1. * * Chapter Six Entrepreneurship and Starting a Small Business McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

2. * * First African-American woman to become a billionaire and first to own 3 professional sports teams. BET debuted in 1980.BET Johnson developed many of the network’s most successful shows like, Teen Summit. Now a part owner in Mistral and CEO of Salamander Hospitality.MistralSalamander Hospitality Profile SHEILA C. JOHNSON Black Entertainment Television (BET) 6-2

3. * * The Job-Creating Power of Entrepreneurship in the U.S. Entrepreneurship -- Accepting the risk of starting and running a business. WHAT is ENTREPRENEURSHIP? 6-3

4. * * The Job-Creating Power of Entrepreneurship in the U.S. French immigrant Élruthère Irènèe du Pont de Nemours started Du Pont in 1802.Du Pont David McConnell borrowed $500 from a friend to start Avon.Avon George Eastman started Kodak with a $3,000 investment in 1880.Kodak Jeff Bezos started Amazon.com with investments from his family and friends.Amazon.com NOTABLE ENTREPRENEURS 6-4

5. * * Leanna Archer – At 12 years old, she has her own hair care line. Alexis Holmes – Started baking for a fundraiser, now the 16-year-old owns her own bakery. Jack Short & Daniel Lyons – The two medical students started Factory Green, a carbon neutral apparel company, as undergrads.Factory Green Mark Zuckerberg – Launched Facebook as a Harvard freshman.Facebook YOU’RE NEVER TOO YOUNG to be an ENTREPRENEUR (Spotlight on Small Business) 6-5

6. * * Source: Entrepreneur, www.entrepreneur.com, March 2009.www.entrepreneur.com The Job-Creating Power of Entrepreneurship in the U.S. Age Range Percent Identified as Self-Employed 55 to 5928% 60 to 6536% 66 to 7042% YOU’RE NEVER TOO OLD to be an ENTREPRENEUR EITHER! 6-6

7. * * Why People Take the Entrepreneurial Challenge Opportunity Profit Independence Challenge LG1 WHY TAKE the RISK? 6-7

8. * * Why People Take the Entrepreneurial Challenge Self-directed Self-nurturing Action-oriented Highly energetic Tolerant of uncertainty LG1 WHAT DOES IT TAKE to be an ENTREPRENEUR? 6-8

9. * * Turning Your Passion and Problems into Opportunities 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. LG1 An IDEA is a GOOD OPPORTUNITY IF… You can get your product or service to customers before the window of opportunity closes. You can keep the business going. 6-9

10. * * Gary Hirshberg of Stonyfield Yogurt wanted to run a profitable business that didn’t hurt the environment. Stonyfield Yogurt is a 100% organic operation.Stonyfield Yogurt It’s green practices save the company millions of dollars each year. After just 15 years, Stonyfield outsells Kraft Foods yogurt. THINKING GREEN LOGO SOCIAL ENTREPRENEURSHIP: RESPONSIBLE and PROFITABLE (Thinking Green) 6-10

11. * * Entrepreneurial Teams Entrepreneurial team -- A group of experienced people from different areas of business who join to form a managerial team with the skills to develop, make and market a new product. An entrepreneurial team (Steve Jobs, Steve Wozniak and Mike Markkula) was key to Apple’s success.Apple LG1 ENTREPRENEURIAL TEAMS 6-11

12. * * Micropreneurs and Home-Based Businesses Micropreneur -- 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. Many micropreneurs are home-based business owners – writers, consultants, video producers, architects, bookkeepers, etc. Nearly 60% of home-based micropreneurs are men. LG1 MICROPRENEURS 6-12

13. * * Micropreneurs and Home-Based Businesses Computer technology has leveled the playing field. Corporate downsizing has led many to venture on their own. Social attitudes have changed. New tax laws have loosened restrictions on deducting expenses for home offices. LG1 HOME-BASED BUSINESS GROWTH 6-13

14. * * Source: St. Louis Small Business Monthly, February, 2004. Ability to start your business immediately Minimal startup capital needed No rent or excessive set-up charges Comfortable working conditions Micropreneurs and Home-Based Businesses LG1 BENEFITS of HOME-BASED BUSINESSES Reduced wardrobe expenses No commuting Tax benefits Elimination of office politics Low risk for trial and error 6-14

