© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 1 Small Business, Entrepreneurship, and Franchises Chapter5

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 2  A business that is independently owned and operated for profit and is not dominant in its field Small Business: A Profile

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 3 Industry Group-Size Standards

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 4  Important facts In the last decade, the number of small businesses increased 49%. 70% of new businesses survive at least two years, about 50% survive at least five years, and 31% survive at least seven years. The primary reason for these failures is due to poor management stemming from a lack of business know-how. Small businesses provide over 50% of the jobs in the U.S. Small Business: A Profile (cont.)

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 5  Characteristics The “entrepreneurial spirit” The desire for independence The desire to determine one’s own destiny The willingness to find and accept a challenge Personal background Age-most are years old  Motivation “Had enough” of working for someone else High-tech opportunities, especially for teens Losing a job and deciding to start a business An idea for a new product An opportunity presents itself The Entrepreneurs

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 6  Women Owned at least 50% of small businesses in 2008 Women have less risk of failure than average  Teenagers High-tech entrepreneurship is exploding Face unique pressures juggling schoolwork, social lives, business workload Need skills for planning, persistence, patience, people management, generating profit  Successful entrepreneurs under age 30 Successful entrepreneurs under age 30 The People in Small Businesses: The Entrepreneurs (cont.)

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 7 The Pros and Cons of Smallness Advantages  Personal relationships with customers and employees  Ability to adapt to change  Simplified recordkeeping  Independence  Advantages of sole proprietorships Keeping all profits Ease and low cost of going into business Keeping business information secret Disadvantages  Risk of failure  Limited potential  Limited ability to raise capital  Guy Kawasaki from Apple Guy Kawasaki from Apple  “Make Meaning”

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 8 Sources of Capital for Entrepreneurs

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 9  Business plan—a carefully constructed guide for the person starting a business  Three basic purposes Communication Management Planning  Banking officials’ and investors’ questions What is the nature and mission of the new venture? Why is it a good idea? What are the goals? How much will it cost? Developing a Business Plan

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 10  A governmental agency that assists, counsels, and protects the interests of small business in the U.S.  SBA management assistance Management courses and workshops Service Corps of Retired Executives (SCORE) Help for minority-owned small businesses Small-business institutes (SBIs) Small-business development centers (SBDCs) SBA publications The Small Business Administration

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 11  SBA financial assistance Regular business loans – Loans made by private banks but partially guaranteed by the SBA Small-business investment companies – Venture capital: money invested in small firms that have the potential to become very successful The Small Business Administration (cont.)

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 12  Franchise A license to operate an individually owned business as though it were part of a chain of outlets or stores  Franchising The actual granting of a franchise  Franchisor An individual or organization granting a franchise  Franchisee A person or organization purchasing a franchise Franchising

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 13 What Is Franchising? FranchiseAgreement Franchisee Franchisor John Q. Look at Dunkin’ Donuts Franchise Agreement

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 14 Basic Rights & Obligations Delineated in a Franchise Agreement

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 15  The growth of franchising Franchising has expanded with the growth of the fast-food industry. Franchising is attracting more women and minority business owners than ever before. Dual-branded franchising, in which two franchisors offer their products together, is a new trend. – Example: Taco Bell and KFC The Growth of Franchising

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 16  Are franchises successful? The success rate for franchises is significantly higher than that for other small businesses. The vast majority, 94%, of franchise owners report that they are successful. Too rapid expansion, inadequate capital or management skills, or other problems can cause franchises to fail. The Growth of Franchising (cont.)

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 17 Entrepreneur’s Ten Franchises in 2011 Source: (accessed March 15, 2011).

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 18 Advantages of Franchising To the franchisor Fast and well controlled distribution of its products No need to construct and operate its own outlets More working capital available for expanded production and advertising Franchising agreements maintain product and quality standards Motivated work force of franchisees To the franchisee Opportunity to start a proven business with limited capital Guaranteed customers Franchisor available for advice and guidance Materials for local promotional campaigns and participation in national campaigns Cost savings when purchasing in cooperation with other franchisees

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 19 Disadvantages of Franchising To the franchisor Failure of the franchisee to operate franchise properly Disputes with and lawsuits by franchisees over the terms of the franchise To the franchisee Franchisor retains a large amount of control over the franchisee’s activities Franchisor opening competing franchises within the franchisee’s market

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 20 Qualities Franchisors Seek in Franchisee

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 21 Chapter Quiz 1. Which one of the following would most likely be classified as a service industry? A. Grocery store B. Jewelry store C. Pet shop D. Dry cleaning shop E. Clothing store

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 22 Chapter Quiz 2. Roger Jones, a graduate business student, has decided to open his own consulting firm. Since he is an intelligent and hard-working student with previous management experience, Roger feels he is well prepared to succeed since more new businesses fail due to A. a lack of adequate financing. B. low consumer demand for their products. C. hostile competition. D. a lack of owner commitment. E. mismanagement and lack of business know-how.

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 23 Chapter Quiz 3. A license to operate an individually owned business as if it were part of a chain of outlets or stores is called a A. joint venture. B. syndicate. C. franchise. D. SCORE. E. small-business development center.

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 2 | Slide 24 Chapter Quiz 4. Jim Moniz is contemplating obtaining a franchise. He would like to purchase a franchise in an industry that has had extensive success with franchising in the past. All of the following are possible choices for Jim except A. a fast-food industry. B. the semiconductor industry. C. filling stations. D. car dealerships. E. the soft-drink industry.