Chapter 7: SMALL BUSINESS AND ENTREPRENEURSHIP Economic Rocket Fuel

LAUNCHING NEW VENTURES: WHAT’S IN IT FOR ME? Greater Financial Success Independence Flexibility Challenge Survival On any given day in the United States, more people are trying to start a new business than are getting married or having children.

THE ENTREPRENEUR: A DISTINCTIVE PROFILE Self-Reliance Vision Confidence Energy Tolerance of Failure Entrepreneurs – People who risk their time, money, and other resources to start and manage a business. Tolerance of Uncertainty

OPPORTUNITIES AND THREATS FOR SMALL BUSINESS: A TWO-SIDED COIN Higher Risk of Failure Lack of Knowledge and Experience Too Little Money Bigger Regulatory Burden Higher Health Insurance Costs Opportunities: Market Niches Personal Customer Service Lower Overhead Cost Technology

SMALL BUSINESS FAILURE Year in Business Survival Rate Change vs. Prior Year (%) Year 1 81% 19% Year 2 66% 15% Year 3 54% 12% Year 4 44% 10% Year 5 38% 6% Year 6 34% 4% Year 7 31% 3%

DOT-COM DEBACLES Webvan: the value of this early online grocer peaked at $1.2 billion, but Webvan left 2,000 people out of work when it closed its doors in the middle of 2001. Arrangeonline.com, Funeral.com, Heavenly-Door.com and Plan4ever.com marketed funeral arrangements and related services Pets.com: Shutting down only nine months after its $82.5 million IPO, Pets.com hawked pet care products from doggie treats to kitty litter, but lacked a workable plan for high shipping costs. Petstore.com offered a fish delivery service. They were bought out by Pets.com for $13 million in stock

LAUNCH OPTIONS Starting from scratch Buying an established business Buying a franchise

BUYING AN ESTABLISHED BUSINESS Key Pros: Key Cons: The concept, organizational structure, and operating practices are in place. Relationships are established. Obtaining financing is less challenging. Working with someone else’s idea may not be fun. You may inherit old mistakes.

STARTING A BUSINESS FROM SCRATCH Key Pros: Key Cons: It’s all you : Your concept, your decisions, your structure. You don’t have to deal with the prior owner’s bad decisions. It’s all you. That’s a lot of pressure. It can be hard to get credit. Logistics can be challenging It takes time, money, and sheer sweat to build a customer base.

BUYING A FRANCHISE Key Pros: Key Cons: Less Risk Training and Support Brand Recognition Access to Funding Costs Lack of Control Negative Halo Effect Growth Challenges Restriction on Sale Poor Execution

ENTERING INTO A FRANCHISE AGREEMENT Know all the facts before signing the dotted line: Terms and Conditions Fees and Other Payments Training and Support Specific Operational Requirements Conflict Resolution Assigned Territory Franchisors must provide a Franchise Disclosure Document (FDD) The Federal Trace Commission (FTC) require: The FDD must be written in plain English The franchisor must be given 14 days to review the FDD The Franchisee should have a lawyer review the document

TOOLS FOR BUSINESS SUCCESS Small Business Administration Gain Experience Learn from Others Educate Yourself Write a Business Plan Not only are small businesses a big part of the economy as employers, innovation and economics but they are also active customers. Review the resources that American Express dedicates to small business – American Express OPEN is an entire division.

The Business Plan

FINDING THE MONEY: FUNDING OPTIONS Personal Resources Loans Angel Investors Venture Capital

SMALL BUSINESS AND THE ECONOMY: AN OUTSIZED IMPACT Creating New Jobs Fueling Innovation Vitalizing Inner Cities Note that small business has such a strong impact on our economy, there is a government agency to support small business. Click link.

ECONOMIC IMPACT Just 9.8% of the world’s entrepreneurs expect to create almost 75% of the jobs generated by new business ventures in the next five years. 1 out of 10 adults worldwide start businesses every year Three key factors drive entrepreneurship globally: Per Capita Income Opportunity Cost Cultural/Political Environment