1. Entrepreneurship and Small Business
Chapter 6
Entrepreneurship and Small Business

2. 6-1 Becoming an Entrepreneur
CHARACTERISTICS OF ENTREPRENEURS
Entrepreneur- someone who takes a risk in starting a business to earn a profit

3. Some key factors in starting your own business include:
Wanting to be your own boss
Having special skills and abilities
Coming up with innovative ideas

4. Entrepreneurship- the process of starting, organizing, managing, and assuming the responsibility for a business

5. Entrepreneurs in Action
Sometimes ideas for new products come from problems in every day life
Examples: Abby watched her dad make bacon in the microwave and the bacon came out soaked in grease. She created the Makin Bacon ® microwave tray. She and her father convinced Armour brand bacon to sell the tray.

6. What Does it Take?
Not all people who own or manage a business are entrepreneurs
A person must be able to turn the idea into a business
Entrepreneurs come from:
All age categories, racial, and ethnic groups
Both genders
Varied amounts of educational background
Many entrepreneurs own their fist business while in their teens

7. There are personal traits that are common among entrepreneurs including:
Persistent
Inquisitive
Energetic
Goal oriented
Independent
Self-confident
Creative
Reliable
Competitive

8. Checkpoint>>
Choose 2 of the 9 personal skills of a successful entrepreneur and tell why having each skill would be benefit for starting their own business.

9. ENTREPRENEURSHIP AND THE ECONOMY
Entrepreneurship is a key part of the U.S. Economy
Nearly one in ten of all Americans ages are involved in some type of entrepreneurship activity

10. Employment
Small businesses are responsible for most new employment
Over 60% of new jobs were created by businesses with fewer than 500 employees
Nearly as many small businesses close as begin each year

11. Financing
Most of the money needed to start a new business comes from the entrepreneur, their family, or friends
One in five Americans has invested in a business of someone they know well
More than 50% lend financial support to a family member / relative
29% give to neighbors and friends
8% invest in businesses started by colleagues
More than $100 billion in new businesses each year

12. In the late 1990’s, many venture capital companies were formed
Venture capital- money provided by large investors to finance new products and new businesses that have a good chance to be very profitable
In the late 1990’s, many venture capital companies were formed
They supplied an additional $100 billion per year to start new businesses
This amount dropped to $22 billion in 2005
More than 2,900 companies receive venture capital each year
This shows that many people think new business provide a good investment opportunity

13. Other sources for start-up capital includes: loans from financial institutions, credit given by other businesses

14. Productivity
New and small businesses produce a large volume of goods and services for the economy.
Businesses with just a single owner and no staff account for more than $600 billion in sales annually.
Small businesses are responsible for more than half of the gross domestic product.

15. Checkpoint>>
What are the sources of financing that entrepreneurs use for their new businesses?

16. OPPORTUNITIES AND RISKS
New Business Opportunities
Innovation- an invention or creation that is brand new
Improvement- a designed change that increase the usefulness of a product, service, or process

17. Inventors often develop innovations.
Those inventions may become the basis for a new business.
Examples of well-known innovations include: Apple personal computer and Post-It Notes

18. In addition to inventions, innovations create new services that become the basis for a new business
Example: Frederick Smith envisioned an economical worldwide system for quickly and efficiently shipping packages. This idea led to the start of FedEx.

19. Recognizing Risks
Many successful entrepreneurs and their businesses are well known.
Their success encourages others to think about starting a new business.
More new businesses fail than succeed.

20. The primary reasons businesses started by entrepreneurs close are:
Lack of adequate capital
Low sales
Higher than expected expenses
Competitive pressure
An owner unprepared to manage a growing business
Operations requiring more time than the owner is willing to commit

21. Checkpoint>>
Where do entrepreneurship opportunities begin?

22. 6-1 ASSESSMENT

23. 6-2 Small Business Basics
SMALL BUSINESS OWNERSHIP
Business is often viewed as very large corporations.
These companies employ thousands of people with locations all over the country.
This is not an accurate picture of most businesses.
The greatest percentage of U.S. businesses are small businesses
Employ half of all private sector employees

24. Small business- an independent business with fewer than 500 employees
99.9% of the roughly 26 million U.S. businesses are small businesses

25. A more specific description of a small business includes the following:
The owner is usually the manager
It operates in one or very few locations
It typically serves a small market
It is not dominant in its field

26. Small Business Employment
On average, small businesses are responsible for creating 60-80% of all new jobs
Many small business services are professional and technical.
Many construction companies operate as small businesses

27. Ownership Diversity Women own more than ¼ of all small businesses
More than 18% of small businesses have African, Asian, or Hispanic-American ownership
The majority of small business owners are over 35, but 25% are under 35
Almost all people starting a business have a high school diploma
Nearly 60% have finished some college work

28. Half of all small businesses are home-based
On average, $5,000 or less is needed to start due to part-time or service businesses being started
Full-time businesses require 100,000 or more for initial capital to buy buildings, equipment, and employees (payroll)

29. Checkpoint>>
What percentage of employees in the United States work for a small business?

30. SMALL BUSINESS ADVANTAGES
Many services required by average people would be completed by a small business.

31. Meeting Customer Needs
Small businesses play a vital role in the economy.
Serve customers where the number of products and services is small or the requirements are too specialized for large businesses to make a profit
It is easier for a small business to meet the precise needs of customers than a large business

32. Even though a large business has more resources, to operate efficiently it must focus on products and service that meet the needs of a large group of customers
Small businesses are not able to match the operating costs of large businesses.
They can compete by paying attention to customers by locating near them, depend less on having other businesses deliver their products, and getting direct information from their customers.

