1. McGraw-Hill/Irwin Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved. Entrepreneurship and Starting a Small Business CHAPTER 6

2. WHAT is ENTREPRENEURSHIP? 6-2 Entrepreneur -- Someone who risks their time, effort and money owning and operating a business Entrepreneurship -- Accepting the risk of starting and running a business.

3. YOU’RE NEVER TOO YOUNG to be an ENTREPRENEUR 6-3 Four reasons to start your business right away: 1.You don’t have a mortgage or kids to take care of. 2.You can survive on little funds and work long hours. 3.No disruption to your career path. It hasn’t started yet! 4.Use your alma mater for resources. Source: Entrepreneur, www.entrepreneur.com, accessed November 2014.www.entrepreneur.com

4. YOU’RE NEVER TOO OLD to be an ENTREPRENEUR EITHER! 6-4 The highest rate of entrepreneurship activity is in the 55-64 age group! Since 1996, older Americans have opened businesses at a higher rate than 20-34 year olds. Older entrepreneurs have greater experience and more financial resources. Source: U.S. News and World Report, www.usnews.com, accessed October 2014.www.usnews.com

5. WHY TAKE the RISK? 6-5 LO 6-1 Opportunity – entrepreneurial spirit, the desire to start your own business Profit Independence Challenge

6. Source: Forbes, www.forbes.com, accessed November 2014.www.forbes.com BIG TIME PROFIT 6-6 Michael Dell could buy 1,100 new laptops for every student at the University of Texas at Austin! Dietrich Mateschitz could buy himself a can of Red Bull every day for the next 11 million years! Liliane Bettencourt could buy a box of L’Oreal hair color for every woman in the world! LO 6-1 Photo Credit: Emran Kassim

7. WHAT DOES IT TAKE to be an ENTREPRENEUR? 6-7 LO 6-1 Self-directed Self-nurturing (SELF- CONFIDENT) Action-oriented Highly energetic Tolerant of uncertainty (Risk Takers)

8. Source: Entrepreneur, www.entrepreneur.com, accessed November 2014.www.entrepreneur.com FIVE STEPS to STARTING YOUR BUSINESS in SCHOOL 6-8 LO 6-1 1.Find a problem or need. 2.Zero in on specifics. 3.Do research on campus, test products with students. 4.Move forward with your ideas. Don’t wait! 5.Sacrifice.

9. An IDEA is a GOOD OPPORTUNITY IF… 6-9 LO 6-1 It fills customers’ needs. You have the skills and resources to start a business. You can sell the product or service at a reasonable price and still profit. You can get your product or service to customers before the window of opportunity closes. You can keep the business going.

10. MICROPRENEURS 6-10 LO 6-1 Micropreneurs -- 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. About half of U.S. micropreneurs are home-based business owners – writers, consultants, video producers, architects, bookkeepers, etc. Nearly 60% of home-based micropreneurs are men.

11. Computer technology has leveled the playing field. Corporate downsizing has led many to venture on their own. HOME-BASED BUSINESS GROWTH 6-11 LO 6-1 Social attitudes have changed. New tax laws have loosened restrictions on deducting expenses for home offices.

12. HOME-BASED BUSINESS ISN’T EASY 6-12 LO 6-1 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.

13. BENEFITS of HOME-BASED BUSINESSES 6-13 LO 6-1 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

14. DOWNSIDES of HOME-BASED BUSINESSES 6-14 LO 6-1 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

15. Source: Entrepreneur, June 2010. THINK YOU’RE READY to WORK from HOME? 6-15 LO 6-1

16. ONLINE BUSINESS 6-16 LO 6-1 Online sales reached $262 billion in 2013, about 8% of all retail sales. All retail sales were up 2.5% in 2013. However, online retail sales grew 13%.

17. Source: Entrepreneur, www.entrepreneur.com, accessed November 2014.www.entrepreneur.com BOOSTING YOUR BUSINESS’S ONLINE PRESENCE 6-17 Photo Credit: Marc Wathieu LO 6-1 Establish an identity. Be easy to find. Steal good ideas and make them your own. Look out for opportunities. Remember other forms of marketing. Be friendly!

18. Art Fry of 3M developed Post-Its when he was trying to mark pages of his hymnal without damage.3M INTRAPRENEURS 6-18 LO 6-1 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.

19. SMALL BUSINESSES 6-19 LO 6-2 Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size*. *Generally less than 500 employees and less than $2.5m in annual sales Businesses are “small” in relation to other businesses in their industries.

