Chapter
5
Entrepreneurship and
Small Business
pp. 68-83
Chapter
5
Learning Objectives
After completing this chapter, you’ll be
able to:
1. Describe an entrepreneurship and a small
business.
2. List the advantages and disadvantages
of entrepreneurship.
continued
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Chapter
5
Learning Objectives
After completing this chapter, you’ll be
able to:
3. Recognize the advantages and
disadvantages of a small business.
4. Explain why small businesses may fail.
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Chapter
5
Why It’s Important
Entrepreneurs and small
businesses bring vital energy and
innovation to the economy.
The risks involved energize
entrepreneurs and small business
owners to become successful.
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Chapter
5
Key Words
entrepreneurship
virtual business or dot-com company
small business
entrepreneur
risk taker
profit
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Chapter
5
The Ins and Outs of
Entrepreneurship
Entrepreneurships and small
businesses are the majority of
business firms.
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Chapter
5
The Ins and Outs of
Entrepreneurship
An entrepreneurship is a business
started by someone who notices a
need for a product or service.
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Chapter
5
The Ins and Outs of
Entrepreneurship
A virtual business or a dot-com
company is a business that operates
on the Internet.
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Chapter
5
Online Finance
Some new Internet businesses are able to hire
people without paying them a salary. LENDX
Inc., based in San Francisco, Calif., serves as
an online financial hub for businesses
interested in leasing or buying equipment.
continued
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Chapter
5
When LENDX started, their first six employees
worked for shares of company stock only.
Analyze
Why would its employees work without a
salary?
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Chapter
Figure
5.1
5
ARE YOU ORIGINAL?
Take this quiz
and see if you
would be a
good
entrepreneur.
Below are traits of an entrepreneur. Rate yourself by choosing a
number that best describes you. At the end you’ll add up your
points to see how you fared (1 is the lowest, 5 is the highest).
Rate your score:
35-40 points
30-34
25 and under
= true entrepreneur
= willing to take risks and try something new
= you take fewer risks
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Chapter
5
The Ins and Outs of
Entrepreneurship
An entrepreneur is a person who
recognizes a business opportunity and
organizes, manages, and assumes the
risks of a business enterprise, with the
intent of increasing the market value of
the business.
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Chapter
5
The Ins and Outs of
Entrepreneurship
Entrepreneurs are take-charge, selfdirected people.
Often an entrepreneur is a risk taker,
or someone who likes to take risks.
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5
Successful Entrepreneurs
Graphic Organizer
Chapter
Recognize
opportunities
Desire
achievement
Want to
control
destiny
Have high
energy
Successful
Entrepreneurs
Take
risks
Desire to
earn profit
Are
enthusiastic
Have selfconfidence
Are
determined
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Chapter
5
Advantages of Entrepreneurship
There are many advantages to being
an entrepreneur, including:
• Satisfaction from taking a risk and
•
becoming a success
Showing expertise and skills
continued
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Chapter
5
Advantages of Entrepreneurship
• Working from home
• Gaining profit
Profit is the money left over after a
business has paid all costs of
producing its goods or services.
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Chapter
5
Disadvantages
of Entrepreneurship
The disadvantages to being an
entrepreneur are:
• Long hours
• Total responsibility for the business
• Financial risks
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Chapter
5
Disadvantages
of Entrepreneurship
The main reason why entrepreneurships
fail is that they run out of money.
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Chapter
5
Fast Review
1. What are some characteristics of
entrepreneurs?
2. What are three advantages of an
entrepreneurship?
continued
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Chapter
5
Fast Review
3. What are some disadvantages of
an entrepreneurship?
4. What is the main reason that
entrepreneurships fail?
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Chapter
5
Small Business:
What You Need to Know
The Small Business Administration
(SBA) defines a small business as an
independently owned business that
usually has the owner as its manager.
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Chapter
5
Small Business:
What You Need to Know
A small business serves a limited
geographic area, employs fewer than
500 people, and is not dominant in its
industry.
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Chapter
5
Small Business:
What You Need to Know
Small businesses employ more than
50 percent of the total workforce in the
United States.
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Chapter
5
Small Business:
What You Need to Know
Small businesses generate more than
half the nation’s income.
They are the principal source of new
jobs.
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Chapter
5
Making an Ethical
Decision
1. Are all employees—even those in small
businesses—entitled to job benefits?
2. If you were an employee, what kind of
benefits would you want?
continued
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Chapter
5
Making an Ethical
Decision
3. If you were an employer, what benefits
would you want to offer and why? What
other job “perks” could you offer your
employees that would not directly cost
money?
