Entrepreneurship and Starting a Small Business Chapter 06 McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Entrepreneurship -- Accepting the risk of starting and running a business. WHAT is ENTREPRENEURSHIP? 6-2

* * WHO ARE THESE ENTREPRENEURS? 6-3  He was selling baking soda & decided to entice customers by putting in two packages of chewing gum with each sale. The excitement over the gum started him thinking.  Two Seattle teenagers pooled their money & came up with $100. They started delivering messages & parcels for local merchants.  Though he didn’t graduate from college, he found out college students eat a lot of pizza. He started his first pizzeria with $900 near a campus with a promise of 3-minute delivery.

Entrepreneurial team -- A group of experienced people from different areas of business who join to form a managerial team with the skills to develop, make and market a new product. An entrepreneurial team (Steve Jobs, Steve Wozniak and Mike Markkula) was key to Apple’s success.Apple ENTREPRENEURIAL TEAMS 6-4

Micropreneur -- Entrepreneurs willing to accept the risk of starting and managing a business that remains small, lets them do the work they want to do, and offers a balanced lifestyle. Many micropreneurs are home-based business owners – writers, consultants, video producers, architects, bookkeepers, etc. Nearly 60% of home-based micropreneurs are men. MICROPRENEURS 6-5

Intrapreneur -- A creative person who works as an entrepreneur within a corporation. Intrapreneurs use a company’s existing resources to launch new products for the company. Art Fry of 3M developed Post- Its when he was trying to mark pages of his hymnal without damage.3M INTRAPRENEURS 6-6

Computer technology has leveled the playing field. Corporate downsizing has led many to venture on their own. HOME-BASED BUSINESS GROWTH New tax laws have loosened restrictions on deducting expenses for home offices. 6-7

Getting new customers is difficult. Managing your time requires self-discipline. Work and family tasks are sometimes not separated. Government ordinances may restrict your business. Homeowner’s insurance may not cover business- related claims. HOME-BASED BUSINESS ISN’T EASY 6-8

Ability to start your business immediately Minimal start-up capital needed No rent or excessive set-up charges Comfortable working conditions Reduced wardrobe expenses No commuting Tax benefits Elimination of office politics Low risk for trial and error BENEFITS of HOME-BASED BUSINESSES 6-9

Difficult to establish work habits Limited support system Isolation Work space may be limited Clients may be uncomfortable coming to your home Zoning restrictions Success is based 100% on your efforts DOWNSIDES of HOME-BASED BUSINESSES 6-10

ONLINE BUSINESS E-commerce statistics confirm the explosive pace at which this industry has developed as worldwide B2C e-commerce sales amounted to more than 1.2 trillion US dollars in

Affiliate Marketing -- An Internet-based marketing strategy in which a business rewards individuals or other businesses for each visitor or customer the affiliate sends to its website. AFFILIATE MARKETING 6-12

Immigration Act passed in 1990 created a category of “investor visas” that encourage entrepreneurs to come to the U.S. Enterprise Zones -- Specific geographic areas to which governments attract private business investment by offering lower taxes and other government support. Incubators -- Offer new businesses low-cost offices with basic services. GOVERNMENT and ENTREPRENEURSHIP 6-13

McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. What is a Small Business?

Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size. Businesses are “small” in relation to other businesses in their industries. SMALL BUSINESSES 6-15

Personalized Service Personal Contact Flexibility Lower Costs ADVANTAGES of SMALL OVER BIG BUSINESS 6-16

Limited Experience Long Hours SMALL BUSINESS DISADVANTAGES 6-17

hours 8% hours15% hours23% hours28% hours13% 80 + hours 12% Hours per Week Entrepreneurs Worked 1st Year

SMALL BUSINESS FAILURE RATES 6-19

Owner closing a business to start another is reported as a “failure.” Changing forms of ownership is reported as a “failure.” Retirement is reported as a “failure.” BUSINESS FAILURES are LOWER THAN the REPORTS BECAUSE… 6-20

Source: World Features Syndicate, Tommy Hilfiger – First store went bankrupt Milton Hershey – First confectionary failed H.J. Heinz – Company went bankrupt six years after start THEY DID WHAT? Famous Business Failures Walt Disney – First film company went bankrupt Henry Ford – First two car companies failed L.L. Bean – Almost went bankrupt in first year 6-21

