STARTING A SMALL BUSINESS

IN THE U.S.

Chapters 5 and 6

Who are the Entrepreneurs? Mark Zuckerburg – Facebook

Mitchell and Mollie Murphree – Five Senses Restaurant

Mark Davis○ Insert Therapeutics

Why Start Your Own Business?

Control

Reap the Profit

Challenge of Something New

Opportunity Is There

What Is Entrepreneurship?

Opportunity + Resources

New Value

The Internet – A Major Aid for New Small Businesses

20 million businesses are run out of homes in the U.S.Many are helped through Web services

Online sales account for 8% of all retail sales in the U.S.24 hour businessEase and low expense of mailing customersEase of reaching small target markets over

large geographic areas

Entrepreneurs Everywhere In corporations

Intrapreneurs or corporate entrepreneursHave to have right cultureMuch of the reward – not much of the risk

In incubatorsArte’ Center for the Advancement of Resear

ch, Technology, and Entrepreneurship

The Importance of Small Business Generate 75 percent of new jobs in U.S.

each year

Generate over 50% of GDP in U.S.

Generate 11 TIMES the innovations of large businesses.

The Downside to Small Business

You can lose your shirt!60% of small businesses go out of business in

the first six years

Owning a business is likely to be extremely stressful.

Loving a field does not mean you’ll be successful as a business owner in that field!

Setting Up Your Small Business

Choose an ownership form and register with government.

Make a business planEspecially if you plan to go for a loan or for

an angel investor.

Visit your local TSBDC and SCORE offices.

Forms of Ownership

Sole proprietorship Partnership LLC S-Corporations C-Corporations

How to Set Up Your Business Sole Proprietorship

Only one ownerDies with ownerNo limited liabilityMost common form of businessTax flows to personal incomeMust file for business license in TN

Partnership

2 or more owners No limited liability

Exception: General vs. limited partnerships

More likely to survive than sole prop.

Division of profits, liability, conflicts the downside

Corporations Exist separately from owner Represent 81% of U.S. revenues

Should tell you something about sole proprietorships!

S and C – different tax treatment and ownership allowances

Perpetual life More red tape to start up

Limited Liability Companies (LLCs) Very much like S-corporation Can be taxed on owner’s return Other corporations can be owners also Flexible distribution of profit Must have approval of other owners to

sell out Must dissolve by deadline; dies with

owners Pay Medicare and Medicaid tax on profits

Careful Consideration Should Be Taken to Pick the Right Form !!

Liability concerns

Tax concerns

Future growth considerations

Cost to start up

Ways that Companies Grow Mergers

VerticalHorizontalConglomerate

Acquisitions

Leveraged Buyout (?)

Franchises One firm already has a successful

product or service

Offers its trademarks and patented business processes to another for…

Initial franchise fee and ongoing royalties

Entrepreneurs

Franchisees can be entrepreneursThe ones opening the franchise in their local

market

Franchisors can be entrepreneursDifferent role of being a manager of

managers

Franchise Agreements

Single unit agreementsOpen one store

Area agreementsOpen several stores in one area, up to a

maximumMaster franchisee: Can also sell franchises

to others in that area

Developing a Franchise Franchise fee ($25,000-$100,000) Capital Requirements

LandBuildingInventoryLicenses

Royalty payment on gross income Advertising fees (on top of your ads) Other fees as agreed upon

Last Kind of Business:Cooperative MTEMC is a cooperative

Owned by the users of the electricity

Farm cooperativesFarmers band together to get better pricing

One member, one vote

Other examples? Ace Hardware, Ocean Spray, True Value Hardware

Managing an Organization Much different than 20 years ago

ManagersPlanOrganizeLeadControl

Being a Manager: Planning Mission, vision, values, goals, and

objectives SWOT analysis Strategy and tactics Decision making

Using scientific method

Being a Manager: Organizing Organizational Chart

Why do people get put into management positions?

Is this right?

Choosing between stakeholders

Staffing the ranks and dealing with turnover

Being a Manager: Leading Creating something for others to follow

Different stylesAutocraticParticipativeFree-rein

Used to be referred to as directing

Being a Manager: Controlling Establishing standards

Creating a measurement system

Measuring

Comparing results to plans

Taking corrective action

Importance of Satisfaction External customers

Getting them to want to refer the businessGetting them to return

Internal customersMaking them feel at homePutting a smiling face in front of the

customer

Organizing the Business

Chapter 8

Figuring Out Organizational Structure

1. Make strategic plans for the company

2. Decide what work needs to be done

3. Divide up the tasks1. Job specialization – Adam Smith

4. Hire more workers as the business grows.

What are the problems inherent in this?

Figuring Out Organizational Structure Departments

Set up to handle similar tasks

What are the functions of the organization?

Assigning responsibility

The Organizational Chart

A blueprint for how things get done in a companyMicrosoft’s organizational chartA standard organizational chart

Shows tasks, responsibilities, and hierarchy.

Why Are Today’s Organizations So Big?? Mass production

Economies of scale

Organizational TheoryHenri Fayol

○ One boss, hierarchy, organization is most important, order, pride, clear communication

Max Weber○ Manager has the power, job descriptions,

everything in writing,