*

*
*
**
Entrepreneurship
*

CHAPTER
and Starting
a Small
Business
6
Nickels
* McHugh
* McHugh

1-1
McGraw-Hill/Irwin
Understanding Business, 8e
6-1
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
*
* Entrepreneurship
*
• What’s an entrepreneur?
• Why take the entrepreneurial
challenge?

6-2
*
* Why take the Challenge?
*
• Opportunity
• Profit
• Independence
• Challenge

6-3
*
*
Who Starts
* New Businesses?
AGE AT START-UP
18 - 24 8%
25 - 34 71%
35 - 44 13%
45 - 54 6%
55+ 2%
6-4
*
* Entrepreneurial Attributes
*
• Self-Directed & Self-
Disciplined
• 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
* *
* FRANCHISING Franchises

* LG5
*
• Franchise Agreement -- An arrangement whereby
someone with a good idea for a business
(franchisor) sells the rights to use the business
name and sell a product or service (franchise) to
others (franchisees) in a given territory.

• More than 900,000 franchised businesses

operate in the U.S., employing approximately 10
million people.

5-7
* *Advantages &
* ADVANTAGES of FRANCHISING Disadvantages
of Franchises
* LG5
*
• Management and marketing
assistance
• Personal ownership
• Nationally recognized name
• Financial advice and
assistance
• Lower failure rate

5-8
* *Advantages &
* DISADVANTAGES of Disadvantages
of Franchises
* FRANCHISING LG5
*
• Large start-up costs
• Shared profit
• Management regulation
• Coattail effects
• Restrictions on selling
• Fraudulent franchisors

5-9
*
* Reasons for Growth of
* Home-Based Businesses

• Technology
• Downsizing
• Attitudes
• Tax Advantages
6-10
*
* Home-Based Business
*

Challenges Focus
• New Customers • Find Opportunity
• Results vs. Routine
• Time Management
• Profit vs. Paycheck
• Work vs. Family
• New Ideas
• City Ordinances • Long Term vs. Short
Term
• Risk

6-11
*
*
Most Common Types of
* Home-Based Businesses

Financial &
Sales & Real Estate
Distribution 5%
10%

Arts/Design
Creative Bldg. Trades
13% 31%

Personal Bus.
Services
Svcs.
27%
14%
Source: Independent Insurance Agents of America

6-12
*
* What is Small Business?
*
• Independently Owned

• Not Dominant in Its Field

• Meet Certain Standards of

Size (Employees, Annual
Receipts)

6-13
* *
* SMALL BUSINESS STATISTICS Small Versus
Big Business
* • There are 26.8 million small businesses in the
LG2
*
U.S.
• Of all nonfarm business in the U.S., almost 97%
are considered small.
• Small businesses account for over 50% of the
GDP.
• Small businesses generate 60-80% of new jobs.
• About 80% of U.S. workers first jobs were in
small business.
• 75% of new jobs are created by small
businesses.
6-14 6-14
 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 do 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
6-15
*
* Small Business –
* Situations for Success
• Personal attention • Unattractive
• Products not easily neighborhood
mass produced • Franchising
(http://www.ebay.com/sch/i.html?_trksid=p5197.m
570.l1311.R1&_nkw=dog+steps&_sacat=0&_from=
R40)
• Paying attention to
• Sales are not large new competitors
enough for a large • The business is in a
firm growth industry

6-16
*
* Where Did They Start?
*
Hallmark YMCA room

Williams- Abandoned Hardware Store

Sonoma
Estee Lauder Vacant Former Restaurant

Walt Disney Created Mickey in a Garage

Source: World Features Syndicate

6-17
*
* Early Sales of
* Well-Known Companies
Johnson & $3,000 Worth of Band-Aids 1st Year
Johnson
Cyrus Sold No Reapers 1st 10 Years
McCormick
Subway 312 Sandwiches 1st Day
Burton’s Sold One 1st Year
Snowboards
Bose Sold 40 Speakers 1st Year (today #1
in market)
Source: World Features Syndicate
6-18
* Managing a Small Business
* http://www.rhsmith.umd.edu/i
ndex.aspx
*
• Business Plan
• Adequate Funding
• Lenders/Investors
• “Angels”
• Venture Capitalists
• Professional Advice/Help
• SBA and SBIC Program
• Lawyers, Loan Officers, Insurance Agents
• SCORE
• Local College/universities (http://www.rhsmith.umd.edu/dingman/)
• Know Your Customer
• Manage Human Resources
• Keep Good Records

6-19
*
*
Reasons for a
* Banker To Say “No”
• I don’t know • Your numbers
enough about don’t support the
you or your loan request.
business.
• Your collateral is
• You haven’t lacking.
clearly stated why
you need the • Your business
money. does not support
the loan on its
own merits.

6-20
*
* Small Business Strategies
*
• Examine Marketing & ID Areas for Growth
• Profile Best Customers & Market to Similar
Prospects
• Invest in Sales Training & Technology
• Refresh Business Perspective With
Outside Views
• Streamline Business & Eliminate Waste

6-21