1
CHAPTER 6
6-1
6-2
6-3 Starting a Small Business

6-1
B ECOMING AN E NTREPRENEUR
2

3



Entrepreneur
~ someone who takes a risk in starting a business to earn a profit
Entrepreneurship
~ process of starting, organizing, managing, and assuming the responsibility for a business
Venture capital
~ money provided by large investors to finance new products and new businesses that have a good chance to be very profitable.


Innovation
~ an invention or creation that is brand new
Improvement
~ a design change that increases the usefulness of a product, service, or process.
C HAPTER 6

4
 Desire to be your own boss
 Special skills and abilities
C HAPTER 6

5
 Pankaj Arora
 Rich Stachowski
 Jeffrey Rodriguez and John Serrano
 Abbey Fleck
C HAPTER 6

6









C HAPTER 6

7
(continued)






 problem-solving skills tolerance for ambiguity strong integrity personal initiative ability to secure resources capability to learn from failure willingness to work hard
C HAPTER 6

8
C
>>
What personal characteristic are common to most successful entrepreneurs?
Answer
 Any characteristics listed in Figure 6-1 are acceptable, such as persistence, inquisitiveness, self-confidence, creativity, and so forth.
C HAPTER 6

9



Employment-
 Small businesses are responsible for most new employment. (Over 60% of new jobs were created by businesses with fewer than 500 employees.)
Financing


Most money to needed to start a new business comes from the entrepreneur and his/her friends and family.
Venture capital
Productivity
 New and small businesses produce a large volume of goods and services (over $600 billion in sales annually).
C HAPTER 6

10
Source: U.S. Bureau of Labor Statistics
E MPLOYMENT G ROWTH BY B USINESS S IZE
C HAPTER 6

11
Checkpoint >>
What are the sources of financing that entrepreneurs use for their new businesses?
Answer
 personal savings
 friends and family
 venture capital
 bank loans
C HAPTER 6

12
 Innovation
~ invention or creation of something new



Innovation vs invention
 http://wistechnology.com/articles/4184/
Innovation vs improvement
 http://www.creativityincubator.com/showModule.php?category=10&module=63
Innovation Life Cycle
 http://www.creativityincubator.com/showModule.php?category=10&module=55
 Improvement
~ design change that can increase the usefulness of a product, service, or process
C HAPTER 6

13
 Lack of adequate capital


Low sales
Higher than expected expenses



Competitive pressure
An owner unprepared to manage a growing business
Operations requiring more time than the owner is willing to commit
C HAPTER 6

14
Checkpoint >>
Where do entrepreneurship opportunities begin?
Answer
 Opportunities begin with innovations (ideas about new products and services) or improvements (ideas for changes to existing products, services, or processes).
C HAPTER 6

6-2
S MALL B USINESS B ASICS
15

16
 small business
 Small Business Administration (SBA)
C HAPTER 6

17
 Description of a small business
 Owner is usually the manager
 Operates in one or very few locations
 Typically serves a small market
 Not dominant in its field
 Small business employment
 Ownership diversity
C HAPTER 6

18
Source: Small Business Administration and U.S. Census Bureau
C HAPTER 6
Common
Types of
Small
Businesses

19
Checkpoint >>
What percentage of employees in the United States work for small businesses?
Answer
 Nearly 50 percent of the American workforce is employed by small businesses.

Small businesses are also responsible for 60–80 percent of all new jobs.
C HAPTER 6

20
 Meeting customer needs
 Providing unique services
C HAPTER 6

21
Checkpoint >>
How can small businesses compete successfully with larger businesses?
Answer
 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.
C HAPTER 6

22









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 http://www.businessknowhow.com/startup/business-failure.htm
http://www.businesspundit.com/the-25-worst-business-failuresin-history/
C HAPTER 6

23
 Faculties of universities and colleges
 Local groups of business people
 Small Business Administration (SBA)
 SCORE http://www.score.org/small_biz_stats.html
 Small Business Failure Example – Kell on Earth http://www.currentmom.com/currentmom/2010/02/kellon-earth-teaches-about-small-business-failure.html
C HAPTER 6

24
Checkpoint>>
List common reasons for small business failure.
Answer
 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
C HAPTER 6

6-3
S TARTING A S MALL B USINESS
25

26
 business plan
 start-up financing
 short-term financing
 long-term financing
C HAPTER 6

27
 An idea plus experience ~ hobbies, interests, and business experiences
 Right place and time ~ location should attract a large number of people who are interested in the products and should be in a safe and pleasant area (‘Work as a Team’, p 139)
 Team approach ~ employees feel valued and motivated to take personal responsibility for the benefit of the business.
 Preparation and research ~ gather enough info to make decisions (info on customers, competitors, operations, gov’t regulations, etc.)
C HAPTER 6

28
Checkpoint >>
Why is it important to use a team approach when starting a new business?
Answer
 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.
C HAPTER 6

29
 A business plan is a written description of the business idea and how it will be carried out, including all major business activities.
 www.sba.gov
C HAPTER 6

30
 Description of the Business
 The business idea
 Major products and services
 Ownership structure
 Strengths/weaknesses
 Long- and short-term goals
C HAPTER 6

31
(continued)
 Description of Competition
 Characteristics of the industry
 Condition of the economy
 Strengths and weaknesses of major competitors
C HAPTER 6

32
(continued)
 Customer Analysis
 Description of customers
 Location, number, and resources of customers
 Sales forecasts
C HAPTER 6

33
(continued)
 Operations Plan
 Organization of the company
 Description of major operations
 Analysis of resources needed
 Human resource plans
C HAPTER 6

34
(continued)
 Marketing Plan
 Description of major marketing activities
 Description of resources needed
 Schedule of marketing activities
C HAPTER 6

35
(continued)
 Financial Plans
 Start-up costs
 Short- and long-term financial needs
 Sources of financing
 Budgets and financial statements
C HAPTER 6

36
 Gather and review information
 Develop the strategic alternatives
 Write the plan
 Ask an expert to review the plan
C HAPTER 6

37
Checkpoint >>
What is the “strategic alternatives” in a business plan?
Answer
 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.
C HAPTER 6

38
 Types of financing
 Start-up financing ~ amt of $ needed to open
(building, equipment, inventory, supplies, licenses, etc)
 Short-term financing ~ pays for current operating activities (less than a year)
 Long-term financing ~ funds main resources that will last for years (land, building, equipment)
 Sources of financing
 Owner-supplied funds
C HAPTER 6  Borrowed funds

39
C
>>
In addition to owner-supplied capital, what are several other sources of financing for a small business?
Answer
 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.
C HAPTER 6