Chapter 06 Entrepreneurship and Starting a Small Business McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc All rights reserved WHAT is ENTREPRENEURSHIP? • Entrepreneurship Accepting the risk of starting and running a business 6-2 YOU’RE NEVER TOO YOUNG to be an ENTREPRENEUR Five 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 of your alma mater for resources Source: Entrepreneurship, April 2010 6-4 YOU’RE NEVER TOO OLD to be an ENTREPRENEUR EITHER! • The highest rate of entrepreneurship activity is in the 5564 age group! • Since 1996, older Americans have opened businesses at a higher rate than 2034 year olds • Older entrepreneurs have greater experience and more financial resources Source: U.S News and World Report, October 2010 6-5 WHY TAKE the RISK? • Opportunity • Profit • Independence • Challenge 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 YOU’RE NEVER TOO YOUNG to be an ENTREPRENEUR • Leanna Archer – At 12 years old, she has her own hair care line • Alexis Holmes – Started baking for a fundraiser, now the 16yearold owns her own bakery • Jack Short & Daniel Lyons – The two medical students started Factory Green, a carbon neutral apparel company, as undergrads • Mark Zuckerberg – Launched Facebook as a Harvard freshman 6-8 Who Starts New Businesses? AGE AT STARTUP McGraw-Hill/Irwin 18 24 8% 25 34 71% 35 44 13% 45 54 6% 55+ 2% Copyright © 2010 by the McGraw-Hill Companies, Inc All rights reserved WHAT DOES IT TAKE to be an ENTREPRENEUR? • Selfdirected • Selfnurturing • Actionoriented • Highly energetic • Tolerant of uncertainty 6-10 FIVE STEPS to STARTING YOUR BUSINESS in SCHOOL Find a problem or need Zero in on specifics Do research on campus, test products with students Move forward with your ideas. Don’t wait! Sacrifice Source: Entrepreneur, May 2010 6-11 SOURCES of CAPITAL • 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 6-41 A FAMILY AFFAIR What to Consider Before Starting a Family Business • 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 LongTerm Intentions – Discuss how long everyone will work full time and goals for the business • Have an Escape Hatch – Have a Plan B Source: Business Week Small Biz, www.businessweek.com, February/March, 2008 6-42 SOCIAL LENDING (Social Media in Business) • Kickstarter and Lending Club connect loan seekers to potential lenders • 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 6-45 The MARKET • Market Consumers with unsatisfied wants and needs who have both resources and willingness to buy. (MAD) • 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 6-46 MARKETING RESEARCH • 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 6-47 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 6-48 ACCOUNTING ASSISTANCE • 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 6-49 LEGAL HELP • Owners need outside consulting advice early in the process • Small and mediumsized firms cannot afford to hire experts as employees • A competent attorney can help with: - Leases Contracts Partnership agreements Protection against liabilities 6-50 OTHER FORMS OF 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 6-51 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 • Program judges worthiness on belief of the borrower’s integrity and soundness of their business ideas 6-52 The SMALL BUSINESS INVESTMENT COMPANY • Small Business Investment Company (SBIC) A program through which private investment companies licensed by the SBA lend money to small businesses • SBICs are able to identify a business’s trouble spots early, giving entrepreneurs advice, and in some cases rescheduling loan payments 6-53 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 MORE SOURCES OF HELP • Service Corps of Retired Executives - More than 10,500 volunteers from industry, trade associations, and education who counsel small business at no cost 6-55 Small Business Resources •www.sba.gov •www.entrepreneur.com 6-56 SMALL BUSINESS PROSPECTS ABROAD • Small and mediumsized 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 6-57 ... 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 ... Jack Short & Daniel Lyons – The two medical students started Factory Green, a carbon neutral apparel company, as undergrads • Mark Zuckerberg – Launched Facebook as a Harvard freshman 6-8 Who Starts New Businesses?... reserved SMALL BUSINESSES • 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