*

Chapter Six

Entrepreneurship
and Starting a
Small Business

McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
 *
SHEILA C. JOHNSON Profile
Black Entertainment Television (BET)

• First African-American woman

*
to become a billionaire and first
to own 3 professional sports
teams.
• BET debuted in 1980.
• Johnson developed many of
the network’s most successful
shows like, Teen Summit.
• Now a part owner in Mistral and
CEO of Salamander Hospitality
.
6-2
 *The Job-Creating
WHAT is ENTREPRENEURSHIP? Power of
Entrepreneurship
in the U.S.
*

• Entrepreneurship -- Accepting the risk of starting

and running a business.

6-3
 *The Job-Creating
NOTABLE ENTREPRENEURS Power of
Entrepreneurship
in the U.S.
*
• French immigrant Élruthère Irènèe du Pont de
Nemours started Du Pont in 1802.

• David McConnell borrowed $500 from a friend to

start Avon.

• George Eastman started Kodak with a $3,000

investment in 1880.

• Jeff Bezos started Amazon.com with investments

from his family and friends.

6-4
 *
YOU’RE NEVER TOO YOUNG
to be an ENTREPRENEUR
(Spotlight on Small Business) *
• Leanna Archer – At 12 years old, she has her own
hair care line.
• Alexis Holmes – Started baking for a fundraiser,
now the 16-year-old owns her own bakery.
• Jack Short & Daniel Lyons – The two medical
students started Factory Green, a carbon neutral
apparel company, as undergrads.
• Mark Zuckerberg – Launched Facebook as a
Harvard freshman.
6-5
 * The Job-Creating
YOU’RE NEVER TOO OLD to be Power of
Entrepreneurship
an ENTREPRENEUR EITHER! in the U.S.
*

Percent Identified as
Age Range
Self-Employed
55 to 59 28%
60 to 65 36%
66 to 70 42%

Source: Entrepreneur, www.entrepreneur.com, March 2009.

6-6
 *
Why People
WHY TAKE the RISK? Take the
Entrepreneurial
Challenge
LG1
*
• Opportunity
• Profit
• Independence
• Challenge

6-7
 *
Why People
WHAT DOES IT TAKE to be an Take the
Entrepreneurial
ENTREPRENEUR? Challenge
LG1
*
• Self-directed
• Self-nurturing
• Action-oriented
• Highly energetic
• Tolerant of uncertainty

6-8
 *Turning Your
An IDEA is a Passion and
Problems into
GOOD OPPORTUNITY IF… Opportunities
LG1
*
• It fills customers’ needs.
• You have the skills and resources to start a business.
• You can sell the product or service at a reasonable
price and still profit.
• You can get your product or
service to customers before
the window of opportunity
closes.
• You can keep the business
going.
6-9
 *
SOCIAL ENTREPRENEURSHIP: THINKING
GREEN
RESPONSIBLE and PROFITABLE LOGO

(Thinking Green) *
• Gary Hirshberg of Stonyfield
Yogurt wanted to run a profitable
business that didn’t hurt the
environment.
• Stonyfield Yogurt is a 100%
organic operation.
• It’s green practices save the
company millions of dollars each
year.
• After just 15 years, Stonyfield
outsells Kraft Foods yogurt.
6-10
 *
Entrepreneurial
ENTREPRENEURIAL TEAMS Teams

LG1
*
• Entrepreneurial team -- A
group of experienced people
from different areas of business
who join to form a managerial
team with the skills to develop,
make and market a new
product.

• An entrepreneurial team
(Steve Jobs, Steve Wozniak
and Mike Markkula) was key
to Apple’s success.
6-11
 *Micropreneurs
MICROPRENEURS and Home-Based
Businesses

LG1
*
• Micropreneur -- Entrepreneurs willing to accept the
risk of starting and managing a business that remains
small, lets them do the work they want to do, and
offers a balanced lifestyle.

• Many micropreneurs are home-based business

owners – writers, consultants, video producers,
architects, bookkeepers, etc.

• Nearly 60% of home-based micropreneurs are

men.
6-12
 *Micropreneurs
HOME-BASED BUSINESS and Home-Based
Businesses
GROWTH LG1
*
• Computer technology has leveled the playing
field.
• Corporate downsizing has led many to venture on
their own.
• Social attitudes have changed.
• New tax laws have loosened restrictions on
deducting expenses for home offices.

6-13
 *
Micropreneurs
BENEFITS of HOME-BASED and Home-Based
Businesses
BUSINESSES LG1
*
• Ability to start your business immediately
• Minimal startup capital needed
• No rent or excessive set-up charges
• Comfortable working conditions
• Reduced wardrobe expenses
• No commuting
• Tax benefits
• Elimination of office politics
• Low risk for trial and error
Source: St. Louis Small Business Monthly, February, 2004.

6-14
 *
Micropreneurs
DOWNSIDES of HOME-BASED and Home-Based
Businesses
BUSINESSES LG1
*
• Difficult to establish work habits
• Limited support system
• Isolation
• Work space may be limited
• Disruption of personal life
• Clients may be uncomfortable coming to your home
• Zoning restrictions
• Success is based 100% on your efforts
Source: St. Louis Small Business Monthly, February, 2004.

6-15
 *
OUTSOURCING YOUR SMALL
BUSINESS
(Reaching Beyond Our Borders) *
• The latest outsourcing trend is using the Internet
to find affordable labor around the world.

• Elance provides small businesses with a hub to

find low-cost contractors.