15. * * Source: St. Louis Small Business Monthly, February, 2004. Difficult to establish work habits Limited support system Isolation Work space may be limited Disruption of personal life Clients may be uncomfortable coming to your home Zoning restrictions Success is based 100% on your efforts Micropreneurs and Home-Based Businesses LG1 DOWNSIDES of HOME-BASED BUSINESSES 6-15

16. * * The latest outsourcing trend is using the Internet to find affordable labor around the world. Elance provides small businesses with a hub to find low-cost contractors.Elance Thanks to the inexpensive freelancers, Elance now has 48,500 clients, up 70% since 2007. OUTSOURCING YOUR SMALL BUSINESS (Reaching Beyond Our Borders) 6-16

17. * * Web-Based Businesses Affiliate Marketing -- An Internet-based marketing strategy in which a business rewards individuals or other businesses for each visitor or customer the affiliate sends to its website. LG1 ONLINE BUSINESS Web-based businesses have more unique products than most brick and mortar stores. Online sales reached $165.9 billion in 2007, 8% of all retail sales. 6-17

18. * * Entrepreneurship Within Firms 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. Art Fry of 3M developed Post- Its when he was trying to mark pages of his hymnal without damage.3M LG1 INTRAPRENEURS 6-18

19. * * Encouraging Entrepreneurship: What Government Can Do Immigration Act passed in 1990 created a category of “investor visas” that encourage entrepreneurs to come to the U.S. Enterprise Zones -- Specific geographic areas to which governments attract private business investment by offering lower taxes and other government support. Incubators -- Offer new businesses low-cost offices with basic services. LG1 GOVERNMENT and ENTREPRENEURSHIP 6-19

20. * * Progress Assessment Why are people willing to take the risks of entrepreneurship? What are the advantages of entrepreneurial teams? How do micropreneurs differ from other entrepreneurs? What are some opportunities and risks of web- based businesses? PROGRESS ASSESSMENT 6-20

21. * * Small Versus Big Business Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size. Businesses are “small” in relationship to other businesses in their industries. LG2 SMALL BUSINESSES 6-21

22. * * 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. LG2 SMALL BUSINESS STATISTICS 6-22

23. * * Importance of Small Business More personal customer service. The ability to respond quickly to opportunities. LG2 ADVANTAGES of SMALL OVER BIG BUSINESS 6-23

24. * * Small Business Success & Failure 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.” LG2 BUSINESS FAILURES are LOWER THAN the REPORTS BECAUSE… 6-24

25. * * Source: World Features Syndicate, 2009. Tommy Hilfiger – First store went bankrupt Milton Hershey – First confectionary failed H.J. Heinz – Company went bankrupt six years after start Small Business Success & Failure LG2 THEY DID WHAT? Famous Business Failures Walt Disney – First film company went bankrupt Henry Ford – First two car companies failed L.L. Bean – Almost went bankrupt in first year 6-25

26. * * Learning About Small Business Operations 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. LG3 LEARNING ABOUT SMALL BUSINESS 6-26

27. * * Suppose you worked in a company for two years and you see signs of it faltering. You and a coworker have ideas about how to succeed and are considering quitting to start your own company. Should you approach other coworkers about working for your new venture? Will you try to lure your old boss’ customers? What are the alternatives? What are the consequences? What is the most ethical choice? GOING DOWN WITH the SHIP (Making Ethical Decisions) 6-27

28. * * Managing a Small Business Planning Financing Knowing customers Managing employees Keeping records LG4 MAJOR BUSINESS FUNCTIONS 6-28

29. * * Begin with Planning Business Plan -- A detailed written statement that describes the nature of the business, the target market, the advantages the business will have over competition, and the resources and owners qualifications. A business plan forces potential owners to be specific about what they will offer. A business plan is mandatory for talking with bankers or investors. LG4 BUSINESS PLANS 6-29

30. * * Writing a Business Plan A good plan takes a long time to prepare. A good executive summary catches interest and tempts potential investors to read on. LG4 WRITING a BUSINESS PLAN Getting the plan into the right hands is almost as important as getting the right information in it. 6-30

31. * * Source: Business Week Small Biz, www.businessweek.com, February/March, 2008.www.businessweek.com 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 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. Writing a Business Plan LG4 A FAMILY AFFAIR What to Consider Before Starting a Family Business 6-31

