Lecture 4 - Student Entrepreneurship Small Business Ownership

Entrepreneurship and
Small-Business Ownership
Chapter 6
6-1
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Chapter 6 Objectives
After studying this chapter, you will be able to:
• Highlight the major contributions small
businesses make to the U.S. economy.
• Identify the common traits of successful
entrepreneurs.
• Explain the importance of planning a new
business and outline the key elements in a
business plan.
6-2
Chapter 6 Objectives Cont.
• Identify the major causes of business failures,
and identify sources of advice and support for
struggling business owners.
• Discuss the principle sources of small-business
private financing.
• Explain the advantages and disadvantages of
franchising.
6-3
Economic Roles of
Small Business
• Provide new jobs

• Introduce new products
• Service large companies
• Inject money into the economy
• Take business risks
• Deliver specialty goods and
services
6-4
Provide new jobs
• Small industries employ about half of the private-

sector workforce in this country, and create 75
percent of new jobs and create somewhere
between two-thirds and three-fourths of new
jobs.
1-5
©2007 Prentice Hall
Introduce new products
• The freedom to innovate that is

characteristic of many small firms remains
to yield countless advances in both
technologies and marketable products and
services.
1-6
Service large corporations
• Many small businesses act as distributors,

servicing agents, and sellers to big firms.
• Additionally, government agencies often
reserve a certain percentage of their
buying contracts for small businesses.
1-7
Inject money into the economy
• Small industries pay nearly half the

private-sector payroll in the United States
and produce half the nation’s gross
domestic product.
1-8
Take business risks
• Entrepreneurs play a important role in the

economy as risk takers, the people willing
to try new and not proven thoughts.
1-9
Provide specialty goods and
services
• They provide specialized products and
services. Small companies often spring up
to fill niches that aren’t being served by
existing businesses.
1-10
Characteristics of
Small Businesses
Lifestyle High-Growth
Run by Individuals Run by Teams
Limited Products/Services Multiple Products/Services
Limited Resources Investment Capital
Limited Marketplace Large Marketplace
6-11
Factors Contributing to an
Increase in Small Business
• E-Commerce and other technological advances
• Rising diversity in entrepreneurship
• Corporate downsizing and outsourcing
6-12
E-Commerce and other
technological advances
• E-commerce and other technologies have produced
thousands of new industry ventures in recent years.
1-13
Growing diversity in
entrepreneurship
• Small-business growth is also being fuelled by
women, minorities, immigrants, and young people
who want alternatives to traditional employment.
Example.
1-14
Corporate downsizing and
outsourcing
• Business start-ups often rise when the economy go bad.
During hard times, many businesses downsize or lay off
talented staffs, who then have little to lose by pursuing
self-employment. Outsourcing, the practice of engaging
outside firms to handle either individual projects or whole
business functions, also makes numerous chances for
small industries and entrepreneurs.
• Some businesses subcontract special projects and
secondary business functions to specialists outside the
business; while others turn to outsourcing as a way to
permanently reject whole departments, and some laid-off
employees even become entrepreneurs and sell
services to their former managers.
1-15
The Entrepreneurial Spirit
• The entrepreneurial spirit is the positive,
forward-thinking desire to produce profitable,
sustainable business enterprises.
6-16
Why People Start Businesses
• Want more control over their futures
• Tired of working for someone else
• Have new product ideas

• Pursue business goals important on a
personal level
• Inability to find attractive employment
6-17
Qualities of Successful
Entrepreneurs
• Love what they do, passion to succeed
• Highly disciplined
• Self-confident and optimistic
• Like to control their own destiny
• Relate well with others
6-18
Qualities of Successful
Entrepreneurs Cont.
• Curious and eager to learn
• Learn from their mistakes
• Highly adaptable
• Embrace moderate risks
6-19
Innovation Without Leaving:
Intrapreneurship
• The entrepreneur’s innovative spirit is so compelling that
many large businesses and individuals within
corporations now try to express it through
intrapreneurship, which encourages entrepreneurial
thinking while working for someone else.
• .
6-20
Small Business Ownership
• Start-up
• Buy an existing business
• Franchise
6-21
Start-up
• Starting a new industry from scratch is an exciting—
and exhausting—time in a business owner’s life. It’s
exciting because entrepreneurs and small-business
owners love to roll up their sleeves and get to work,
to make things happen, to create something out of
nothing.
1-22
Buy an existing business
• This approach tends to reduce the risks—provided,
of course, that you check out the business
cautiously. When you buy a vigorous industry, you
generally purchase an established client base,
functioning business systems, a proven good or
service, and a known location.
1-23
Franchise
• The third option, buying a franchise, syndicates many

