sole proprietorships, partnerships, and
corporations
• Creating and managing corporations
• Corporate trends and issues
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–14
Entrepreneurship vs. Small Business
Entrepreneur:
Craves
Accepts the risks and
opportunities of creating,
operating and growing a
new business.
Small Business Owner:
Does not have plans for
extensive growth nor the
stomach for the risks
involved in the growth.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–15
Entrepreneur or Small Business Owner?
Build
a
chain
of
Start
Take
over
business
your
Own
a aBurger
King
Burger
Kings to
offering
parents
vacations
laundromat
andthe
keep
moon.
it as-is.
• Entrepreneur
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
• Small Business
3–16
Entrepreneurial Attributes
A. Self-Directed & SelfDisciplined
B. Self-Nurturing
C. Action-Oriented
Not a perfectionist
D. Highly Energetic
E. Tolerant of Uncertainty
** Balance vs. extremes?**
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–17
Motivations to start a business
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Figure 3–5
3–18
Trends in Small Business Start-ups
Emergence of
E-commerce
Crossovers From
Big Business
Retiree
Entrepreneurs
Opportunities for
Minorities & Women
Global
Opportunities
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Increased
Survival Rates
3–19
Startups: Success and Failure
Is a business a failure if:
•
The founders
execute their planned
exit strategy?
Closure as a proxy for
failure overstates the
number of unsuccessful
businesses.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
SBA.gov figures:
66% survive two years or more,
50% four years or more,
40% 6 years or more
30% of owners viewed their firm
as successful at closure
3–20
Key Topics
• Small business and its importance in the
economy
• Entrepreneurship versus small business
• Starting and funding a small business
• Sole proprietorships, partnerships, and
corporations
• Creating and managing corporations
• Corporate trends and issues
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–21
The mechanics of starting it up
• Seeing the opportunity (product, timing, connections)
• The plan (reconcile with p81)




The reasons your firm should exist
How it is going to happen – people, organization, structure
The financial projections – quantify the dream
Business Plan Pro – leveraging a knowledge base.
• Execution
 Get funding
 Get going: quickly, cheaply, effectively
• Controls
 Measurable goals, personal responsibility, follow up
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–22
Start-Up Success and Failure Reasons
• Three Overarching Factors
 Planning
 Solid Information
 Entrepreneurial leadership
• Failure
 Poor management
 Neglect (golfing)
 Weak control systems
 Insufficient capital
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Three Factors, from The Small Business Start Up Guide, Robert Sullivan
Success
• Hard work, drive,
dedication
• Market demand
• Strong management
• Luck?
3–24
A choice:
Buy an Existing
Business
Will your insight add value to
the business?
Does the business have a
successful and predictive
track record?
Are the relationships
valuable?
Start From
Scratch Instead
Is the business’s success
due solely to the owner’s
unique knowledge?
Is the business involved in
poor relationships?
Suspicious or skimpy
financial reporting?
Are you more of an
entrepreneur?
Are you more of a small
business person?
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–25
Franchising:
advantages & disadvantages
99¢
Franchise
Advantages



Proven business
opportunity
Access to
management
expertise
Many services
performed by
corporate
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Franchise
Disadvantages



Start-up costs
On-going payments
Management rules
and restrictions
3–27
Financing the Small Business
• Your financial projections
 Detailed & justified
 Practical – aligned with industry norms
• Personal resources
• Loans
• Venture capital firms
• Small-business investment companies
• Small Business Association (SBA)
 Funding advice and resources to help
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–28
Reasons for Funding Sources to Say
“No”
$ Insufficient planning and/or
information.
$ Fluff vs. real information
$ You haven’t clearly stated
why you need the money.
$ How you will use it - budget
$ Your numbers don’t support
the loan request.
$ Don’t match industry norms
$ Lack of collateral or real
business prospects
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–29
Key Topics
• Small business and its importance in the
economy
• Entrepreneurship versus small business
• Starting and funding a small business
• Sole proprietorships, partnerships, and
corporations
• Creating and managing corporations
• Corporate trends and issues
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–30
Comparative Summary:
Three basic forms of business (p 86)
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Table 3–1
3–31
Corporations
An entity
created by law.
Existence is
separate from
owners.
Ownership
can be
Has rights and
privileges.
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Privately, or
Closely, Held
Publicly Held
3–34
Corporate Organization Chart
Stockholders
Stockholders
elect board
of directors.
Board of Directors
President
Secretary
Treasurer
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Controller
Other Vice
Presidents
3–35
Stockholders purchased shares of capital
stock to become part owners
 Vote for board
of directors.
Rights
Stockholders
own the
company.
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 Proportionate
distribution of
dividends.
 Proportionate
distribution of
assets in a
liquidation.
3–36
The good side of Incorporation
Limited personal
liability for
stockholders.
Access to capital
Transferability of
ownership.
Continuity of
existence.
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3–38
The dark side of Incorporation
Cost of formation
Double taxation
Greater regulation
Stringent government
oversight
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Separation of
ownership and
management
3–39
Types of Corporations – summary p90
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Table 3–2
3–41
To incorporate or not?
• Incorporate
You
have
Youown
are
aamanage
doctor
You
own&
small
tremendous
growth
with your
own
askateboard
small
fruit-stand
park
plans
and need
practice
millions in funding
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• Sole
Proprietorship or
Partnership
3–43
Video Case:
• Watch it with the questions on your mind
• During the show jot down notes to answers for
use in group discussion
• Group differently than last time, Execute the
group discussion process as before.
• The formal write up will include the answers to
the 5 questions, including detailed exploration of
question number 5.
• Also due next time: Chapter 4 questions!!
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3–49
Chapter Review
• Define small business and explain its importance to
the U.S. economy.
• Distinguish between entrepreneurship and small
business.
• Describe the start-up decisions made by small
businesses and the potential sources of financial aid
and management advice.
• Describe sole proprietorships, partnerships, and
corporations, and explain the advantages and
disadvantages of each.
• Identify the different types of corporations.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
3–51