SLIDE 1

6-1 Becoming an Entrepreneur

6-2 Small Business Basics

6-3 Starting a Small Business

6C H A P T E R Entrepreneurship and

Small Business Management

6-1 Becoming an Entrepreneur Goals

1.Identify characteristics of successful entrepreneurs

2.Recognize the importance of entrepreneurship in the economy

3.Describes opportunities and risks

Characteristics of Entrepreneurs

Entrepreneur – someone who takes a risk in starting a business to earn a profit Being your own boss Developing a good initial plan Special skills and abilities and coming up with

innovative ideas

Entrepreneurship – the process of starting, organizing, managing, and assuming the responsibility for a business

What Does it Take?

Not all business owners and managers are entrepreneurs.

Entrepreneurs have unique skills and personal characteristics.

Entrepreneurs Are: Persistent Inquisitive Energetic Goal-oriented Independent

Self-confident Creative Reliable Competitive

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

Checkpoint #1 What personal characteristic are

common to most successful entrepreneurs?persistence, inquisitiveness, self-

confidence, creativity, and so forth.

Entrepreneurship and the Economy

Employment Small businesses are responsible for most new

employment.

Financing Most new businesses start on $10,000 or less. 75% of startup capital comes from owner savings, bank

loans, credit card debt. Venture Capital – money provided by large investors

to finance new products and new businesses that have a goods chance to be very profitable.

Entrepreneurship and the Economy

Productivity New and small businesses produce a large

volume of goods and services fro the economy. Businesses with just a single owner and no staff

account for more than $770 billion in sales annually

Responsible for more than half of the U.S. GDP each year.

Employment Growth by Business Size, 1990–2005

24.9%

20.1%

18.7%

36.3%

1-9 employees

20-99 employees

100-499 employees

500 or more employees

Checkpoint #2 What are the sources of financing that

entrepreneurs use for their new businesses?Personal savingsFriends and familyVenture capitalBank loans

Opportunities and Risks

Before deciding to start a business, you need to think about the opportunities and risks.

New Business Opportunities Innovation – an invention or creation that is

brand new Improvement – a designed change that

increases the usefulness of a product, service, or process

Opportunities and Risks Recognizing Risks

The primary reasons that businesses started by entrepreneurs close are:

1. Lack of adequate capital

2. Low sales

3. Higher than expected expenses

4. Competitive pressure

5. An owner unprepared to manage a growing business

6. Operations requiring more time than the owner is willing to commit

Checkpoint #3 Where do entrepreneurship

opportunities begin?Opportunities begin with innovations

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

6-2 Small Business Basics Goals

1.Identify important characteristics of a small business

2.Recognize the competitive advantages of small businesses

3.Identify problems faced by many small busineses

Small Business Ownership Small Business – an independent business

with fewer than 500 employees. 99.9% of roughly 26 million U.S. Businesses are

small businesses

Description of a Small Business:1. The owner is usually the manager

2. It operates in one or very few locations

3. It typically serves a small market

4. It is not dominant in its field

Small Business Ownership Small Business Employment

Responsible for 60-80% of all new jobs Large number of small businesses Professional and Technical (Construction Companies)

Ownership Diversity Women own more than 1/4th of all small businesses More than 17% have African-American, Asian-

American, or Hispanic ownership 14% of owners are under 35 years-old

Small Business Ownership Ownership Diversity

64% have finished some college work Half are home based businesses Average $5,000 or less to start up the business (Part-

Time)

Checkpoint #4 Beyond the formal definition of a small

business, what four points can be used to describe a small business?1. The owner is usually the manager

2. It operates in one or very few locations

3. It typically serves a small market

4. It is not dominant in its field

Small Business Advantages

Meeting customer needs Serve customers where the number of products and

services needed is small or the requirements are too specialized for large businesses

Get direct information from their customers

Providing Unique Services Spend time determining needs and discussing

alternatives Unique needs, more individual attention, and willing

to pay more.

Checkpoint #5 How can small businesses compete

successfully with larger businesses? Smaller 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.

Common Small Business Problems

Reasons for failure

1. Not keeping adequate records

2. Not having enough start-up money

3. Lack of management experience

4. Lack of experience with the type of business

5. Not controlling operating expenses

6. Poor location for the business

7. Failure to manage credit offered to customers

Common Small Business Problems

Small Business Assistance Small businesses can get help from a number of

sources:

1. Universities and colleges

2. Local Group of business people

3. Small Business Administration A government agency that helps small business

owners develop a business plans and obtain financing and other support for their companies.

Checkpoint #6 List common reasons for small business

failure. Not keeping adequate records Insufficient start-up moneyLack of management experienceLack of experience with the type of businessNot controlling operating expensesPoor locationFailure to manage credit

6-3 Starting a Small Business

Goals 1.Recognize important factors to be

considered when starting a business

2.Describe elements of a business plan

3.Identify types and sources of financing a small business

The Business Decision An Idea Plus Experience

Business ideas come from many sources Hobbies, interests, business experiences, books,

Magazines

Several years of training in a range of business operations will prepare you for the role of owner.

Right place right time If the business is not easy to find or requires a great

deal of travel time, many potential customers will stay away.

The Business Decision Team Approach

Even small businesses need a few full – or part –time employees to grow or cover extended hours.

Choosing the team members become one of the most important initial business decisions.

Preparation and Research Includes having enough information to make good

decisions about the business. Information is needed on customers, competitors,

important operations, government regulations, and many more

Checkpoint #7 Why is it important to use a team approach

when starting a new business? A 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.

Developing a Business Plan

What is a business plan? A written description of the business idea and how it will

be carried out, including all major business activities.

Key Features: General description of the company The credentials of the owners Description of the product or service Analysis of the market Financial plan

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

Elements of a Business Plan

Description of Competition Characteristics of the industry Condition of the economy Strengths and weaknesses of major competitors

Customer Analysis Description of customers Location, number, and resources of customers Sales forecasts

Elements of a Business Plan Operations Plan

Organization of the company Description of major operations Analysis of resources needed Human resource plans

Marketing Plan Description of major marketing activities Description of resources needed Schedule of marketing activities

Elements of a Business Plan Financial Plans

Start-up costsShort- and long-term financial needsSources of financingBudgets and financial statements

Steps in Developing the

Business Plan Gather and review information Develop the strategic alternatives Write the plan Ask an expert to review the plan

Checkpoint #8 What are the “strategic alternatives” in a

business plan? Strategic 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.

Financing The Small Business

Types of financing Start-up financing Short-term financing Long-term financing

Sources of financing Owner-supplied funds Borrowed funds

Checkpoint #9 In addition to owner-supplied capital, what

are several other sources of financing for a small business? Borrowed money may come from banks, finance

companies, or other individuals, such as friends and family.

Some suppliers may also be willing to extend credit.