• Thanks to the inexpensive freelancers, Elance

now has 48,500 clients, up 70% since 2007.

6-16
 *Web-Based
ONLINE BUSINESS Businesses

LG1
*
• Web-based businesses have
more unique products than
most brick and mortar stores.

• Online sales reached $165.9

billion in 2007, 8% of all retail
sales.
• Affiliate Marketing -- An Internet-based marketing
strategy in which a business rewards individuals or
other businesses for each visitor or customer the
affiliate sends to its website.
6-17
 *
INTRAPRENEURS Entrepreneurship
Within Firms

LG1
*
• 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.

6-18
 *
Encouraging
GOVERNMENT and Entrepreneurship:
What Government

ENTREPRENEURSHIP Can Do
LG1
*
• 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.
6-19
 *Progress
PROGRESS ASSESSMENT Assessment

*
• Why are people willing to take the risks of
entrepreneurship?

• What are the advantages of entrepreneurial

teams?

• How do micropreneurs differ from other

entrepreneurs?

• What are some opportunities and risks of web-

based businesses?

6-20
 *Small Versus
SMALL BUSINESSES Big Business

LG2
*
• 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.

6-21
 *Small Versus
SMALL BUSINESS STATISTICS Big Business

LG2
*
• 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.
6-22
 *
ADVANTAGES of SMALL OVER Importance of
Small Business
BIG BUSINESS LG2
*
• More personal customer service.
• The ability to respond quickly to opportunities.

6-23
 *Small Business
BUSINESS FAILURES are LOWER Success &
Failure
THAN the REPORTS BECAUSE… LG2
*
• Owner closing a business to
start another is reported as a
“failure.”
• Changing forms of ownership
is reported as a “failure.”
• Retirement is reported as a
“failure.”

6-24
 *Small Business
THEY DID WHAT? Success &
Famous Business Failures Failure
LG2
*
• Tommy Hilfiger – First store went bankrupt

• Milton Hershey – First confectionary failed

• H.J. Heinz – Company went bankrupt six years after

start
• Walt Disney – First film company
went bankrupt
• Henry Ford – First two car
companies failed
• L.L. Bean – Almost went bankrupt
in first year
Source: World Features Syndicate, 2009.
6-25
 *Learning About
LEARNING ABOUT Small Business
Operations
SMALL BUSINESS LG3
*
• 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.

6-26
 *
GOING DOWN WITH the SHIP
(Making Ethical Decisions)
*
Suppose you worked in a company for two years and
you see signs of it faltering. You and a coworker have
ideas about how to succeed and are considering
quitting to start your own company.
• Should you approach other coworkers about working for your
new venture?
• Will you try to lure your old boss’ customers?
• What are the alternatives?
• What are the consequences?
• What is the most ethical choice?

6-27
 *Managing a
MAJOR BUSINESS FUNCTIONS Small Business

LG4
*
• Planning
• Financing
• Knowing customers
• Managing employees
• Keeping records

6-28
 *
BUSINESS PLANS Begin with
Planning
LG4
*
• 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.

6-29
 *
WRITING a BUSINESS PLAN Writing a
Business Plan
LG4
*
• A good plan takes a long time to prepare.
• A good executive summary catches interest and
tempts potential investors to read on.
• Getting the plan into
the right hands is
almost as important
as getting the right
information in it.

6-30
 *
A FAMILY AFFAIR Writing a
Business Plan
What to Consider Before Starting a Family Business
LG4
*
• 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.
Source: Business Week Small Biz, www.businessweek.com, February/March, 2008.

6-31
 *Getting Money
SOURCES of CAPITAL to Fund a Small
Business
LG4
*
• 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.
6-32
 *Getting Money
ANGELS ABOVE to Fund a Small
Industry Sectors Favored by Angel Investors Business
LG4
*

Source: CFO Magazine, www.cfo.com, September 2008.

6-33
 *The Small
The SMALL BUSINESS Business
Administration
ADMINISTRATION LG4
*
• 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.
6-34
 *The Small
The SMALL BUSINESS Business
Administration
INVESTMENT COMPANY LG4
*
• 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.
6-35
 *The Small
SMALL BUSINESS Business
Administration
DEVELOPMENT CENTERS LG4
*
• 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.

6-36
 *
The MARKET Knowing Your
Customers

LG4
*
• 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.

6-37
 *Managing
MANAGING EMPLOYEES Employees

LG4
*
• 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.

6-38
 *
ACCOUNTING ASSISTANCE Keeping Records

LG4
*
• 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.
6-39
 *
LEGAL HELP Looking for Help

LG4
*
• 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

6-40
 *
MARKETING RESEARCH Looking for Help

LG4
*
• 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.

6-41
 *
OTHER FORMS OF HELP Looking for Help

LG4
*

6-42
 *Progress
PROGRESS ASSESSMENT Assessment

• Can you describe at least five sections of a

business plan?

6-43
 * Going
SMALL BUSINESS PROSPECTS International:
Small Business
ABROAD Prospects
LG5
*
• Small and medium-sized businesses accounted
for 99% of recent export growth.

• Advantages of global trade for small businesses:

- Overseas buyers enjoy dealing with individuals.
- Small companies can usually begin shipping
much faster.
- They provide a wide variety of suppliers.
- They can give more personal service and
attention.
6-44
 *Progress
PROGRESS ASSESSMENT Assessment

*
• Why do many small businesses avoid doing
business overseas?

• What are some of the advantages small

businesses have over large businesses in selling
in global markets?

6-45