Entrepreneurship and Small-Business Ownership Chapter 6

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Objectives Highlight the contributions small businesses make to the U.S. economy List the most common reasons people start their own companies and identify the common traits of successful entrepreneurs Explain the importance of planning a new business and outline the key elements in a business plan Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Objectives (cont.) Identify the major causes of business failures and identify sources of advice and support for struggling business owners Discuss the principal sources of small-business private financing Explain the advantages and disadvantages of franchising Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Big World of Small Business A company that is independently owned and operated, is not dominant in its field, and employs fewer than 500 people (although this number varies by industry) Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Economic Roles of Small Business They provide jobs They introduce new products They meet the needs of larger organizations They inject a considerable amount of money into the economy. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Economic Roles of Small Business They take risks that larger companies sometimes avoid They provide specialized goods and services Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Big Economic Impact of Small Business Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Characteristics of Small Businesses Most small firms have a narrow focus Small businesses have to get by with limited resources Small businesses often have more freedom to innovate Entrepreneurial firms find it easier to make decisions quickly and react to changes in the marketplace Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Factors Contributing to the Increase in the Number of Small Businesses E-commerce Social media Technological advances Growing diversity in entrepreneurship Corporate downsizing and outsourcing Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Entrepreneurial Spirit The positive, forward-thinking desire to create profitable, sustainable business enterprises Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Why People Start their Own Companies More control over their future Tired of working for someone else Passion for new product ideas Pursue business goals that are important to them on a personal level Inability to find attractive employment anywhere else. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Qualities Shared by Successful Entrepreneurs Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Business Start-Up Options Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Blueprint for an Effective Business Plan A document that summarizes a proposed business venture, goals, and plans for achieving those goals Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Blueprint for an Effective Business Plan (cont.) Summary Mission and objectives Company overview Products and services Management and key personnel Target market Marketing strategy • Summary. In one or two paragraphs, summarize your business concept, particularly the business model , which defines how the company will generate revenue and produce a profit. • Mission and objectives. Explain the purpose of your business and what you hope to accomplish. • Company overview. Give full background information on the origins and structure of your venture. • Products or services. Concisely describe your products or services, focusing on their unique attributes and their appeal to customers. • Management and key personnel. Summarize the background and qualifications of the people most responsible for the company’s success. • Target market. Provide data that will persuade an investor that you understand your target market. Be sure to identify the strengths and weaknesses of your competitors. • Marketing strategy. Provide projections of sales volume and market share; outline a strategy for identifying and reaching potential customers, setting prices, providing customer support, and physically delivering your products or services. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Blueprint for an Effective Business Plan Design and development plans Operations plan Start-up schedule Major risk factors Financial projections Exit strategy • Design and development plans. If your products require design or development, describe the nature and extent of what needs to be done, including costs and possible problems. • Operations plan. Provide information on facilities, equipment, and personnel requirements. • Start-up schedule. Forecast development of the company in terms of completion dates for major aspects of the business plan. • Major risk factors. Identify all potentially negative factors and discuss them honestly. • Financial projections and requirements. Include a detailed budget of start-up and operating costs, as well as projections for income, expenses, and cash flow for the first three years of business. Identify the company’s financing needs and potential sources. • Exit strategy. Explain how investors will be able to cash out or sell their investment, i.e. through a public stock offering, sale of the company, or a buyback of the investors’ interest. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Why New Businesses Fail Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Government Agencies and Not-for-Profit Organizations Small Business Administration Minority Business Development Agency SCORE U.S. Chamber of Commerce Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Mentors and Advisory Boards A team of people with subject-area expertise or vital contacts who help a business owner review plans and decisions Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Print and Online Media www.entrepreneurship.org Inc . www.inc.com Business 2.0 http://money.cnn.com/magazines/business2 Bloomberg BusinessWeek www.businessweek.com/small-business Fortune and Money http://money.cnn.com/smallbusiness Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Social Networking for Entrepreneurs Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Business Incubators Business Incubators Facilities that house small businesses and provide support services during the company’s early growth phases Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Financing Options for Small Businesses Seed Money The first infusion of capital used to get a business started Micro Lenders Organizations, often not-for-profit, that lend smaller amounts of money to business owners who might not qualify for conventional bank loans Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Financing Options for Small Businesses Venture Capitalists (VCs) Investors who provide money to finance new businesses or turnarounds in exchange for a portion of ownership, with the objective of reselling the business at a profit Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Financing Options for Small Businesses (cont.) Angel investors Private individuals who invest money in start-ups, usually earlier in a business’s life and in smaller amounts than VCs are willing to invest or banks are willing to lend Initial public offering (IPO) A corporation’s first offering of shares to the public Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Franchise Alternative A business arrangement in which one company (the franchisee) obtains the rights to sell the products and use various elements of a business system of another company (the franchisor) Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Franchise Alternative (cont.) Franchisee A business owner who pays for the rights to sell the products and use the business system of a franchisor Franchisor A company that licenses elements of its business system to other companies (franchisees) Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Twelve Questions to Ask Before Signing a Franchise Agreement Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Applying What You’ve Learned Highlight the contributions small businesses make to the U.S. economy List the most common reasons people start their own companies and identify the common traits of successful entrepreneurs Explain the importance of planning a new business and outline the key elements in a business plan Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Applying What You’ve Learned (cont.) Identify the major causes of business failures and identify sources of advice and support for struggling business owners Discuss the principal sources of small-business private financing Explain the advantages and disadvantages of franchising Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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