entrepreneurship and small business management

6-16-1 Becoming an Entrepreneur

6-26-2 Small Business Basics

6-36-3 Starting a Small Business

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CHAPTER 6

ENTREPRENEURSHIP AND

SMALL BUSINESS MANAGEMENT

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BECOMING AN ENTREPRENEUR

6-16-1

KEY TERMS

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.

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CHARACTERISTICS OF ENTREPRENEURS

Desire to be your own boss

Special skills and abilities

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ENTREPRENEURS IN ACTION

Pankaj Arora

Rich Stachowski

Jeffrey Rodriguez and John Serrano

Abbey Fleck

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WHAT DOES IT TAKE?

persistent

inquisitive

energetic

goal oriented

independent

self-confident

creative

reliable

competitive

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Entrepreneurs are moreEntrepreneurs are more

WHAT DOES IT TAKE?

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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(continued)

Entrepreneurs haveEntrepreneurs have

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CHECKPOINT >>

What personal characteristic are common to most successful entrepreneurs?

AnswerAny characteristics listed in Figure 6-1 are acceptable, such

as persistence, inquisitiveness, self-confidence, creativity, and so forth.

ENTREPRENEURSHIP AND THE ECONOMY

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).

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EMPLOYMENT GROWTH BY BUSINESS SIZE

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Source: U.S. Bureau of Labor Statistics

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What are the sources of financing that entrepreneurs use for their new businesses?

Answerpersonal savings friends and familyventure capitalbank loans

Checkpoint >>Checkpoint >>

OPPORTUNITIES

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

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RISKS

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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Recognizing risksRecognizing risks

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Where do entrepreneurship opportunities begin?

AnswerOpportunities begin with innovations (ideas about new

products and services) or improvements (ideas for changes to existing products, services, or processes).

Checkpoint >>Checkpoint >>

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SMALL BUSINESS BASICS6-26-2

KEY TERMS

small business

Small Business Administration (SBA)

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SMALL BUSINESS OWNERSHIP

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

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COMMON TYPES OF SMALL BUSINESSES

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Source: Small Business Administration and U.S. Census Bureau

Common Common Types of Types of Small Small BusinessesBusinesses

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What percentage of employees in the United States work for small businesses?

AnswerNearly 50 percent of the American workforce is employed by

small businesses. Small businesses are also responsible for 60–80 percent of all

new jobs.

Checkpoint >>Checkpoint >>

SMALL BUSINESS ADVANTAGES

Meeting customer needs

Providing unique services

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How can small businesses compete successfully with larger businesses?

AnswerSmaller 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.

Checkpoint >>Checkpoint >>

COMMON REASONS FOR SMALL BUSINESS FAILURE

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-failures-in-history/

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SMALL BUSINESS ASSISTANCE

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/kell-on-earth-teaches-about-small-business-failure.html

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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

Checkpoint>>Checkpoint>>

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STARTING A SMALL BUSINESS

6-36-3

KEY TERMS

business plan

start-up financing

short-term financing

long-term financing

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THE BUSINESS DECISION

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.)

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Why is it important to use a team approach when starting a new business?

AnswerA 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.

Checkpoint >>Checkpoint >>

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.

www.sba.gov

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ELEMENTS OF A BUSINESS PLAN

Description of the Business

The business idea

Major products and services

Ownership structure

Strengths/weaknesses

Long- and short-term goals

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ELEMENTS OF A BUSINESS PLAN

Description of Competition

Characteristics of the industry

Condition of the economy

Strengths and weaknesses of major competitors

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(continued)

ELEMENTS OF A BUSINESS PLAN

Customer Analysis

Description of customers

Location, number, and resources of customers

Sales forecasts

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(continued)

ELEMENTS OF A BUSINESS PLAN

Operations Plan

Organization of the company

Description of major operations

Analysis of resources needed

Human resource plans

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(continued)

ELEMENTS OF A BUSINESS PLAN

Marketing Plan

Description of major marketing activities

Description of resources needed

Schedule of marketing activities

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(continued)

ELEMENTS OF A BUSINESS PLAN

Financial Plans

Start-up costs

Short- and long-term financial needs

Sources of financing

Budgets and financial statements

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(continued)

STEPS IN DEVELOPING THE BUSINESS PLAN

Gather and review information

Develop the strategic alternatives

Write the plan

Ask an expert to review the plan

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What is the “strategic alternatives” in a business plan?

AnswerStrategic 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.

Checkpoint >>Checkpoint >>

FINANCING THE SMALL BUSINESS

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

Borrowed funds

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CHECKPOINT >>

In addition to owner-supplied capital, what are several other sources of financing for a small business?

AnswerBorrowed money may come from banks, finance companies,

or other individuals, such as friends and family. Some suppliers may also be willing to extend credit.