Understanding business 11th by mchugh nickels chap006

CHAPTER Entrepreneurship and Starting a Small Business McGraw-Hill/Irwin Copyright © 2015 by the McGraw-Hill Companies, Inc All rights reserved LEARNING OBJECTIVES Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home- and web-based businesses Discuss the importance of small business to the American economy and summarize the major causes of small-business failure 6-2 LEARNING OBJECTIVES Summarize the ways to learn about how small businesses operate Analyze what it takes to start and run a small business Outline the advantages and disadvantages small businesses have in entering global markets 6-3 PRUDENCIO UNANUE Goya Foods • Goya Foods has provided for Hispanic families for over 75 years • Unanue, a Spanish immigrant, opened a small grocery store in 1936 • Still family-owned, Goya now employs over 3,500 and sells more than 1,500 products 6-4 NAME that COMPANY While I was an employee at a big company, I developed a product that has become a staple on most office supply lists I needed something to mark the pages of a hymnal without falling out or damaging the book What started as a simple, yellow piece of paper with a new adhesive evolved into many different versions – now there are Super Sticky, recycled, Pop-Up and electronic versions of my inventions Who am I, who did I work for, and what did I invent? 6-5 WHAT is ENTREPRENEURSHIP? • Entrepreneurship -Accepting the risk of starting and running a business 6-6 NOTABLE ENTREPRENEURS • French immigrant Élruthère Irènèe du Pont de Nemours started Du Pont in 1802 • David McConnell borrowed $500 from a friend to start Avon • George Eastman started Kodak with a $3,000 investment in 1880 • Jeff Bezos started Amazon.com with investments from his family and friends 6-7 EARNING while LEARNING • Jeremy Young – Developed a prepaid laundry service for students at his university • Jessica Mah – Started InternshipIn that helps students find high-quality internships • Zach Workman – Launched Punch, an all-natural energy drink • John Goscha – Created her one-of-a-kind jewelery company, Tramonti, during her freshman year 6-8 YOU’RE NEVER TOO YOUNG to be an ENTREPRENEUR Four reasons to start your business right away: 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 your alma mater for resources Source: Entrepreneur, www.entrepreneur.com, accessed November 2014 6-9 YOU’RE NEVER TOO OLD to be an ENTREPRENEUR EITHER! • The highest rate of entrepreneurship activity is in the 55-64 age group! • Since 1996, older Americans have opened businesses at a higher rate than 20-34 year olds • Older entrepreneurs have greater experience and more financial resources Source: U.S News and World Report, www.usnews.com, accessed October 2014 6-10 The SMALL BUSINESS ADMINISTRATION LO 6-4 • 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 based on the borrowers’ integrity and soundness of their business ideas 6-46 The SMALL BUSINESS INVESTMENT COMPANY LO 6-4 • 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 6-47 SMALL BUSINESS DEVELOPMENT CENTERS LO 6-4 • 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 6-48 HELP PLEASE! LO 6-4 More SBA Resources and Other Helpful Groups • Small Business Investment Companies • The Office of Innovation & Entrepreneurship • SCORE • Entrepreneurship.org 6-49 KNOWING the MARKET LO 6-4 • 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 6-50 BEYOND KNOWING WHAT YOUR CUSTOMERS NEED • Quirky allows customers to take part in designing products • Anyone in the community can take part in design, style, naming, packaging, and pricing • Products are sold through the site and can even be found in brick and mortar stores 6-51 MANAGING EMPLOYEES LO 6-4 • 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 6-52 ACCOUNTING ASSISTANCE LO 6-4 • 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 6-53 LEGAL HELP LO 6-4 • 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 6-54 MARKETING RESEARCH LO 6-4 • 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 6-55 OTHER FORMS OF HELP LO 6-4 6-56 WHAT WENT WRONG? LO 6-4 Five Mistakes Business Owners Make They’re too afraid to take the leap! They hire the wrong people They don’t want to give up control They become complacent They fail to see new opportunities Source: Alan Hughes, www.blackenterprise.com, accessed September 2014 6-57 TEST PREP • 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 Can you describe at least five sections of a business plan? 6-58 SMALL BUSINESS PROSPECTS ABROAD LO 6-5 • 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 6-59 TEST PREP • Why many small businesses avoid doing business globally? • What are some of the advantages small businesses have over large businesses in selling in global markets? 6-60 ... ordinances may restrict your business • Homeowner’s insurance may not cover business- related claims 6-19 BENEFITS of HOME-BASED BUSINESSES • Ability to start your business immediately • Minimal... “small” in relation to other businesses in their industries 6-29 SMALL BUSINESS STATISTICS LO 6-2 • There are 28 million small businesses in the U.S • Of all nonfarm businesses in the U.S., almost... intrapreneurs, and home- and web-based businesses Discuss the importance of small business to the American economy and summarize the major causes of small -business failure 6-2 LEARNING OBJECTIVES