Entrepreneurship and Starting a Small Business

1. Chapter 06 * Entrepreneurship and Starting a Small Business

2. The Age of the Entrepreneur WHAT is ENTREPRENEURSHIP? • Entrepreneurship -- Accepting the risk of starting and running a business. 6-2

3. Reasons to start your business right NOW! • Being younger: • You don’t have a mortgage or kids to take care of. You can survive on little funds and work long hours. No disruption to your career path. It hasn’t started yet! Use of your alma mater for resources. • Being older: • Have greater experience and more financial resources. Use of established networking peers and business contacts. You’re NEVER too YOUNG nor too OLD to be an ENTREPRENEUR! 6-3

4. Why People Take the Entrepreneurial Challenge LG1 WHY TAKE the RISK? • Opportunity • Profit • Independence • Challenge 6-4

5. Who Starts New Businesses? AGE AT START-UP 18 - 24 8% 25 - 34 71% 35 - 44 13% 45 - 54 6% 55+ 2% 6-7

6. WHAT DOES IT TAKE to be an ENTREPRENEUR? • Self-directed • Self-nurturing • Action-oriented • Highly energetic • Tolerant of uncertainty 6-8

7. Why People Take the Entrepreneurial Challenge LG1 • Find a problem or need. • Zero in on specifics. • Do research on campus, test products with fellow students. • Move forward with your ideas. Don’t wait! • Sacrifice. FIVE STEPS to STARTING YOUR BUSINESS while in SCHOOL 6-9

8. Turning Your Passion and Problems into Opportunities LG1 • 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. 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. 6-10

9. Entrepreneurial Teams LG1 • 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) were key to Apple’s success. ENTREPRENEURIAL TEAMS 6-11

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

11. Entrepreneurship Within Firms LG1 • 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. INTRAPRENEURS • Art Fry of 3M developed Post-Its when he was trying to mark pages of his hymnal without damaging the pages. 6-13

12. Micropreneurs and Home-Based Businesses LG1 • Computer technology has leveled the playing field. • Corporate downsizing has led many to venture our on their own. HOME-BASED BUSINESS GROWTH • New tax laws have loosened restrictions on deducting expenses for home offices. 6-14

13. Micropreneurs and Home-Based Businesses LG1 • 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 BENEFITS of HOME-BASED BUSINESSES 6-16

14. Micropreneurs and Home-Based Businesses LG1 • 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 • Homeowner’s insurance may not cover business claims – need for Errors and Omissions Insurance DOWNSIDES of HOME-BASED BUSINESSES 6-17

15. Micropreneurs and Home-Based Businesses LG1 THINK YOU’RE READY to WORK from HOME? 6-18

16. Web-Based Businesses LG1 • 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. AFFILIATE MARKETING 6-20

17. Web-Based Businesses LG1 • Establish an identity. • Be easy to find. • Steal good ideas and make them your own. • Look for additional opportunities. BOOSTING YOUR BUSINESS’SONLINE PRESENCE Photo Courtesy of: Marc Wathieu • Remember other forms of marketing. • Be friendly and help others! 6-21

18. Encouraging Entrepreneurship: What Government Can Do LG1 • 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. GOVERNMENT and ENTREPRENEURSHIP 6-22

19. 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 6-23

20. Small Versus Big Business LG2 • Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size. • Businesses are “small” in relation to other businesses in their industries (less employees, less sales, not a franchise, and may only be a single store front). What is a: SMALL BUSINESS 6-25

21. Importance of Small Business LG2 • Personalized Service • Personal Contact • Flexibility • Ability to respond • quickly to • opportunities • Lower Costs ADVANTAGES of SMALL OVER BIG BUSINESS 6-27

22. Limited Experience • Long Hours • Insufficient Capital • High Failure Rate SMALL BUSINESS DISADVANTAGES 6-28

23. 1st Year Hours Worked per Week by Entrepreneurs 1 - 39 hours 8% 40 - 49 hours 15% 50 - 59 hours 23% 60 - 69 hours 28% 70 - 79 hours 13% 80 + hours 12% 6-29

