* * * ** CHAPTER * Entrepreneurship and Starting a Small Business Nickels * McHugh McGraw-Hill/Irwin Understanding Business, 8e * McHugh 1-1 6-1 © 2008 The McGraw-Hill Companies, Inc., All Rights * * * Guess Which Company? • He was selling baking soda & decided to entice customers by putting in two packages of chewing gum with each sale The excitement over the gum started him thinking • Two Seattle teenagers pooled their money & came up with $100 They started delivering messages & parcels for local merchants • Though he didn’t graduate from college, he found out college students eat a lot of pizza He started his first pizzeria with $900 near a campus with a promise of 3-minute delivery 6-2 * * * Entrepreneurship • Definition • Why take the entrepreneurial challenge? • Opportunity • Profit • Independence • Challenge 6-3 * * * Who Starts New Businesses? AGE AT STARTUP- 24 18 8% 25 - 34 35 - 44 45 - 54 55+ 71% 13% 6% 2% 6-4 * * * Entrepreneurial Attributes • Self-Directed & SelfDisciplined • • • • Self-Nurturing Action-Oriented Highly Energetic Tolerant of Uncertainty 6-5 * * * Entrepreneurship • Entrepreneurial Teams • Micropreneurs and Home-Based Businesses • Web-Based Businesses • Intrapreneurs 6-6 * * * Reasons for Growth of Home-Based Businesses • Technology • Downsizing • Attitudes • Tax Advantages 6-7 * * * Home-Based Business Focus Challenges • • • • • New Customers Time Management Work vs Family City Ordinances Risk • • • • • Find Opportunity Results vs Routine Profit vs Paycheck New Ideas Long Term vs Short Term 6-8 * * * Most Common Types of Home-Based Businesses Source: Independent Insurance Agents of America 6-9 * * * Government & Entrepreneurship • Immigration Act of 1990Investor Visa • Enterprise Zones • Incubators 6-10 * * * U.S Small Businesses • • 20 Million Full/Part-time Businesses • Jobs • Account for More Than 50% of Gross Domestic Product (GDP) • • 80% of Americans 1st job is in small business 75% of new jobs are created by small businesses Minority-owned Businesses Growing Rapidly 6-14 * * * Business Ownership by Gender Source: USA Today 6-15 * * * Female Owners’ Top Industries SOURCE: USA Today 6-16 * * * 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 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 6-17 * * * Small Business – Situations for Success • Personal attention • Unattractive neighborhood • Products not easily made by mass • Franchising production • Paying attention to new competitors • Sales are not large enough for a large • The business is in a firm growth industry 6-18 * * * Learning about Small Business Operations • Learn from Others • Get Experience • Take Over a Successful Firm 6-19 * * * Where Did They Start? Hallmark YMCA room WilliamsSonoma Abandoned Hardware Store Estee Lauder Vacant Former Restaurant Walt Disney Created Mickey in a Garage Source: World Features Syndicate 6-20 * * * 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) Source: World Features Syndicate 6-21 * * * Managing a Small Business • • Business Plan Adequate Funding • Professional Advice/Help • • • Know Your Customer Manage Human Resources Keep Good Records • • • Lenders/Investors “Angels” Venture Capitalists • • • • SBA and SBIC Program Lawyers, Loan Officers, Insurance Agents SCORE Local College/universities 6-22 * * * 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 6-23 * * * Small Business Collaborators • Small Business Administration (SBA) • Microloan program • SBICs • SBDCs • Service Corps of Retired Executives (SCORE) 6-24 * * * Small Business Strategies • • Examine Marketing & ID Areas for Growth • • Invest in Sales Training & Technology • Streamline Business & Eliminate Waste Profile Best Customers & Market to Similar Prospects Refresh Business Perspective With Outside Views 6-25 * * * Saving a Business In Trouble • React/Not • Be a Visible, • Understand • Remind Overreact Financial Situation • Find Professional Help • Develop “Recovery Plan” Confident Leader • Employees of Stake in Business Don’t Get Stung By Killer “Bankruptcy” 6-26 * * * Small Business & International Prospects Positives World Market Absorb Excess Inventory Soften U.S Downturns Extend Product Life Negatives Financing Difficult How to Get Started? Lack of Cultural Understanding Paperwork 6-27 * * * International Small Business Advantages Information • Deal With Individuals • • Dept of Commercewww.bxa.doc.gov Begin Shipping Orders Faster • • • Variety of Suppliers SBA- Internationalwww.sba.gov/hotlist/ internat.html Professional Service with Undivided Attention 6-28 ... is in small business 75% of new jobs are created by small businesses Minority-owned Businesses Growing Rapidly 6-14 * * * Business Ownership by Gender Source: USA Today 6-15 * * * Female Owners’... Home-Based Businesses • Web-Based Businesses • Intrapreneurs 6-6 * * * Reasons for Growth of Home-Based Businesses • Technology • Downsizing • Attitudes • Tax Advantages 6-7 * * * Home-Based Business. .. * * * U.S Small Businesses • • 20 Million Full/Part-time Businesses • Jobs • Account for More Than 50% of Gross Domestic Product (GDP) • • 80% of Americans 1st job is in small business 75% of