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Business in a
Changing World
Chapter 6
Small Business, Entrepreneurship, and
Franchising
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McGraw-Hill/Irwin
Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.
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Cato Corner Farm
Farmstead Cheeses
Great demand for new, unique artisan cheeses.
A mother-son operation in Connecticut is serving
that need.
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Small Business, Entrepreneurship & Franchising
Join a small business? Start my own business?
Choices that you will be available to you.
Business students have many options upon
graduation – some choose to start their own
businesses, find employment in small
businesses, or perhaps, join a franchise.
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Entrepreneurship & Small Business
Entrepreneurship
The process of creating and managing a business
to achieved desired objectives is our working
definition for entrepreneurship.
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Entrepreneurship & Small Business
Entrepreneurship & Entrepreneurs
Ability to see emerging trends & create company that satisfies
those consumer needs. (Dell Computers)
Create new markets (Amazon.com)
Improve or re-package existing products (Starbucks)
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Entrepreneurship & Small Business
What is a Small Business?
“Smallness” is relative. Defined, small business is
any independently owned and operated
business, not dominant in its competitive area,
employing less than 500 people.
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Entrepreneurship & Small Business
Supporting Small Business
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 Business
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Impact of Small Business
60-80% of all new jobs, annually, created by small
business in the last 10 years.
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Small Business & Innovation
55% of all innovations
•Airplane
•Audio tap recorder
•Double-knit fabric
•Fiber-optic examining equipment
•Heart valve
•Optical scanner
•Personal computer
•Soft contact lenses
•Zipper
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Small Business
Industries that Attract Small Business
Retailing and wholesaling, services,
manufacturing and high technology are especially
attractive to entrepreneurs.
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Retailing & Wholesaling
Selling directly to the consumer
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Music stores
Sporting-goods shops
Dry cleaners
Boutiques
Drugstores
Restaurants
Hardware stores
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Small Business – retailers/wholesalers
The “Boppy” www.boppy.com
•Annual sales $50 million
•2007 #1 baby product in the nation
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Small Business
Services
•66% of the economy
•Employs 70% of workforce
•The Geek Squad – one-man service firm, 1994
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Small Business
Manufacturing
Small business advantage over large firms –
product customization
Artwork, clothing, jewelry, clothing, furniture
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Small Business
High Technology
Businesses that depend heavily on advanced
scientific and engineering knowledge.
•39% of high-tech jobs are in small business
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Small Business Ownership
ADVANTAGES
•Personal advantages
•Business advantages
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Advantages of Small Business Ownership
Traits Needed to Succeed in Entrepreneurship
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Advantages of Small Business Ownership
•Costs
•Flexibility
•Focus
•Reputation
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Disadvantages of Small-Business Ownership
•High Stress Level
•High Failure Rate
•90% of all new businesses fail within the first 5 years
•Undercapitalization
•Lack of funds to operate a business normally
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Disadvantages of Small-Business Ownership
•Managerial Inexperience or Incompetence
•Inability to Cope with Growth
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Small-Business Ownership
Top Five Biggest Challenges, Concerns, and
Goals of Small and Medium Businesses.
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Small-Business Ownership
Most Common Mistakes Made by Startup Businesses
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Starting the Small Business
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Start with a concept or general idea
Devise a strategy to guide planning &
development
Make Decisions
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Form of ownership
Financial resources needed
Acquire existing business
Start a new business
Buy a franchise
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The Business Plan
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 (money)
•Obtain capital (Financing options)
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Financial Resources
Equity Financing – selling or borrowing against
the value of an asset (automobile, insurance
policy, savings account) to obtain funds to
operate a business.
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Financial Resources
Venture Capitalists– 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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Financial Resources
Debt financing– borrowing financial resources
typically from a bank or lending institution The
SBA (Small Business Administration) offers
financial assistance to qualifying businesses.
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Financial Resources
Line of credit– an agreement by which a financial
institution promises to lend a business a
predetermined sum on demand.
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Starting a Small Business
Do I start from scratch?
Do I buy an existing business?
Do I buy a franchise?
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Starting a Small Business
Franchising
A license to sell another’s products or to use
another’s name in business, or both
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Starting a Small Business
Franchising
Franchiser – the company that sells a franchise (e.g.
Dunkin’ Donuts, McDonald’s, Jiffy Lube)
Franchisee – the purchaser of a franchise
Visit the International Franchise Association
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Franchise – Advantages & Disadvantages
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 success
Less freedom in decisions
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Small-Business -- Franchises
Fastest Growing & Hottest New Franchises
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Entrepreneurs – Going Green
Eco-responsible entrepreneurial companies –
viable new products utilizing recycling in some
way. Recycline – products from recycled
materials.
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The Future for Small Business
•Demographic Trends
•Boomers, echo boomers (millennials), Generation Y
•Immigrants (12% of U.S. population)
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The Future for Small Business
•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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Future for Small Business
Top Large U.S. Cities for Entrepreneurs
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Big Businesses Acting “small”
Common Approaches
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Large firms emulate smaller ones to improve bottom
line
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Downsizing or rightsizing
3.
Acting small from inception – Southwest Airlines
4.
Intrapreneurs – individuals in large firms who take
responsibility for the development of innovations
within the organization
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