20. SMALL BUSINESS STATISTICS 6-20 LO 6-2 Over 70% of all small businesses fail within first year of operation Why? There are 28 million small businesses in the U.S. Over 99% of all businesses are considered small (i.e. textbook mentions 97% of all nonfarm businesses are considered small). Small businesses account for over 50% of the GDP. Small businesses have generated 65% of new jobs since 1995. About 80% of U.S. workers’ first jobs were in small business. Can be operated on a part-time or full-time basis Small business offer several unique advantages

21. ADVANTAGES of SMALL OVER BIG BUSINESS 6-21 Photo Credit: Elliot Brown LO 6-2 More PERSONAL customer service. (and personal service to employees!) The ability to respond quickly to opportunities (i.e. ADAPTABILITY and FLEXIBILITY). Fosters innovation Provides competition Fulfills market niches Serves the needs of larger businesses

22. BUSINESS FAILURES are LOWER THAN the REPORTS BECAUSE… 6-22 LO 6-2 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.”

23. Source: World Features Syndicate. Tommy Hilfiger – First store went bankrupt Milton Hershey – First confectionery failed H.J. Heinz – Company went bankrupt six years after start THEY DID WHAT? Famous Business Failures 6-23 LO 6-2 Walt Disney – First film company went bankrupt Henry Ford – First two car companies failed L.L. Bean – Almost went bankrupt in first year

24. CAUSES of SMALL BUSINESS FAILURES 6-24 LO 6-2 Lack of Knowledge and Experience Competition Too Little Money High Stress Level Personal extravagance Lack of self-discipline

25. INCREASING SMALL BUSINESS SUCCESSES 6-25 LO 6-2

26. GOING INTO BUSINESS 6-26 LO 6-3 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.

27. STARTING YOUR OWN BUSINESS 6-27 LO 6-4  Recognize Opportunity New Business, Existing Business, Franchise  Business Plan “Blue print for business,” a carefully constructed guide for the person starting the business SBA, SBDC, Score Write on a 4 th Grade Level  Seek Capital $100,000 avg “seed” money Lenders/Investors – What do they look at? Family or Friends  File and Register Business  Operate and Manage

28. Source: Bloomberg Businessweek, www.businessweek.com, accessed November 2014.www.businessweek.com A FAMILY AFFAIR What to Consider Before Starting a Family Business 6-28 LO 6-4 Clarify Expectations – What will each person contribute? Discuss Work/Family Boundaries – What is the line that separates work from personal relationships? Develop Good Communication – Agree about types of decisions you’ll make jointly and on your own. Clarify Long-Term Intentions – Discuss how long everyone will work full time and goals for the business. Have an Escape Hatch – Have a Plan B.

29. COMMON BUSINESS OPPORTUNITIES 6-29 New Business – starting a brand-new business from scratch Existing Business – buying an existing business Franchises – the right to operate an individually owned business as though it was a part of a chain or outlet of stores

30. STARTING A BRAND NEW BUSINESS 6-30 LO 6-4 ADVANTAGES Control you own destiny Personal satisfaction – It’s your business, you started it Unlimited income potential True independence DISADVANTAGES High risk of failure Long hours and hard work High stress levels Complete responsibility

31. BUYING AN EXISTING BUSINESS 6-31 LO 6-4 Ease of start-up Existing customer base Financing opportunities Purchase price may be high Inheriting the previous owner’s mistakes Unknowns in transition Alienated customers? Employees? Pros Cons

32. FRANCHISE BASICS 6-32  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 NOTE: Information regarding FRANCHISES can be found in Ch. 5 of the textbook

33. FRANCHISING 5-33 LO 4-5 Franchise Agreement -- An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory. More than 770,000 franchised businesses operate in the U.S., employing approximately 8.5 million people.

34. ADVANTAGES of FRANCHISING 5-34 LO 4-5 1.Management and marketing assistance 2.Personal ownership 3.Nationally recognized name 4.Financial advice and assistance 5.Lower failure rate

35. DISADVANTAGES of FRANCHISING 5-35 LO 4-5 1.Large start-up and operational costs Royalty Fee - % of sales or profits that franchisee pays to franchisor Franchise Fee – Start up fee that franchisee pays to franchisor 2.Shared profit 3.Management regulation (Lack of Franchisee Freedom) 4.Coattail effects 5.Restrictions on selling 6.Fraudulent franchisors