Understanding Entrepreneurship Leonardo Matarrese

Chapter 7

Understanding Entrepreneurship & the Small Business

Leonardo Matarrese @MyPlick

What is a Small Business?

Small Business Administration (SBA)

Federal agency charged with assisting small businesses

Small Business

Independently owned and managed business that does not dominate its market


The Importance of Small Business in the U.S. Economy

Most U.S. businesses employ fewer than 100 people.

Most U.S. workers are employed by small firms.


The Importance of Small Business

7 - 7 - 44

86.0986.09

11.0011.00 2.002.00

0.200.20 0.100.10

Perc

enta

ge o

f All U

.S. B

usin

esse

sPe

rcen

tage

of A

ll U.S

. Bus

ines

ses

Total EmployeesTotal Employees

Under 20

20-99

100-499

500-1000

1000 or more

25.6025.60 29.1029.10 25.5025.50

7.107.10

12.7012.70

Perc

enta

ge o

f All U

.S. W

orke

rsPe

rcen

tage

of A

ll U.S

. Wor

kers

Total EmployeesTotal Employees

Under 20

20-99

100-499

500-1000

1000 or more


The Importance of Small Business in the U.S. Economy

Job Creation

Innovation

Importance to Big Business


Big Business: Jobs Created & Lost

7 - 7 - 66

-181,100-181,100

-116,000-116,000

-92,153-92,153

-86,578-86,578

-86,475-86,475

-21,100-21,100

-16,340-16,340

-3,400-3,400

+639,000+639,000

+100,000+100,000

+45,000+45,000

+36,270+36,270

+29,000+29,000

+22,900+22,900

+21,631+21,631

+12,100+12,100

GainsLosses

General Motors

PepsiCo

IBM

General Mills

Kmart

National Semiconductor

Quaker Oats

General Motors

Wal-Mart

Dayton Hudson

Albertson’s

Circuit City

Barnes & Noble

Dell Computer

ConAgra

America Online


Popular Forms of Small-Business Enterprise

Services Retailing Construction Financial

Insurance Wholesaling Transportation Manufacturing


Small Business by Industry

7 - 7 - 88

Other1.7%

Manufacturing5%

Finance & Insurance10%

Wholesale8%

Transportation5%

Services37.6%

Retailing22.7%

Construction10%


Entrepreneurship

Although the concepts of entrepreneurship and small business are closely related, there are some important, though often subtle, differences between them.


The Distinction Between Entrepreneurship & Small Business

Entrepreneur

Businessperson who accepts both the risks and the opportunities involved in creating and operating a new business venture


Entrepreneurial CharacteristicsMost successful entrepreneurs have characteristics that set them apart from most other business owners—for example:

They are resourceful.

They have a concern for good, often personal, customer relations.

Most successful entrepreneurs also have a strong desire to be their own bosses.

Many express a need to “gain control over my life” or “build for the family” and believe that building successful businesses will help them do it.

They can also handle ambiguity and deal with surprises. Leonardo Matarrese @MyPlick

Success and Failure in Small Business

For every Henry Ford, Walt Disney, Mary Kay Ash, or Bill Gates—people who transformed small businesses into major corporations—there are many small business owners and entrepreneurs who fail.


Trends in Small Business Start-Ups

Thousands of new businesses are started in the United States every year.

The following five factors help account for this trend:

The emergence of e-commerce

Entrepreneurs who cross over from big business

Increased opportunities for minorities and women

New opportunities in global enterprise

Improved rates of survival among small businessesLeonardo Matarrese @MyPlick

Reasons for Failure

Managerial incompetence or inexperience

Neglect Weak control systems Insufficient capital


Reasons for Success

Hard work, drive, and dedication Market demand for the products or

services being provided Luck


Starting & Operating the Small Business

The Internet, of course, is rewriting virtually all of the rules for starting and operating a small business.

Getting into business is easier and faster than ever before, there are many more potential opportunities than at any time in history, and the ability to gather and assimilate information is at an all-time high.


Starting the Small Business

Buy Out an Existing Business? Start from Scratch?

Would-be entrepreneurs must decide how to get into business.

Should they:


When starting from scratch, entrepreneurs must determine: Who are my customers?

Where are they?

At what price will they buy my product?

In what quantities will they buy?

Who are my competitors?

How will my product differ from those of my competitors? Leonardo Matarrese @MyPlick

Where can a small business owner get necessary information?

The best way to gain knowledge about a market is to work in it before going into business in it.

The local Yellow Pages or an Internet search will reveal many potential competitors.

Studying magazines, books, and web sites aimed specifically at small businesses can be helpful.

You can hire professionals to survey the market for.


Financing the Small BusinessCommon sources for funding are:

Family & Friends

Personal Savings

Banks & Similar Lending Institutions

Investors

Governmental Agencies Lending institutions are more likely to help finance the

purchase of an existing business than a new business because the risks are better understood.

Individuals starting up new businesses, on the other hand, are more likely to have to rely on their personal resources.


Other Sources of InvestmentVenture Capital Company

Group of small investors that invest money in companies with rapid growth potential

Small-Business Investment Company (SBIC)

A government-regulated investment company that borrows money from the SBA to invest in or lend to a small business

Minority Enterprise Small-Business Investment Company (MESBIC)

Federally sponsored company that specializes in financing businesses that are owned and operated by minorities


SBA Financial ProgramsGuaranteed Loans Program

Program in which the SBA guarantees to repay 75 to 85 percent of small-business commercial loans up to $750,000

Immediate Participation Loans Program

Program in which small businesses are loaned funds put up jointly by banks and the SBA

Local Development Companies (LDCs) Program

Program in which the SBA works with local for-profit or nonprofit organizations seeking to boost a community’s economy


Sources of Management Advice Advisory Boards Management Consultants Small Business Administration (SBA) Networking


Management Consultant

Independent, outside specialist hired to help managers solve business problems


Small Business AdministrationService Corps of Retired Executives (SCORE)

SBA program in which retired executives work with small businesses on a volunteer basis

Active Corps of Executives (ACE)

SBA program in which currently employed executives work with small businesses on a volunteer basis

Small Business Institute (SBI)

SBA program in which college and university students and instructors work with small-business owners to help solve specific problems

Small Business Development Center (SBDC)

SBA program designed to consolidate information from various disciplines and make it available to small businesses Leonardo Matarrese @MyPlick

Networking

Interactions among businesspeople for the purpose of discussing mutual problems and opportunities and perhaps pooling resources


Franchising

Franchise

Arrangement in which a buyer (franchisee) purchases the right to sell the good or service of the seller (franchiser)

Franchisee

Buyer

Franchiser

Seller or parent company


Advantages & Disadvantages of Franchising

ADVANTAGES Franchiser (parent

company) supplies financial, managerial, & marketing assistance

Franchising enables small businesses to grow rapidly

Franchising risks are lower than those in starting a new business from scratch

DISADVANTAGES High cost of

purchasing a franchise

The franchisee sacrifices independence and creativity

Owning franchises provides no guarantee of success
