6-1Becoming an Entrepreneur

1
Entrepreneurship and Small Business Management
CHAPTER 6

• 6-1 Becoming an Entrepreneur
• 6-2 Small Business Basics
• 6-3 Starting a Small Business

2
Becoming an Entrepreneur
6-1

• Goals
• Identify characteristics of successful
  entrepreneurs.
• Recognize the importance of entrepreneurship in
  the economy.
• Describe opportunities and risks of
  entrepreneurship.

3
Key Terms

• Entrepreneur someone who takes a risk in
  starting a business to earn a profit
• Entrepreneurship process of starting,
  organizing, managing, and assuming the
  responsibility for a business
• Venture capital money provided by large
  investors to finance new products and new
  businesses that have a good chance to be very
  profitable.
• Innovation an invention or creation that is
  brand new
• Improvement a design change that increases the
  usefulness of a product, service, or process.

4
CHARACTERISTICS OF ENTREPRENEURS

• Desire to be your own boss
• Special skills and abilities

5
ENTREPRENEURS IN ACTION

• Pankaj Arora
• Rich Stachowski
• Jeffrey Rodriguez and John Serrano
• Abbey Fleck

6
WHAT DOES IT TAKE?
Entrepreneurs are more

• persistent
• inquisitive
• energetic
• goal oriented
• independent

• self-confident
• creative
• reliable
• competitive

7
WHAT DOES IT TAKE?
(continued)
Entrepreneurs have

• problem-solving skills
• tolerance for ambiguity
• strong integrity
• personal initiative
• ability to secure resources
• capability to learn from failure
• willingness to work hard

8
Checkpoint gtgt

• What personal characteristic are common to most
  successful entrepreneurs?

• Answer
• Any characteristics listed in Figure 6-1 are
  acceptable, such as persistence, inquisitiveness,
  self-confidence, creativity, and so forth.

9
ENTREPRENEURSHIP AND THE ECONOMY

• Employment-
• Small businesses are responsible for most new
  employment. (Over 60 of new jobs were created by
  businesses with fewer than 500 employees.)
• Financing
• Most money to needed to start a new business
  comes from the entrepreneur and his/her friends
  and family.
• Venture capital
• Productivity
• New and small businesses produce a large volume
  of goods and services (over 600 billion in sales
  annually).

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Employment Growth by Business Size
Source U.S. Bureau of Labor Statistics
11
Checkpoint gtgt

• What are the sources of financing that
  entrepreneurs use for their new businesses?

• Answer
• personal savings
• friends and family
• venture capital
• bank loans

12
OPPORTUNITIES

• Innovation invention or creation of something
  new
• Innovation vs invention
• http//wistechnology.com/articles/4184/
• Innovation vs improvement
• http//www.creativityincubator.com/showModule.php?
  category10module63
• Innovation Life Cycle
• http//www.creativityincubator.com/showModule.php?
  category10module55
• Improvement design change that can increase the
  usefulness of a product, service, or process

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RISKS
Recognizing risks

• Lack of adequate capital
• Low sales
• Higher than expected expenses
• Competitive pressure
• An owner unprepared to manage a growing business
• Operations requiring more time than the owner is
  willing to commit

14
Checkpoint gtgt

• Where do entrepreneurship opportunities begin?

• Answer
• Opportunities begin with innovations (ideas about
  new products and services) or improvements (ideas
  for changes to existing products, services, or
  processes).

15
Small Business Basics
6-2

• Goals
• Identify important characteristics of small
  businesses.
• Recognize the competitive advantages of small
  businesses.
• Identify problems faced by many small businesses.

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Key Terms

• small business
• Small Business Administration (SBA)

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SMALL BUSINESS OWNERSHIP

• Description of a small business
• Owner is usually the manager
• Operates in one or very few locations
• Typically serves a small market
• Not dominant in its field
• Small business employment
• Ownership diversity

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COMMON TYPES OF SMALL BUSINESSES
Common Types of Small Businesses
Source Small Business Administration and U.S.
Census Bureau
19
Checkpoint gtgt

• What percentage of employees in the United States
  work for small businesses?

• Answer
• Nearly 50 percent of the American workforce is
  employed by small businesses.
• Small businesses are also responsible for 6080
  percent of all new jobs.

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SMALL BUSINESS ADVANTAGES

• Meeting customer needs
• Providing unique services

21
Checkpoint gtgt

• How can small businesses compete successfully
  with larger businesses?

