Entrepreneurship and Small Business: Planning for Success

1. Chapter 6 Entrepreneurship and New Ventures

2. Planning Ahead – Chapter 6 Study Questions • What is entrepreneurship and who are entrepreneurs? • What is special about small business entrepreneurship? • How do entrepreneurs start and finance new ventures?

3. Chapter 6 Learning Dashboard • Nature of Entrepreneurship • Who are the entrepreneurs? • Characteristics of entrepreneurs • Women and minority entrepreneurs • Social entrepreneurship • Entrepreneurship and Small Business • Why and how to get started • Web-based business models • Family businesses • Why small businesses fail • Small business development

4. Chapter 6 Learning Dashboard • New Venture Creation • Life cycles of entrepreneurial firms • Writing the business plan • Choosing the form of ownership • Financing the new venture

5. Takeaway 1: Nature of Entrepreneurship Entrepreneurship • Risk-taking behavior that results in new opportunities Classic entrepreneur • Pursues opportunities others view as problems Serial entrepreneur • Starts and runs business and nonprofits over and over again First-mover advantage • First to exploit a niche or enter a market

6. Takeaway 1: Nature of Entrepreneurship Intrapreneurs • Display entrepreneurial behavior as employees of larger firms

7. Takeaway 1: Nature of Entrepreneurship

8. Takeaway 1: Nature of Entrepreneurship • Women and minority entrepreneurs are growing in numbers • Necessity-based entrepreneurship • People start a business because no other employment opportunities exist

9. Takeaway 1: Nature of Entrepreneurship Social entrepreneurship • Unique form of ethical entrepreneurship that seeks new ways to solve pressing social problems • Social entrepreneurs • Take risks to find new ways to solve pressing social problems such as poverty, literacy, illness,homelessness

10. Takeaway 2: Entrepreneurship and Small Business A small business has fewer than 500 employees

11. Takeaway 2: Entrepreneurship and Small Business Starting a small business • Franchise • One business owner sells to another the right to operate the same business in another location • Business model • Plan for making a profit by generating revenues that are greater than costs • Startup • New and temporary venture that is trying to establish a profitable business model • Lean startups • Use open source software and free web services to contain costs while staying small and keeping operations simple

12. Takeaway 2: Entrepreneurship and Small Business Types of web-based business models

13. Takeaway 2: Entrepreneurship and Small Business Family owned businesses • Account for 78% of new jobs created in the U.S. • Provide 60% of the nation’s employment • Feuds result when family members disagree over how the business is run • Possible succession problems • Who will run the business when the current head leaves? • Succession plan outlines leadership transition and financial matters

14. Takeaway 2: Entrepreneurship and Small Business Why small businesses fail • SBA reports that as many as 60 to 80% of new businesses fail in first five years • Reasons why small businesses fail - Lack of experience - Lack of expertise - Lack of commitment - Growing too fast - Lack of strategy - Lack of strategic leadership - Ethical failure - Poor financial control

15. Takeaway 2: Entrepreneurship and Small Business Small business development • Business incubator • Offers space, shared services and advice to get small businesses started • Small Business Development Centers • Founded with U.S. Small Business Administration to provide advice to new and existing small businesses

16. Takeaway 3: New Venture Creation Life cycles of entrepreneurial firms

17. Takeaway 3: New Venture Creation Business plan • Describes the direction for a new business and the financing needed to operate it • Banks want to see a well-developed business plan before loaning money

18. Takeaway 3: New Venture Creation Sample Business Plan Outline: • Executive Summary • Industry Analysis • Company description • Products and services description • Market description • Marketing Strategy • Operations description • Staffing description • Financial projections • Capital needs • Milestones

19. Takeaway 3: New Venture Creation Forms of ownership • Sole Proprietorship • An individual or married couple pursuing business for a profit. This does not involve incorporation.

20. Takeaway 3: New Venture Creation Forms of ownership • Partnership • Two or more people agree to contribute resources to start and operate a business together

21. Takeaway 3: New Venture Creation Forms of ownership • Corporation • A legal entity that exists separately from its owners • Limited Liability Corporation (LLC) • A combination of sole proprietorship, partnership, and corporation • Protects owners against personal loss other than what is invested in the company • Treated as a proprietorship or partnership for tax purposes

22. Takeaway 3: New Venture Creation Financing • Debt Financing • involves borrowing money from another person, a bank, or a financial institution • Equity Financing • involves exchanging ownership shares for outside investment monies • Venture Capitalists • Involves making large investments in new ventures in return for an equity stake in the business

23. Takeaway 3: New Venture Creation Financing • Angel Investor • A wealthy individual willing to invest in return for equity in a new venture • Initial Public Offering (IPO) • An initial selling of shares of stock to the public at large