32. * * Getting Money to Fund a Small Business Personal savings Relatives Former employers Banks & finance companies Government agencies Angel investors Venture capitalists -- Individuals or companies that invest in new businesses in exchange for partial ownership. LG4 SOURCES of CAPITAL 6-32

33. * * Source: CFO Magazine, www.cfo.com, September 2008.www.cfo.com Getting Money to Fund a Small Business LG4 ANGELS ABOVE Industry Sectors Favored by Angel Investors 6-33

34. * * The Small Business Administration Small Business Administration (SBA) -- A U.S. government agency that advises and assists small businesses by providing management training and financial advice. SBA started a microloan program in 1991 that provides very small loans to small business owners.SBA Program judges worthiness on belief of the borrower’s integrity and soundness of their business ideas. LG4 The SMALL BUSINESS ADMINISTRATION 6-34

35. * * The Small Business Administration Small Business Investment Company (SBIC) -- A program through which private investment companies licensed by the SBA lend money to small businesses. A SBIC must have a minimum of $5 million in capital and can borrow up to $2 from the SBA for each $1 of capital it has.SBIC SBICs are able to identify a business’s trouble spots early, giving entrepreneurs advice, and in some cases rescheduling loan payments. LG4 The SMALL BUSINESS INVESTMENT COMPANY 6-35

36. * * The Small Business Administration Small Business Development Centers (SBDC) are funded jointly by the federal government and individual states.Small Business Development Centers (SBDC) SBDCs are able to evaluate the feasibility of your idea, develop your business plan and complete your funding application – for no charge. LG4 SMALL BUSINESS DEVELOPMENT CENTERS 6-36

37. * * Knowing Your Customers Market -- Consumers with unsatisfied wants and needs who have both resources and willingness to buy. Set out to fill the market’s needs by offering top quality and great service at a fair price. One of the great advantages of small businesses is the ability to know the market and quickly adapt to market needs. LG4 The MARKET 6-37

38. * * Managing Employees Hiring, training and motivating employees is critical. Employees of small companies are often more satisfied with their jobs – they feel challenged and respected. Entrepreneurs best serve themselves and the business if they recruit and groom employees for management positions. LG4 MANAGING EMPLOYEES 6-38

39. * * Keeping Records Computers simplify the process by helping with inventory control, customer records and payroll. A good accountant can help in:  Deciding whether to buy or lease equipment.  Deciding whether to own or rent a building.  Tax planning.  Financial forecasting.  Choosing sources of financing.  Writing requests for funds. LG4 ACCOUNTING ASSISTANCE 6-39

40. * * Looking for Help Owners need outside consulting advice early in the process. Small and medium-sized firms cannot afford to hire experts as employees. A competent lawyer can help with:  Leases  Contracts  Partnership agreements  Protection against liabilities LG4 LEGAL HELP 6-40

41. * * Looking for Help Marketing decisions need to be made long before introducing a product or opening a store. A marketing research study can help you:  Determine where to locate.  Whom to select as your target market.  What is an effective strategy for reaching the market. LG4 MARKETING RESEARCH 6-41

42. * * Looking for Help A commercial loan officer can help: - Design an acceptable business plan. - Give financial advice. - Lend money. An insurance agent can help you: - Know the risks associated with the business. - How to cover risks with insurance. - How to prevent risks with safety devices. Service Corps of Retired Executives -More than 10,500 volunteers from industry, trade associations, and education who counsel small business at no cost. LG4 OTHER FORMS OF HELP 6-42

43. * * Progress Assessment Can you describe at least five sections of a business plan? PROGRESS ASSESSMENT 6-43

44. * * Going International: Small Business Prospects Small and medium-sized businesses accounted for 99% of recent export growth. Advantages of global trade for small businesses:  Overseas buyers enjoy dealing with individuals.  Small companies can usually begin shipping much faster.  They provide a wide variety of suppliers.  They can give more personal service and attention. LG5 SMALL BUSINESS PROSPECTS ABROAD 6-44

45. * * Progress Assessment Why do many small businesses avoid doing business overseas? What are some of the advantages small businesses have over large businesses in selling in global markets? PROGRESS ASSESSMENT 6-45