Ferrell Hirt Ferrell
M: Business
nd
2 Edition
FHF
Small Business, Entrepreneurship,
and Franchising
FHF
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
Entrepreneurship
[
The process of creating and
managing a business to
achieved desired objectives
]
-this is a working definition
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6-3
The World’s Wealthiest People
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Source: “The World’s Billionaires, 2009,” Forbes
6-4
What is Small Business?
• “Smallness” is relative.
• Small business is any independently owned and operated
business, not dominant in its competitive area
• Employs less than 500 people.
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Supporting Small Businesses
• The Small Business Administration(SBA) is an
independent agency of the federal government
that offers managerial and financial assistance to
small businesses.
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Impact of Small Businesses
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Small Businesses Represent:
• 60-80% of all new jobs, annually, created in the last 10 years
• 66% of the economy
• Employ 70% of workforce
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What People in the US Say is Their Idea of
the American Dream
Source: “USA Today Snapshots,” USA Today, April 2, 2009, A1.
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Small Business Innovation
Small businesses represent 55% of all innovations
• Airplane
• Audio tape recorder
• Double-knit fabric
• Fiber-optic examining equipment
• Heart valve
• Optical scanner
• Personal computer
• Soft contact lenses
• Zipper
Product customization is an advantage of small businesses
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Popular Areas for Small Business
• Retailing and wholesaling, services,
manufacturing and high technology are especially
attractive to entrepreneurs.
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Traits needed to Succeed in
Entrepreneurship
6-12
Retailing and Wholesaling
Selling directly to consumers
• Music stores
• Sporting-goods shops
• Dry cleaners
• Boutiques
• Drugstores
• Restaurants
• Hardware stores
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High Technology
• Businesses that depend heavily on advanced
scientific and engineering knowledge.
• 39% of high-tech jobs are in small businesses
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6-15
Small Business Ownership
Advantages
Disadvantages
• Costs
• High stress level
• Flexibility
• High failure rate
• Focus
• 90% of all new businesses fail
• Reputation
within the first 5 years
• Undercapitalization
• Lack of funds to operate
normally
• Managerial inexperience or
incompetence
• Inability to cope with growth
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Top 5 Biggest Challenges, Concerns &
Goals of Small Businesses
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Starting a Business
• Start with a concept or general idea
• Devise a strategy to guide planning & development
• Make decisions
• Form of ownership
• Financial resources needed
• Acquire existing business
• Start a new business
• Buy a franchise
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The Business Plan
A precise statement of the rationale for the business and a step-by-step
explanation of how it will achieve its goals. Acts as a guide and
reference document.
• Explanation of the business
• Analysis of competition
• Income/Expense estimates
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Forms of Business Ownership
• Sole Proprietorship
• Partnership
• Corporation
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Financial Resources
Provide your own personal capital
• Cash money
Obtain capital
• Financing options
 loans
 stocks
 equity
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Equity Financing
[
Selling or borrowing against the
value of an asset
(automobile, insurance policy, savings account)
to obtain funds to operate a
business
Equity Financing
]
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Equity Financing
[
Persons/organizations that agree to
provide funding for a new business
in exchange for an ownership
interest or stock. Usually requires a
sharing of ownership/control
]
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Debt Financing
[
Borrowing financial resources typically
from a bank or lending institution
The Small Business Administration
offers financial assistance to
qualifying businesses
]
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Line of Credit
[
An agreement by which a financial
institution promises to lend a
business a predetermined sum on
demand
]
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Franchising
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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Franchises
Advantages
Disadvantages
• Training & support
• Fees and profit sharing
• Brand name appeal
• Standardized operations
• National advertising
• Restrictions on purchasing
• Financial assistance
• Limited product line
• Proven products
• Possible market saturation
• Greater chance for
• Less freedom in decisions
success
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Fastest Growing Franchises
6-28
Going Green
Green/sustainable products represent a significant business
opportunity for many small businesses
• Entrepreneur Kyle Berner works with Thai
families to manufacture Feelgoodz Fair Trade
flip-flops
• 1,000% increase in sales over first year
• Eco-friendly and100% natural
• Moving into West Indies and South American
markets
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The Future for Small Business
Demographic Trends
• The Boomers
• Generation Y
• Millennials
• Immigrants
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The Future for Small Business (continued)
Technological & Economic Trends
• Internet usage continues to increase
• Increase in service exports
• Economic turbulence
• Deregulation of the energy market & alternative fuels
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Top Cities for Entrepreneurs
Source: “Hot Cities for Entrepreneurs,” Entrepreneur.
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Big Businesses Acting Small
Common Approaches
• Large firms emulate smaller ones to improve bottom
line
• Downsizing or rightsizing
• Acting small from inception – Southwest Airlines
Intrapreneurs
• Individuals in large firms who take responsibility for
the development of innovations within the
organization
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