of the benefits of independent business ownership
with the support that comes with being part of a larger
organization.
1-24
Blueprint for an Effective
Business Plan
Guide operations
Attract lenders
and investors
Provide a
reality check
6-25
The Business Plan
• Summary
• Mission and objectives
6-26
The Business Plan Cont…
• Company overview
• Management
• Target market
• Marketing strategy
6-27
The Business Plan Cont.
• Design and development plans
• Operations plan
• Start-up schedule
6-28
The Business Plan Cont.
• Major risk factors
• Financial projections and requirements
• Exit strategy
6-29
Why Small Businesses Fail -33%
•Management ineffectiveness •Unsuccessful marketing
•Lack of applicable experience •Uncontrolled growth
•Insufficient financing •Inappropriate location
•Poor cash management •Poor inventory control
•Absence of strategic planning •Poor entrepreneurial Expertise
6-30
Sources of Small
Business Assistance
• Government agencies • Advisory boards
• Business partners • Media
• Mentors • Networks
• Business incubators
and accelerators
6-31
Government agencies
• A number of city, state, and federal government
agencies offer industry owners information,
assistance, and even financing in some
circumstances.
• Example.
1-32
Business partners
• The businesses you do business with can also

be a source of guidance and support.
• Examples.
1-33
Mentors
• Many entrepreneurs and industry owners take
advantage of individual mentors and advisory
boards.
1-34
Media
• Websites affiliated with well-known business

magazines such as Inc., Business 2.0, Business
Week, and Small Business Fortune, should be
on every small-business owner’s fixed reading
list.
1-35
Networks
• No matter what business you’re in or what phase

your industry is in, you can perhaps find a local
or line network of people with similar interests.
Some entrepreneurs meet frequently in small
groups to analyse each other’s progress month
by month.
1-36
Business incubators and
accelerators
• A business incubator is a center that provides
“newborn” businesses with just about everything a
company needs to get started.
• A business accelerator is similar to an incubator,

and the terms are often used interchangeably.
1-37
Private Financing Options
For Small Business
Banks and Venture
Micro-lenders Capitalists
Angel Personal
Investors Credit Cards
Small
Business
Administration
6-38
Banks and Micro-lenders
• Bank loans are one of the most significant sources of
financing for small industry —but there’s an important catch:
In most situations, banks won’t lend money to a start-up that
hasn’t established a positive track record.
1-39
Venture capitalists
• Venture capitalists (VCs) are investment specialists
who increase pools of capital from large private and
institutional sources (such as pension funds) to fund
ventures that have high development potential and a
need for large quantities of capital.
1-40
Angel Investors
• Angel investors are willing to invest smaller
quantities than VCs and to stay involved with the
company for a longer period of time. Many of these
investors join angel networks or angel groups that
invest together in chosen businesses.
1-41
Personal Credit Cards
• Funding an industry with credit cards might be the only
choice many people have, but it is tremendously risky.
1-42
Small Business Administration
• To get an Small Business Administration loan,

you apply to a regular bank, which actually
delivers the money.
1-43
Going Public
• Initial Public Offering: A company’s first
offering of shares to the public
6-44
The Franchising Alternative
• Product franchise
• Manufacturing
franchise
• Business-format
franchise
6-45
Pros and Cons of Franchising
Advantages Disadvantages
• Viable business • Must follow format
• Name recognition • Little decision making
• Network of support • Few options for changes
6-46

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Entrepreneurship and

• Provide new jobs

• Small industries employ about half of the private-

• The freedom to innovate that is

• Many small businesses act as distributors,

• Small industries pay nearly half the

• Entrepreneurs play a important role in the

Limited Products/Services Multiple Products/Services

Limited Resources Investment Capital

Limited Marketplace Large Marketplace

• Rising diversity in entrepreneurship

• Corporate downsizing and outsourcing

• Tired of working for someone else

• Have new product ideas

• Buy an existing business

• The third option, buying a franchise, syndicates many

• Mission and objectives

• Financial projections and requirements

•Management ineffectiveness •Unsuccessful marketing

•Lack of applicable experience •Uncontrolled growth

•Insufficient financing •Inappropriate location

•Poor cash management •Poor inventory control

•Absence of strategic planning •Poor entrepreneurial Expertise

• Business partners • Media

• The businesses you do business with can also

• Websites affiliated with well-known business

• No matter what business you’re in or what phase

• A business accelerator is similar to an incubator,

• To get an Small Business Administration loan,

• Name recognition • Little decision making

• Network of support • Few options for changes

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