24. Small Business Success & Failure LG2 BUSINESS FAILURES are LOWER THAN REPORTED BECAUSE… • 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.” 6-31

25. Learning About Small Business Operations LG3 • 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. LEARNING ABOUT SMALL BUSINESS 6-33

26. 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’s customers? • What are the alternatives? • What are the consequences? • What is the most ethical choice? GOING DOWN with the SHIP(Making Ethical Decisions) 6-34

27. Managing a Small Business LG4 • Planning • Financing • Knowing customers • Managing employees • Keeping records MAJOR BUSINESS FUNCTIONS 6-35

28. Being with Planning LG4 Successful Business Management RequirementsStarts with a Business Plan • 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. 6-37

29. Writing a Business Plan LG4 • A good plan takes a long time to prepare. • A good Executive Summarycatches interest and tempts potential investors to read on. WRITING the BUSINESS PLAN • Getting the plan into the right hands is almost as important as getting the right information in it. 6-38

30. Getting Money to Fund a Small Business LG4 • Personal savings • Relatives • Former employers • Banks & finance companies • Government agencies • Venture capitalists -- Individuals or companies that invest in new businesses in exchange for partial ownership. • Angel investors SOURCES of CAPITAL 6-39

31. 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. A FAMILY AFFAIRWhat to Consider Before Starting a Family Business 6-40

32. Kickstarter,Lending Cluband Indiegogo connect loan seekers to potential lenders or investors. • Administrators assign interest rates between 6.78% and 24.95% based on credit history, how much money is needed, and what the person is using it for. SOCIAL LENDING & INVESTING(Social Media in Business) 6-43

33. The Small Business Market LG4 • 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 qualityand great service at a fair price. • One of the greatest advantages of a small business is the ability to know the market and to quickly adapt to market needs. The MARKET 6-44

34. Looking for Help LG4 • 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. MARKETING RESEARCH 6-45

35. Managing Employees LG4 • 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. MANAGING EMPLOYEES 6-46

36. Keeping Records LG4 • 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. ACCOUNTING ASSISTANCE 6-47

37. Looking for Help LG4 • Owners need outside consulting advice early in the process. • Small and medium-sized firms cannot afford to hire experts as employees. • A competent attorney can help with: • Leases • Contracts • Partnership agreements • Protection against liabilities LEGAL HELP 6-48

38. Looking for Help LG4 • 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 (SCORE) More than 10,500 volunteers from industry, trade associations, and education who counsel small business at no cost. OTHER FORMS OF HELP 6-49

39. Progress Assessment A business plan is probably the most important document a small business owner will ever create. There are nine sections in the business plan outline on pp. 165-166. • Can you describe at least five sections of a business plan? PROGRESS ASSESSMENT 6-50

40. The Small Business Administration LG4 • 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. • Program judges worthiness on belief of the borrower’s integrity and soundness of their business ideas. The SMALL BUSINESS ADMINISTRATION

41. The Small Business Administration LG4 • 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. • SBICs are able to identify a business’s trouble spots early, giving entrepreneurs advice, and in some cases rescheduling loan payments. The SMALL BUSINESS INVESTMENT COMPANY 6-52

42. The Small Business Administration LG4 • Entrepreneurship.org • Entrepreneurs.com • Founders Card • SCORE • The Office of Innovation & Entrepreneurship • Young Entrepreneur Council • Young Presidents’ Organization • Vistage HELP PLEASE!More SBA Resources and Other Helpful Groups 6-53

43. The Small Business Administration LG4 SMALL BUSINESS DEVELOPMENT CENTERS • Small Business Development Centers (SBDC) are funded jointly by the federal government and individual states. • SBDCs are able to evaluate the feasibility of your idea, develop your business plan and complete your funding application – for no charge. 6-54

44. Going International: Small Business Prospects LG5 • 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. SMALL BUSINESS PROSPECTS ABROAD 6-55

45. Progress Assessment • Why do many small businesses avoid doing business globally? • What are some of the advantages small businesses have over large businesses in selling in global markets? PROGRESS ASSESSMENT 6-56