1. 6 * * * * * Entrepreneurship and Starting a Small Business
CHAPTER 6
Nickels McHugh McHugh * *
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McGraw-Hill/Irwin
Understanding Business, 8e
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

2. Entrepreneurship What’s an entrepreneur?
Why take the entrepreneurial challenge?
See Learning Goal 1: Explain why people are willing to take the risks of entrepreneurship, list the attributes of successful entrepreneurs, describe the benefits of entrepreneurial teams and intrapreneurs, and explain the growth of home-based and web-based businesses.
See text pages:

3. Why take the Challenge?
Opportunity
Profit
Independence
Challenge

4. Who Starts New Businesses?
AGE AT START-UP % % % % %
Also available on a Transparency Acetate
See Learning Goal 1: Explain why people are willing to take the risks of entrepreneurship, list the attributes of successful entrepreneurs, describe the benefits of entrepreneurial teams and intrapreneurs, and explain the growth of home-based and web-based businesses.
Who Starts New Businesses?
This slide gives the student a good understanding of the age people start new businesses.
1. Between the ages of 18-24, only 8% of people start a new business, why?
(Discuss the lack of resources available to start; the lack of experience and business knowledge; and the individual assessment of career choice.)
2. Between the ages of 25-34, 71% of new businesses are started, why?
(Greater business experience; more accumulated capital; physical and mental maturity; experience in a career where they have not been happy.)
3. Only 2% of new business is started after 55+ years of age. Ask the students to
4. Explain why this is low? (Nearing retirement, too much risk at their age; years of their peak earnings in corporate life.)

5. Entrepreneurial Attributes
Self-Directed & Self-Disciplined
Self-Nurturing
Action-Oriented
Highly Energetic
Tolerant of Uncertainty
See Learning Goal 1: Explain why people are willing to take the risks of entrepreneurship, list the attributes of successful entrepreneurs, describe the benefits of entrepreneurial teams and intrapreneurs, and explain the growth of home-based and web-based businesses.
See text pages:

6. Entrepreneurship Entrepreneurial Teams
Micropreneurs and Home-Based Businesses
Web-Based Businesses
Intrapreneurs
See Learning Goal 1: Explain why people are willing to take the risks of entrepreneurship, list the attributes of successful entrepreneurs, describe the benefits of entrepreneurial teams and intrapreneurs, and explain the growth of home-based and web-based businesses.
See text pages:

7. *
FRANCHISING
Franchises *
LG5
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 900,000 franchised businesses operate in the U.S., employing approximately 10 million people.
See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
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8. ADVANTAGES of FRANCHISING*
ADVANTAGES of FRANCHISING
Advantages & Disadvantages of Franchises *
LG5
Management and marketing assistance
Personal ownership
Nationally recognized name
Financial advice and assistance
Lower failure rate
See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
Franchising has a lower failure rate because the franchisee has support from the franchisor. This support can range from marketing to financial.
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9. DISADVANTAGES of FRANCHISING*
DISADVANTAGES of FRANCHISING
Advantages & Disadvantages of Franchises *
LG5
Large start-up costs
Shared profit
Management regulation
Coattail effects
Restrictions on selling
Fraudulent franchisors
See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
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10. Reasons for Growth of Home-Based Businesses
Technology
Downsizing
Attitudes
Tax Advantages
See Learning Goal 1: Explain why people are willing to take the risks of entrepreneurship, list the attributes of successful entrepreneurs, describe the benefits of entrepreneurial teams and intrapreneurs, and explain the growth of home-based and web-based businesses.
See text page: 155

11. Home-Based Business Challenges Focus New Customers Find Opportunity
Time Management
Work vs. Family
City Ordinances
Risk
Focus
Find Opportunity
Results vs. Routine
Profit vs. Paycheck
New Ideas
Long Term vs. Short Term
See Learning Goal 1: Explain why people are willing to take the risks of entrepreneurship, list the attributes of successful entrepreneurs, describe the benefits of entrepreneurial teams and intrapreneurs, and explain the growth of home-based and web-based businesses.
See text pages:

12. Most Common Types of Home-Based Businesses
Also available on a Transparency Acetate
See Learning Goal 1: Explain why people are willing to take the risks of entrepreneurship, list the attributes of successful entrepreneurs, describe the benefits of entrepreneurial teams and intrapreneurs, and explain the growth of home-based and web-based businesses.
Most Common Types of Home-Based Business
1. This slide identifies the most common types of home-based businesses.
2. A study conducted by the Economic Quarterly Developer, using 899 respondents in nine states, revealed some interesting facts:
59% of home-based businesses are owned by men.
Average age of home-based workers is 44.
Total income generated represented 3% of total personal income in those nine states.
In Ohio, home-based business contributes more income than farming.
3. Some tips on becoming successful with a home-based business are:
Most people start a business based on their interest or passion for an activity; you need to examine the market potential, competition, and resources required.
Prepare a well-written business plan outlining your strategic goals.
Do not be resistant to outside help when getting started.
Utilize free services such as the Small Business Administration.
Make sure you have adequate funds.
Source: Independent Insurance Agents of America

