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*Chapter Six

Entrepreneurship and Starting a

Small Business

McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

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*The Job-Creating Power of Entrepreneurship in the U.S.

• Entrepreneurship -- Accepting the risk of starting and running a business.

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WHY TAKE ON CHALLENGE OF ENTREPRENEURSHIP????I. Oppty “ start bus freely”II. Profit motiveIII. IndependenceIV. Challenge

What does it take to be an entrepreneurI. self directed – you must be disciplinedII. Self nurturing – you must believe in your

idea when others don’t, you must maintain enthusiasm, remain committed

III. Action oriented – build your dream into reality

IV. Highly energetic – you must be physically, emotionally, and mentally ready all the time

V. Tolerant of uncertainty

What if I can’t do it myselfENTREPRENEURAL TEAMS –

a group of experienced people from different areas of business that form a team to develop, make, and market a product

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*Entrepreneurship Within Firms

• 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.

• Art Fry of 3M developed Post-Its when he was trying to mark pages of his hymnal without damage.

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*Encouraging Entrepreneurship: What Government Can Do

• 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.

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*Small Versus Big Business

• Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size.

• Businesses are “small” in relationship to other businesses in their industries.

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*Small Versus Big Business

• There are 26.8 million small businesses in the 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.

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*Importance of Small Business

• More personal customer service.

• The ability to respond quickly to opportunities.

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*Learning About Small Business Operations

• 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.

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*Managing a Small Business

• Planning

• Financing

• Knowing customers

• Managing employees

• Keeping records

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*Begin with Planning

• 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.

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*Writing a Business Plan

• A good plan takes a long time to prepare.

• A good executive summary catches interest and tempts potential investors to read on.

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• Getting the plan into the right hands is almost as important as getting the right information in it.

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Source: Business Week Small Biz, www.businessweek.com, February/March, 2008.

• 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.

Writing a Business Plan

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*Getting Money to Fund a Small Business

• Personal savings

• Relatives

• Former employers

• Banks & finance companies

• Government agencies

• Angel investors

• Venture capitalists -- Individuals or companies that invest in new businesses in exchange for partial ownership.

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*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.

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*The Small Business Administration

• 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.

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*The Small Business Administration

• 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.

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*Knowing Your Customers

• 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.

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*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.

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*Keeping Records

• 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.

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*Looking for Help

• 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

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*Looking for Help

• 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.

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*Looking for Help

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