6 Entrepreneurship and Small Business Management C H A P T E R 6 Entrepreneurship and Small Business Management 6-1 Becoming an Entrepreneur 6-2 Small Business Basics 6-3 Starting a Small Business

6-1 Becoming an Entrepreneur Goal 1 Identify characteristics of successful entrepreneurs. Goal 2 Recognize the importance of entrepreneurship in the economy. Goal 3 Describe opportunities and risks of entrepreneurship.

KEY TERMS entrepreneur entrepreneurship venture capital innovation improvement

CHARACTERISTICS OF ENTREPRENEURS Desire to be your own boss Special skills and abilities

ENTREPRENEURS IN ACTION Joshua Moore Ben Cathers Rich Stachowski Abbey Fleck

WHAT DOES IT TAKE? Not all business owners and managers are entrepreneurs. Entrepreneurs have unique skills and personal characteristics.

ENTREPRENEURS ARE MORE 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  What personal characteristic are common to most successful entrepreneurs? Any characteristics listed in Figure 6-1 are acceptable, such as persistence, inquisitiveness, self-confidence, creativity, and so forth.

ENTREPRENEURSHIP AND THE ECONOMY Employment Financing Productivity

Employment Growth by Business Size, 1990–2005

Checkpoint  What are the sources of financing that entrepreneurs use for their new businesses? Personal savings Friends and family Venture capital Bank loans

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

NEW BUSINESS OPPORTUNITIES Innovation Improvement

RECOGNIZING RISKS Lack of adequate capital Low sales Higher than expected expenses Competitive pressure An owner unprepared to manage a growing business Operations requiring more time than the owner is willing to commit

Checkpoint  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 Goal 1 Identify important characteristics of small businesses. Goal 2 Recognize the competitive advantages of small businesses. Goal 3 Identify problems faced by many small businesses.

KEY TERMS small business Small Business Administration (SBA)

SMALL BUSINESS OWNERSHIP Description of a small business Owner is usually the manager Operates in one or very few locations Typically serves a small market Not dominant in its field Small business employment Ownership diversity

Common Types of Small Businesses as Percent of All Small Businesses

Checkpoint  Beyond the formal definition of a small business, what four points can be used to describe a small business? Owner is usually the manager Business operates in one or very few locations Business typically serves a small market Business is not dominant in its field

SMALL BUSINESS ADVANTAGES Meeting customer needs Providing unique services

Checkpoint  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 REASONS FOR SMALL BUSINESS FAILURE Not keeping adequate records Not having enough start-up money Lack of management experience Lack of experience with the type of business Not controlling operating expenses Poor location for the business Failure to manage credit offered to customers

SMALL BUSINESS ASSISTANCE University and college faculty members Local groups of business people Small Business Administration (SBA)

Checkpoint  List common reasons for small business failure. Not keeping adequate records Insufficient start-up money Lack of management experience Lack of experience with the type of business Not controlling operating expenses Poor location Failure to manage credit

6-3 Starting a Small Business Goal 1 Recognize important factors to be considered when starting a business. Goal 2 Describe the elements of a business plan. Goal 3 Identify types and sources of financing for a small business.

KEY TERMS business plan start-up financing short-term financing long-term financing

THE BUSINESS DECISION An idea plus experience Right place and time Team approach Preparation and research

Checkpoint  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.

WHAT IS A BUSINESS PLAN? A business plan is a written description of the business idea and how it will be carried out, including all major business activities.

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

ELEMENTS OF A BUSINESS PLAN (continued) Customer Analysis Description of customers Location, number, and resources of customers Sales forecasts

ELEMENTS OF A BUSINESS PLAN (continued) Operations Plan Organization of the company Description of major operations Analysis of resources needed Human resource plans

ELEMENTS OF A BUSINESS PLAN (continued) Marketing Plan Description of major marketing activities Description of resources needed Schedule of marketing activities

ELEMENTS OF A BUSINESS PLAN (continued) Financial Plans Start-up costs Short- and long-term financial needs Sources of financing Budgets 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  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  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.