CDAE 266

Decision Making forCommunity Entrepreneurship

Fall 2007

CDAE 266 - Class 02August 30

Last class:SyllabusStudent information sheet

Today: 1. Introduction

Next class: 1. Introduction 2. Review of economic and business concepts

Assignment: Visit the web page: http://www.sba.gov

1. Introduction

1.1. Small businesses in the U.S. economy

1.2. A global perspective of entrepreneurship

1.3. Quantitative methods for business decision making

1.4. Decision making process

1.5. Applications of quantitative methods

1.6. Decision making for community entrepreneurs

1.1. Small businesses in the U.S. economy 1.1.1. What is the definition of a small business?

1.1.2. Small businesses in the U.S.

1.1.3. Contributions of small businesses in the U.S.

1.1.4. Factors for the development of small businesses

Small businesses in the U.S. economy

• What is the definition of a “small business”? -- A business that is independently owned and

operated and not dominant in its field of operation

with the following upper limits:• Large business: more than 500 employees

• Medium business: 100 to 500 employees

• Small business: less than 100 employees

Small businesses in the U.S. economy

• How many small businesses are in the U.S.?-- There are about 22 million U.S. businesses

-- More than 98% of them are small businesses

-- 5.7 million firms with employees and 16.5 million without employees in 2000

-- Less than 7000 businesses employ more 500 people

• Most of small businesses are really small!

Small businesses in the U.S. economy

0%

10%

20%

30%

40%

50%

60%

70%

1 - 4 5 - 9 10 - 19 20 - 49 50 - 99 100+

Employment by Size of Business

Most Businesses Are Small Businesses

Small businesses in the U.S. economy

• How many businesses open and close in the U.S. each year?

• Estimates for businesses with employees indicate there were 550,100 new firms and 584,500 closures (both about 10 percent of the total) in 2002.

Small businesses in the U.S. economy

Starts and Closures of Employer Firms, 1990-2002 (million)

1990 1995 2000 2001 2002

New firms 0.58 0.59 0.57 0.54 0.55

Firm closures 0.53 0.50 0.54 0.57 0.58

Bankruptcies 0.06 0.05 0.04 0.04 0.04

Small businesses in the U.S. economy

• Importance of small businesses-- Quotations:

• “Small business is America”• “Small business is a quiet giant”• “Small business is the engine of the U.S. economy”

…..-- Facts:

• provide 75% of the net new jobs • represent 98% of all employers • employ 55% of the private work force • provide 47% all sales in the country • provide 55% of innovations

Small businesses in the U.S. economy

• Importance of small businesses -- Facts:

• account for 35% of federal contract dollars

• account for 38% of jobs in high technology sectors

• account for 51% private sector output

• represent 96% of all U.S. exporters

• account for almost 50% of the GNP

…..

Small businesses in the U.S. economy

• Factors contributing to the development of small businesses in the United States: -- History-- Social respect of people who run their own businesses-- Education-- Policy and regulations -- easy to start a business-- Competitive markets-- Horizontal and vertical integrations-- Government support: Small Business Administration (SBA)-- Support and assistance from many other organizations-- Diversified customers -- Relatively inelastic demand with respect to prices …...

Small businesses in the U.S. economy

• Survey: groups that have had mainly good influence on America:-- Movies and TV shows (30%)-- Congress (38%)-- Business executives (40%)-- Unions (48%)-- Courts (52%)-- Local and state government (60%)-- Women’s movement (67%)-- Newspapers (72%)-- Churches (85%)-- People who run their own businesses (90%)

Small businesses in the U.S. economy

• Support and assistance to small businesses-- U.S. Small Business Administration (SBA)

-- Other federal agents (e.g., USDA)

-- State and local government agents

-- Universities (research, education and extension)

-- Private foundations (e.g., Kauffman Foundation)

……

Small businesses in the U.S. economy

• U.S. Small Business Administration (SBA)-- Established in 1953-- Provides financial, technical & management assistance to

help Americans start, run, and grow their businesses.-- Has a portfolio of about $50 billion of business loans, loan

guarantees and disaster loans-- Has helped almost 435,000 small businesses get more than

$94.6 billion in loans during 1991 to 2000-- Provides service to more than one million small business

owners each year. -- Provides grants to support small business research (SBIR)

Small businesses in the U.S. economy

• University extension system

-- Land grant universities

-- Agricultural experiment station

-- Extension system

-- Education programs

-- Small business development

Small businesses in the U.S. economy

• Advantages of going into small business:-- Individual goals and “dreams”

-- Independence and flexibility

-- Financial opportunities

-- Community service

-- Job security

-- Family employment

-- Challenge

…...

Small businesses in the U.S. economy

• Disadvantages of going into small business:-- Risk and uncertainty

-- Sale (income) fluctuations

-- Competition

-- Increased responsibilities

-- Financial losses

-- Employee relations

-- Laws and regulations

…...