• Answer
• Smaller businesses are able to provide more
  personalized products and services to their
  customers.
• They are able to provide products and services
  where smaller orders and projects are required
  and tend to fill unique customer needs, which
  larger companies do not provide.

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COMMON REASONS FOR SMALL BUSINESS FAILURE

• Not keeping adequate records
• Not having enough start-up money
• Lack of management experience
• Lack of experience with the type of business
• Not controlling operating expenses
• Poor location for the business
• Failure to manage credit offered to customers
• http//www.businessknowhow.com/startup/business-fa
  ilure.htm
• http//www.businesspundit.com/the-25-worst-busines
  s-failures-in-history/

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SMALL BUSINESS ASSISTANCE

• Faculties of universities and colleges
• Local groups of business people
• Small Business Administration (SBA)
• SCORE http//www.score.org/small_biz_stats.html
• Small Business Failure Example Kell on Earth
  http//www.currentmom.com/currentmom/2010/02/kell-
  on-earth-teaches-about-small-business-failure.html
  

24
Checkpointgtgt

• List common reasons for small business failure.

• Answer
• not keeping adequate records
• insufficient start-up money
• lack of management experience
• lack of experience with the type of business
• not controlling operating expenses
• poor location
• failure to manage credit

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Starting a Small Business
6-3

• Goals
• Recognize important factors to be considered when
  starting a business.
• Describe the elements of a business plan.
• Identify types and sources of financing for a
  small business.

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Key Terms

• business plan
• start-up financing
• short-term financing
• long-term financing

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THE BUSINESS DECISION

• An idea plus experience hobbies, interests, and
  business experiences
• Right place and time location should attract a
  large number of people who are interested in the
  products and should be in a safe and pleasant
  area (Work as a Team, p 139)
• Team approach employees feel valued and
  motivated to take personal responsibility for the
  benefit of the business.
• Preparation and research gather enough info to
  make decisions (info on customers, competitors,
  operations, govt regulations, etc.)

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Checkpoint gtgt

• Why is it important to use a team approach when
  starting a new business?

• Answer
• A team approach allows employees to feel valued
  and motivated to take personal responsibility for
  the benefit of the business.
• Owners cannot expect to be able to do everything
  alone. Building a team will allow the business to
  increase productivity and, ultimately, profits.

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WHAT IS A BUSINESS PLAN?

• A business plan is a written description of the
  business idea and how it will be carried out,
  including all major business activities.
• www.sba.gov

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ELEMENTS OF A BUSINESS PLAN

• Description of the Business
• The business idea
• Major products and services
• Ownership structure
• Strengths/weaknesses
• Long- and short-term goals

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ELEMENTS OF A BUSINESS PLAN
(continued)

• Description of Competition
• Characteristics of the industry
• Condition of the economy
• Strengths and weaknesses of major competitors

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ELEMENTS OF A BUSINESS PLAN
(continued)

• Customer Analysis
• Description of customers
• Location, number, and resources of customers
• Sales forecasts

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ELEMENTS OF A BUSINESS PLAN
(continued)

• Operations Plan
• Organization of the company
• Description of major operations
• Analysis of resources needed
• Human resource plans

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ELEMENTS OF A BUSINESS PLAN
(continued)

• Marketing Plan
• Description of major marketing activities
• Description of resources needed
• Schedule of marketing activities

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ELEMENTS OF A BUSINESS PLAN
(continued)

• Financial Plans
• Start-up costs
• Short- and long-term financial needs
• Sources of financing
• Budgets and financial statements

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STEPS IN DEVELOPING THE BUSINESS PLAN

• Gather and review information
• Develop the strategic alternatives
• Write the plan
• Ask an expert to review the plan

37
Checkpoint gtgt

• What is the strategic alternatives in a
  business plan?

• Answer
• Strategic alternatives are alternative plans for
  production, staffing, financing, and so on.
• Even the best business plan cannot predict every
  possible circumstance.
• An alternate plan allows a business to be
  prepared for the unforeseeable.

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FINANCING THE SMALL BUSINESS

• Types of financing
• Start-up financing amt of needed to open
  (building, equipment, inventory, supplies,
  licenses, etc)
• Short-term financing pays for current operating
  activities (less than a year)
• Long-term financing funds main resources that
  will last for years (land, building, equipment)
• Sources of financing
• Owner-supplied funds
• Borrowed funds

39
Checkpoint gtgt

• In addition to owner-supplied capital, what are
  several other sources of financing for a small
  business?

• Answer
• Borrowed money may come from banks, finance
  companies, or other individuals, such as friends
  and family.
• Some suppliers may also be willing to extend
  credit.