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Business in a Changing World McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved. Chapter 6 Small Business, Entrepreneurship, and Franchising 2

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6-4 Cato Corner Farm Cato Corner Farm Farmstead Cheeses Great demand for new, unique artisan cheeses. A mother-son operation in Connecticut is serving that need.

6-5 Small Business, Entrepreneurship & Franchising Business students have many options upon graduation – some choose to start their own businesses, find employment in small businesses, or perhaps, join a franchise. Join a small business? Start my own business? Choices that you will be available to you.

6-6 Entrepreneurship & Small Business The process of creating and managing a business to achieved desired objectives is our working definition for entrepreneurship. Entrepreneurship

6-7 Entrepreneurship & Small Business Ability to see emerging trends & create company that satisfies those consumer needs. (Dell Computers)Dell Computers Create new markets (Amazon.com)Amazon.com Improve or re-package existing products (Starbucks)Starbucks Entrepreneurship & Entrepreneurs

6-8 Entrepreneurship & Small Business “Smallness” is relative. Defined, small business is any independently owned and operated business, not dominant in its competitive area, employing less than 500 people. What is a Small Business?

6-9 Entrepreneurship & Small Business The Small Business Administration (SBA) is an independent agency of the federal government that offers managerial and financial assistance to small businesses.Small Business Administration Supporting Small Business

6-10 Impact of Small Business

6-11 Impact of Small Business 60-80% of all new jobs, annually, created by small business in the last 10 years.

6-12 Small Business & Innovation Airplane Audio tap recorder Double-knit fabric Fiber-optic examining equipment Heart valve Optical scanner Personal computer Soft contact lenses Zipper 55% of all innovations

6-13 Small Business Retailing and wholesaling, services, manufacturing and high technology are especially attractive to entrepreneurs. Industries that Attract Small Business

6-14 Retailing & Wholesaling Selling directly to the consumer Music stores Sporting-goods shops Dry cleaners Boutiques Drugstores Restaurants Hardware stores 14

6-15 Small Business – retailers/wholesalers Annual sales $50 million 2007 #1 baby product in the nation The “Boppy”

6-16 Small Business 66% of the economy Employs 70% of workforce The Geek Squad – one-man service firm, 1994 Services

6-17 Small Business Small business advantage over large firms – product customization Artwork, clothing, jewelry, clothing, furniture Manufacturing

6-18 Small Business Businesses that depend heavily on advanced scientific and engineering knowledge. 39% of high-tech jobs are in small business High Technology

6-19 Small Business Ownership Personal advantages Business advantages ADVANTAGES

6-20 Advantages of Small Business Ownership Traits Needed to Succeed in Entrepreneurship

6-21 Advantages of Small Business Ownership Costs Flexibility Focus Reputation

6-22 Disadvantages of Small-Business Ownership High Stress Level High Failure Rate 90% of all new businesses fail within the first 5 years Undercapitalization Lack of funds to operate a business normally

6-23 Disadvantages of Small-Business Ownership Managerial Inexperience or Incompetence Inability to Cope with Growth

6-24 Small-Business Ownership Top Five Biggest Challenges, Concerns, and Goals of Small and Medium Businesses.

6-25 Small-Business Ownership Most Common Mistakes Made by Startup Businesses

6-26 Starting the Small Business Start with a concept or general idea Devise a strategy to guide planning & development Make Decisions Form of ownership Financial resources needed Acquire existing business Start a new business Buy a franchise

6-27 The Business Plan Business Plan – a precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals. Acts as a guide and reference document. Explanation of the business Analysis of competition Income/Expense estimates

6-28 Forms of Business Ownership Sole Proprietorship Partnership Corporation

6-29 Financial Resources Provide your own personal capital (money) Obtain capital (Financing options)

6-30 Financial Resources Equity Financing – selling or borrowing against the value of an asset (automobile, insurance policy, savings account) to obtain funds to operate a business.

6-31 Financial Resources Venture Capitalists– persons/organizations that agree to provide funding for a new business in exchange for an ownership interest or stock. Usually requires a sharing of ownership/control.

6-32 Financial Resources Debt financing– borrowing financial resources typically from a bank or lending institution The SBA (Small Business Administration) offers financial assistance to qualifying businesses.Small Business Administration

6-33 Financial Resources Line of credit– an agreement by which a financial institution promises to lend a business a predetermined sum on demand.

6-34 Starting a Small Business Do I start from scratch? Do I buy an existing business? Do I buy a franchise?

6-35 A license to sell another’s products or to use another’s name in business, or both Franchising Starting a Small Business

6-36 Franchiser – the company that sells a franchise (e.g. Dunkin’ Donuts, McDonald’s, Jiffy Lube) Dunkin’ DonutsMcDonald’sJiffy Lube) Franchisee – the purchaser of a franchise Visit the International Franchise AssociationInternational Franchise Association Franchising Starting a Small Business

6-37 Franchise – Advantages & Disadvantages AdvantagesDisadvantages Training & supportFees and profit sharing Brand name appealStandardized operations National advertisingRestrictions on purchasing Financial assistanceLimited product line Proven productsPossible market saturation Greater chance for successLess freedom in decisions

6-38 Small-Business -- Franchises Fastest Growing & Hottest New Franchises

6-39 Entrepreneurs – Going Green Eco-responsible entrepreneurial companies – viable new products utilizing recycling in some way. Recycline – products from recycled materials.Recycline

6-40 The Future for Small Business Demographic Trends Boomers, echo boomers (millennials), Generation Y Immigrants (12% of U.S. population)

6-41 The Future for Small Business Technological & Economic Trends Internet usage continues to increase Increase in service exports Economic turbulence Deregulation of the energy market & alternative fuels

6-42 Future for Small Business Top Large U.S. Cities for Entrepreneurs

6-43 Big Businesses Acting “small” Common Approaches 1.Large firms emulate smaller ones to improve bottom line 2.Downsizing or rightsizing 3.Acting small from inception – Southwest Airlines 4.Intrapreneurs – individuals in large firms who take responsibility for the development of innovations within the organization