13. What is Small Business? Independently Owned Not Dominant in Its Field
Meet Certain Standards of Size (Employees, Annual Receipts)
See Learning Goal 2: Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
See text pages: 160

14. SMALL BUSINESS STATISTICS*
SMALL BUSINESS STATISTICS
Small Versus
Big Business
There are 26.8 million small businesses in the U.S.
Of all nonfarm business in the U.S., almost 97% are considered small.
Small businesses account for over 50% of the GDP.
Small businesses generate 60-80% of new jobs.
About 80% of U.S. workers first jobs were in small business.
75% of new jobs are created by small businesses. *
LG2
See Learning Goal 2: Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
The power of small business is immense. Students are often shocked to see how small businesses contribute to the U.S. economy.
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15. Small Business – Major Causes of Failure
Plunging in without first testing
Under/over pricing
Too little capital
Little/no experience
Borrowing money without planning
Trying to do too much with too little
Buying too much on credit
Expanding credit too freely and rapidly
Incomplete and/or inaccurate records
Not understanding business cycles
Forgetting about taxes, insurances, etc.
Owner working or not, according to whim
See Learning Goal 2: Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
See text pages: 162

16. Small Business – Situations for Success
Personal attention
Products not easily mass produced (
Sales are not large enough for a large firm
Unattractive neighborhood
Franchising
Paying attention to new competitors
The business is in a growth industry
See Learning Goal 2: Discuss the importance of small business to the American economy and summarize the major causes of small-business failure.
See text pages: 163

17. Where Did They Start? Hallmark YMCA room Williams-Sonoma
Abandoned Hardware Store
Estee Lauder
Vacant Former Restaurant
Walt Disney
Created Mickey in a Garage
Also available on a Transparency Acetate
See Learning Goal 3: Summarize ways to learn about how small businesses operate.
Where Did They Start?
This slide presents the humble beginnings of these major companies.
This slide can also be used with the previous slide – Early sales of well-known companies.
Ask the students: What can be learned from this slide and such beginnings of these corporations? (Business startups are always difficult but good planning, hard work, and perseverance certainly pays.)
Source: World Features Syndicate

18. Early Sales of Well-Known Companies
Johnson & Johnson
$3,000 Worth of Band-Aids 1st Year
Cyrus McCormick
Sold No Reapers 1st 10 Years
Subway
312 Sandwiches 1st Day
Burton’s Snowboards
Sold One 1st Year
Bose
Sold 40 Speakers 1st Year (today #1 in market)
Also available on a Transparency Acetate
See Learning Goal 3: Summarize ways to learn about how small businesses operate.
Early Sales of Well-Known Companies
This is an interesting slide which should generate good reactions from students.
Ask the student: If you sold only one snowboard in the whole year, would you stay in business? Why or why not?
How can businesses survive such poor performances? (Determination and passion of the owners and founders plays a big role.)
As can be seen from the slide, the best performance has been from Subway, which is typical of starting a restaurant type businesses.
Source: World Features Syndicate

19. Managing a Small Business http://www.rhsmith.umd.edu/index.aspx
Business Plan
Adequate Funding
Lenders/Investors
“Angels”
Venture Capitalists
Professional Advice/Help
SBA and SBIC Program
Lawyers, Loan Officers, Insurance Agents
SCORE
Local College/universities (
Know Your Customer
Manage Human Resources
Keep Good Records
See Learning Goal 4: Analyze what it takes to start and run a small business.
See text pages:

20. Reasons for a Banker To Say “No”
I don’t know enough about you or your business.
You haven’t clearly stated why you need the money.
Your numbers don’t support the loan request.
Your collateral is lacking.
Your business does not support the loan on its own merits.
Also available on a Transparency Acetate
See Learning Goal 4: Analyze what it takes to start and run a small business.
See text pages:
Reasons for a Banker to Say “NO”
The information provided should support the material in the book. Financial problems continue to be the number-one reason why businesses fail.
The key to dealing with bankers is to be prepared and have a very sound business plan. Develop a relationship with your banker to help negotiations during start-up and in the future.
The Small Business Administration offers a detailed Business Plan on their Website: The plan offers over 30 pages of information of what is required to have a detailed plan.

21. Small Business Strategies
Examine Marketing & ID Areas for Growth
Profile Best Customers & Market to Similar Prospects
Invest in Sales Training & Technology
Refresh Business Perspective With Outside Views
Streamline Business & Eliminate Waste
See Learning Goal 4: Analyze what it takes to start and run a small business.
See text pages:
Small Business Strategies
This acetate gives additional advice for entrepreneurs to examine when starting a new business.
Investment in sales training and technology will pay significant dividends in the future. Cost will be lower, and training will lead to greater performance.
When Federal Express introduced their ground division in 1985, they invested in new Material Handling Equipment reducing their labor cost by two-thirds.
Remember to examine every process within the organization for performance; Eliminate waste and look for continuous improvement. A recommended time period for review is every six months.