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Chapter
5
Small Business:
What You Need to Know
Small businesses account for about 38
percent of jobs in high technology.
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Chapter
Figure
5.2
5
SMALL BUSINESS EMPLOYMENT IN THE UNITED STATES
There are 25
million small
businesses in the
United States.
Which three types
of small
businesses
provide the most
jobs?
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Chapter
5
Advantages of Small Business
Some of the advantages of owning a
small business are:
• Being the boss
• Offering services large companies
•
cannot offer
Ease of formation
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Chapter
5
Disadvantages of Small Business
When you’re a small business owner,
you’re responsible for decisions.
You often work long hours and have
great financial responsibility.
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Chapter
5
Disadvantages of Small Business
About four out of five small businesses
fail in their first five years.
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Chapter
5
Disadvantages of Small Business
Small business owners may mistake
the freedom of being in business for
oneself for the liberty of working or not.
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Chapter
5
Disadvantages of Small Business
A small business may underprice or
overprice goods or services.
Going into business with little or no
experience may result in the business
closing.
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Chapter
5
Disadvantages of Small Business
The following are three specific
reasons why a small business might
not work:
continued
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Chapter
5
Disadvantages of Small Business
Why a small business might not work:
1. Effect of Change
Consumers’ tastes change. If
flexibility and change are not part of
the business, then it’s likely to fail.
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Chapter
5
Disadvantages of Small Business
Why a small business might not work:
2. Managerial Skills Needed
A small business owner must have
multiple skills including:
• Financing
• Employee relations
continued
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Chapter
5
Disadvantages of Small Business
Managerial Skills Needed
• Production
• Customer Relations
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Chapter
5
Disadvantages of Small Business
Why a small business might not work:
3. Inadequate Financial Planning
Starting with little money, spending
carelessly, borrowing money without
planning, and forgetting about taxes
and insurance may result in a
failure.
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Chapter
5
Fast Review
1. How does the Small Business
Administration (SBA) define a small
business?
continued
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Chapter
5
Fast Review
2. Give an example of a service that
a small business may offer that a
large company cannot offer.
continued
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Chapter
5
Fast Review
3. Which is more difficult to form: a
large business or a small business?
4. Give examples of special skills that
a small business owner needs.
continued
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Chapter
5
Fast Review
5. List two financial reasons that small
businesses fail.
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Chapter
5
Preparing for Your Own
Business
A business plan is a written
description of a new business venture
that describes all aspects of the
business.
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Chapter
5
Checklist for Starting a Venture
Some questions to consider before
starting your own business are:
• What will I produce?
• Who are my main competitors?
• Why is my product needed?
continued
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Chapter
5
Checklist for Starting a Venture
• How much will my product cost to
produce?
• How many people will I need to run
the business?
• What physical facilities will I need?
continued
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Chapter
5
Checklist for Starting a Venture
• What licenses, permits, or other legal
•
documents do I need?
How much money will I need to get
started?
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Chapter
5
Parts of a Business Plan
The essential parts of the business
plan are:
• Summary
• Company description
• Products and services
continued
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Chapter
5
Parts of a Business Plan
•
•
•
•
Marketing plan
Legal plan
Management and operating plan
Financial plan
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Chapter
5
Business Building Blocks
Elements of a Business Plan
1. The summary is a one- to three-page
overview of the plan.
2. The company description explains the
type of company.
continued
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Chapter
5
Business Building Blocks
Elements of a Business Plan
3. Describe products or services in the
products and services section.
4. The marketing plan describes your
customers and your competition.
5. A legal plan points out how you will
organize your company.
continued
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Chapter
5
Business Building Blocks
Elements of a Business Plan
6. The management plan and operating
plan detail the company’s key
personnel.
7. Complete a financial plan.
continued
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Chapter
5
Business Building Blocks
•
•
•
Tips for Writing an
Effective Business Plan
Be brief and relevant.
Don’t inflate the importance or
possible success of your business.
“Write short and be honest,” is a good
rule of thumb.
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Chapter
5
Fast Review
1. What is a business plan?
2. Name the essential elements of a
business plan.
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Chapter
5
What makes a person an
entrepreneur?
What makes a company
successful?
continued
Introduction to Business, Entrepreneurship and Small Business
continued
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Chapter
5
Identify some reasons why a small
business might be hard to manage.
What are some benefits of
selling online?
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End of Chapter
5
Entrepreneurship and Small Business