Chapter 6
Entrepreneurship and
Small Business Management
6-1 Becoming an Entrepreneur
6-2 Small Business Basics
6-3 Starting a Small Business
Introduction to Business
© Thomson South-Western
CHARACTERISTICS OF
ENTREPRENEURS
American enterprise system encourages
risk-taking and innovation.
An entrepreneur is someone who takes a risk in
starting a business to earn profit.
 Desire to be your own boss
 Special skills and abilities
 Entrepreneurship is the process of starting,
organizing, managing, and assuming the
responsibility for a business.
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Introduction to Business
© Thomson South-Western
ENTREPRENEURS
IN ACTION
Check out these entrepreneurs page 126
 Pankaj Arora
 Rich Stachowski
 Jeffrey Rodriguez and John Serrano
 Abbey Fleck
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Introduction to Business
© Thomson South-Western
WHAT DOES IT TAKE?
Many entrepreneurs own their first business
while in their teens.
Entrepreneurs are more
 self-confident
 persistent
 creative
 inquisitive
 reliable
 energetic
 competitive
 goal oriented
 independent
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Introduction to Business
© Thomson South-Western
WHAT DOES IT TAKE?
(continued)
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
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Introduction to Business
© Thomson South-Western
ENTREPRENEURSHIP
AND THE ECONOMY
Nearly 10% of all Americans 18-64 years
old is involved in some type of
entrepreneurship activity.
 Employment
 See Chart
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Introduction to Business
© Thomson South-Western
 Financing
 Most of the money needed to start a new business
comes from the entrepreneur and his or her family
and friends.
 Family and friends invest over $100 billion in new
businesses each year.
 Inventory – products or raw materials a business keeps on hand.
 Venture capital – is money provided by large investors to
finance new products and new businesses that have a
good chance to be very profitable.
 Productivity
 Businesses with just a single owner and no staff account
for over $600 billion in sales annually.
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Introduction to Business
© Thomson South-Western
NUMBER OF EMPLOYEES
IN NEW BUSINESSES
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Introduction to Business
© Thomson South-Western
OPPORTUNITIES
The American private enterprise economy
promotes innovation and new business
development. Individuals are able to
take the risk to start a new business.
 Innovation – an invention or creation
that is brand new.
 Improvement – is a designed change
that increases the usefulness of a
product, service, or process.
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Introduction to Business
© Thomson South-Western
RISKS
 Recognizing risks
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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
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Introduction to Business
© Thomson South-Western
SMALL BUSINESS OWNERSHIP
The greatest percentage of businesses in the United States is
small businesses.
Most people are employed by a small business.
 Description of a small business
A small business is an independent business with
fewer than 500 employees.
 Owner is usually the manager
 Operates in one or very few locations
 Typically serves a small market
 Not dominant in its field
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 Small business employment
 Employ 50% of all U.S. workers
 Responsible for 60-80% of all new jobs
 Large number of service businesses. Many small
business services are professional and technical.
 Ownership diversity
 Women own over ¼ of all small
businesses
 Majority of small business owners are over
40 years old
 All have high school diploma
 30% have finished college
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Introduction to Business
© Thomson South-Western
COMMON TYPES OF
SMALL BUSINESSES
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Introduction to Business
© Thomson South-Western
SMALL BUSINESS
ADVANTAGES
 Meeting customer needs
 When customers want more individual
attention
 Providing unique services
 Expertise to plan and deliver the services
that satisfy the customer.
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© Thomson South-Western
COMMON REASONS FOR
SMALL BUSINESS FAILURE
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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
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SMALL BUSINESS
ASSISTANCE
 Faculties of universities and colleges
 Local groups of business people
 Small Business Administration (SBA) –
government agency that helps small
business owners develop business
plans and obtain financing and other
support for their companies.
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 The SBA sponsors the Service Corps of
Retired Executives (SCORE)
 SCORE are retired local business people who
volunteer their services to counsel and mentor
new business owners.
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THE BUSINESS DECISION
 An idea plus experience
 Come from many sources
 Hobbies, interests, and business experiences
 Books and magazines
 Right place and time
 Team approach
 Preparation and research – The most important
step in starting a business is preparation.
Preparation includes having enough information
to make good decisions about the business.
 Examples – customers, competitors, government
regulations, important operations, etc.
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Introduction to Business
© Thomson South-Western
WHAT IS A
BUSINESS PLAN?
 A business plan is a written
description of the business idea and
how it will be carried out, including all
major business activities.
 Most business plans are developed for
one year and then updated for the next
year.
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ELEMENTS OF A
BUSINESS PLAN
 Description of the Business
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The business idea
Major products and services
Ownership structure
Strengths/weaknesses
Long- and short-term goals
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Introduction to Business
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ELEMENTS OF A
BUSINESS PLAN
(continued)
 Description of Competition
 Characteristics of the industry
 Condition of the economy
 Strengths and weaknesses of major
competitors
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Introduction to Business
© Thomson South-Western
ELEMENTS OF A
BUSINESS PLAN
(continued)
 Customer Analysis gives:
 Description of customers
 Location, number, and resources of
customers
 Sales forecasts
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ELEMENTS OF A
BUSINESS PLAN
(continued)
 Operations Plan
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Organization of the company
Description of major operations
Analysis of resources needed
Human resource plans
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ELEMENTS OF A
BUSINESS PLAN
(continued)
 Marketing Plan
 Description of major marketing activities
 Description of resources needed
 Schedule of marketing activities
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ELEMENTS OF A
BUSINESS PLAN
(continued)
 Financial Plans
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Start-up costs
Short- and long-term financial needs
Sources of financing
Budgets and financial statements
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Introduction to Business
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STEPS IN DEVELOPING
THE BUSINESS PLAN
 First step - Gather and review information
– If possible, the owner should review other
business plans and study information on the
activities and financial performance of similar
businesses.
 Develop the “game plan”
 Write the plan
 Ask an expert to review the plan
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Introduction to Business
© Thomson South-Western
FINANCING
THE SMALL BUSINESS
 Types of financing
 Start-up financing – amount of money needed to open the
business
 Short-term financing- is the money needed to pay for the
current operating activities of a business.
 Long-term financing – the money needed for the main
resources of a business (such as land, buildings, and
equipment that will last many years.)
 Sources of financing
 Owner-supplied funds
 Borrowed funds
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Introduction to Business
© Thomson South-Western