33. Providing Unique Services
Small businesses are especially suited to provide unique services for customers.
Examples: Planning a wedding or designing a customized sound system for your home.
Business representatives must take special interest in the customer determining needs and discussing options.

34. Large businesses may not find it profitable to spend that much time with each customer and each employee may not have the expertise to design the service.
Big business has a clear advantage when a large number of customers are willing to buy standard products.
Small businesses gain advantage when customers have unique needs.

35. Checkpoint>>
How can a small business compete successfully with larger businesses?

36. COMMON SMALL BUSINESS PROBLEMS
Not all businesses succeed.
The failure rate is much greater in small businesses than large businesses.

37. Reasons for Failure Not keeping accurate records
Not having enough start up money
Lack of management
Lack of experience with the type of business

38. Not controlling operating expenses
Poor location for the business
Failure to manage credit offered to customers

39. Small Business Assistance
Small business administration- government agency that helps small business owners develop business plans and obtain financing

40. Checkpoint>>
Choose the 2 reasons for business failure that you think happen most often and tell why you feel they are the most wide spread?

41. 6-2 ASSESSMENT

42. 6-3 Starting a Small Business
THE BUSINESS DECISION
The procedures followed to start a business will often determine whether it will be successful.

43. An Idea Plus Experience
Every business begins with an idea
Business ideas come from many sources
Hobbies, interests, and business experience
Books and magazines suggest new opportunities including franchises

44. You shouldn’t consider starting a business without working for a small business
Several years of training in a range of business operations will prepare you to be an owner
Having responsibility for making decisions and opportunities to be the manager are key.

45. Right Place and Time Most retail businesses need good customer traffic
If the business is not easy to find or requires a great deal of travel time, many people will stay away
A wholesaler needs easy access to manufacturers where products are obtained for sale
Manufacturers must be located in an area with access to the required raw materials
Transportation systems must be easy to reach to distribute finished materials

46. Team Approach Many small business owners are quite independent.
A business is not easy to run without the help of others
Employees must be chosen carefully for their teamwork abilities.
In addition to employees, owners will need assistance from people with specialized knowledge.
Bankers, lawyers, and accountants

47. Preparation and Research
The most important step in starting a business is preparation.
Includes having enough information to make good decisions
Time spent studying information before the business is started will save time and avoid later problems

48. Information is needed about:
Customers
Competitors
Important operations
Government regulations

49. This information is available through:
Libraries
Colleges
Small business assistance centers
Sometimes, the owner will have to do further research to collect current data.

50. Checkpoint>>
Why is it important to use a team approach when starting a new business?

51. DEVELOPING A BUSINESS PLAN
When successful businesses are compared to those who have failed, one factor stands out as the most important difference.
The owners of a successful business develop and follow a business plan.

52. What is a Business Plan?
Business plan- written description of the business idea and how it will be carried out
Key features include:
General description of the company
Description of products / services sold
Market analysis (demand, customers, and competition)
Financial plan

53. Most business plans are developed for one year and updated the next year
By developing a plan, the owner is forced to think about important activities, the amount of time they will take, and their cost.
The plan serves as a guide to keep the business on track.

54. Steps in Developing the Business Plan
The business owner is in charge of developing the business plan.
The most popular use of business plans is to persuade investors and banks to finance the venture.

55. Gather and review information
Step 1
Gather and review information
Review other business plans and study information on the activities and financial performance of similar businesses

56. Develop strategic alternatives
Step 2
Develop strategic alternatives
Alternate plans for marketing, staffing, and financing

57. Each section of the business plan should be written.
Step 3
Each section of the business plan should be written.
Several sections for the description of the business
Before the plan is completed, the owner should have business experts review and offer advice for strengths and weaknesses of the plan.

58. Checkpoint>>
What are “strategic alternatives” in a business plan?

59. FINANCING THE SMALL BUSINESS
A new business with a good product or service may run out of money before becoming profitable.
Several years of operation are required before most new businesses can earn a profit.
Finding adequate financing is a key step in starting and running a business.

60. Types of Financing
Start-up financing- amount of money needed to open the business
Includes the cost of buildings, equipment, inventory, supplies, and licenses
Short-term financing- money needed to pay for current operating activities
Less than one year
Often for one or two months
Long-term financing- money needed for the main resources of a business that will last for many years
Land, buildings, and equipment

61. Sources of Financing
Finding the money needed may be the most difficult part of starting a business.
Comes from a mixture of owner-supplied and borrowed funds.
In a proprietorship, one person will supply the money.
In most partnerships, each partner will contribute.
In a corporation, shareholders own the business and contribute the money.
Borrowed funds are obtained through loans from banks, other financial institutions, or other people.

62. Checkpoint>>
In addition to owner-supplied capital, what are several other sources of financing for small businesses?

63. 6-3 ASSESSMENT