Learn from Others – Investigate your local colleges for classes on small business and entrepreneurship; talk to and work for successful local entrepreneurs. Get Some Experience – Gain three years experience in the field; then start a part-time small business. Take Over a Successful Firm – Serve as an apprentice and eventually take over once the owner steps down. LEARNING ABOUT SMALL BUSINESS 6-22

* * McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. Business Plan Successful Business Management Requirements

Business Plan -- A detailed written statement that describes the nature of the business, the target market, the advantages the business will have over competition, and the resources and owners qualifications. A business plan forces potential owners to be specific about what they will offer. A business plan is mandatory for talking with bankers or investors. BUSINESS PLANS 6-24

A good plan takes a long time to prepare. A good executive summary catches interest and tempts potential investors to read on. WRITING a BUSINESS PLAN Getting the plan into the right hands is almost as important as getting the right information in it. 6-25

Personal savings Relatives Former employers Banks & finance companies Government agencies Venture capitalists -- Individuals or companies that invest in new businesses in exchange for partial ownership. Angel investors SOURCES of CAPITAL 6-26

Kickstarter and Lending Club connect loan seekers to potential lenders.KickstarterLending Club Administrators assign interest rates between 6.78% and 24.95% based on credit history, how much money is needed, and what the person is using it for. SOCIAL LENDING (Social Media in Business) 6-27

Marketing decisions need to be made long before introducing a product or opening a store. A marketing research study can help you:  Determine where to locate.  Whom to select as your target market.  What is an effective strategy for reaching the market. MARKETING RESEARCH 6-28

Hiring, training and motivating employees is critical. Employees of small companies are often more satisfied with their jobs – they feel challenged and respected. Entrepreneurs best serve themselves and the business if they recruit and groom employees for management positions. MANAGING EMPLOYEES 6-29

Computers simplify the process by helping with inventory control, customer records and payroll. A good accountant can help in:  Deciding whether to buy or lease equipment.  Deciding whether to own or rent a building.  Tax planning.  Financial forecasting.  Choosing sources of financing.  Writing requests for funds. ACCOUNTING ASSISTANCE 6-30

Owners need outside consulting advice early in the process. Small and medium-sized firms cannot afford to hire experts as employees. A competent attorney can help with:  Leases  Contracts  Partnership agreements  Protection against liabilities LEGAL HELP 6-31

A commercial loan officer can help: - Design an acceptable business plan. - Give financial advice. - Lend money. An insurance agent can help you: - Know the risks associated with the business. - How to cover risks with insurance. - How to prevent risks with safety devices. OTHER FORMS OF HELP 6-32

Small Business Administration (SBA) -- A U.S. government agency that advises and assists small businesses by providing management training and financial advice. SBA started a microloan program in 1991 that provides very small loans to small business owners.SBA Program judges worthiness on belief of the borrower’s integrity and soundness of their business ideas. The SMALL BUSINESS ADMINISTRATION 6-33

Small Business Investment Company (SBIC) -- A program through which private investment companies licensed by the SBA lend money to small businesses. SBICs are able to identify a business’s trouble spots early, giving entrepreneurs advice, and in some cases rescheduling loan payments. The SMALL BUSINESS INVESTMENT COMPANY 6-34

Small Business Development Centers (SBDC) are funded jointly by the federal government and individual states.Small Business Development Centers (SBDC) SBDCs are able to evaluate the feasibility of your idea, develop your business plan and complete your funding application – for no charge. SMALL BUSINESS DEVELOPMENT CENTERS 6-35

Service Corps of Retired Executives -More than 10,500 volunteers from industry, trade associations, and education who counsel small business at no cost. MORE SOURCES OF HELP 6-36

Small Business Resources

Small and medium-sized businesses accounted for 99% of recent export growth. Advantages of global trade for small businesses:  Overseas buyers enjoy dealing with individuals.  Small companies can usually begin shipping much faster.  They provide a wide variety of suppliers.  They can give more personal service and attention. SMALL BUSINESS PROSPECTS ABROAD 6-38

U.S. Department of Commerce (International Trade Administration – ITA) SBA (Office of International Trade) SMALL BUSINESS PROSPECTS ABROAD 6-39