8/19/2011etc.yorktech.com/bus101/chap006.pdf · 8/19/2011 4 * * • gary hirshberg of stonyfield...
TRANSCRIPT
8/19/2011
1
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*Chapter Six
Entrepreneurship
and Starting a
Small Business
McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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• 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.
ProfileSHEILA C. JOHNSON
Black Entertainment Television (BET)
6-2
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*The Job-Creating
Power of
Entrepreneurship
in the U.S.
• Entrepreneurship -- Accepting the risk of starting
and running a business.
WHAT is ENTREPRENEURSHIP?
6-3
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*The Job-Creating
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.
NOTABLE ENTREPRENEURS
6-4
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• 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.
YOU’RE NEVER TOO YOUNG
to be an ENTREPRENEUR(Spotlight on Small Business)
6-5
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Source: Entrepreneur, http://www.entrepreneur.com, March 2009.
The Job-Creating
Power of
Entrepreneurship
in the U.S.
Age RangePercent Identified as
Self-Employed
55 to 59 28%
60 to 65 36%
66 to 70 42%
YOU’RE NEVER TOO OLD to be
an ENTREPRENEUR EITHER!
6-6
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*Why People
Take the
Entrepreneurial
Challenge
• Opportunity
• Profit
• Independence
• Challenge
LG1
WHY TAKE the RISK?
6-7
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*Why People
Take the
Entrepreneurial
Challenge
• Self-directed
• Self-nurturing
• Action-oriented
• Highly energetic
• Tolerant of uncertainty
LG1
WHAT DOES IT TAKE to be an
ENTREPRENEUR?
6-8
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*Turning Your
Passion and
Problems into
Opportunities
• 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.
LG1
An IDEA is a
GOOD OPPORTUNITY IF…
• You can get your product or
service to customers before
the window of opportunity
closes.
• You can keep the business
going.
6-9
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• 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.
SOCIAL ENTREPRENEURSHIP:
RESPONSIBLE and PROFITABLE(Thinking Green)
6-10
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*Entrepreneurial
Teams
• 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.
LG1
ENTREPRENEURIAL TEAMS
6-11
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* Micropreneur
s and Home-
Based
Businesses
• 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.
LG1
MICROPRENEURS
6-12
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*Micropreneurs
and Home-
Based
Businesses
• 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.
LG1
HOME-BASED BUSINESS
GROWTH
6-13
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Source: St. Louis Small Business Monthly, February, 2004.
• Ability to start your business immediately
• Minimal startup capital needed
• No rent or excessive set-up charges
• Comfortable working conditions
Micropreneurs
and Home-
Based
Businesses
LG1
BENEFITS of HOME-BASED
BUSINESSES
• Reduced wardrobe expenses
• No commuting
• Tax benefits
• Elimination of office politics
• Low risk for trial and error
6-14
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Source: St. Louis Small Business Monthly, February, 2004.
• 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
Micropreneurs
and Home-
Based
Businesses
LG1
DOWNSIDES of HOME-BASED
BUSINESSES
6-15
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• 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.
OUTSOURCING YOUR SMALL
BUSINESS(Reaching Beyond Our Borders)
6-16
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*Web-Based
Businesses
• 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.
LG1
ONLINE BUSINESS
• 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.
6-17
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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.
LG1
INTRAPRENEURS
6-18
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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.
LG1
GOVERNMENT and
ENTREPRENEURSHIP
6-19
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*Progress
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?
PROGRESS ASSESSMENT
6-20
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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.
LG2
SMALL BUSINESSES
6-21
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*Small Versus
Big Business
• There are 25.4 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.
LG2
SMALL BUSINESS STATISTICS
6-22
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*Importance of
Small Business
• More personal customer service.
• The ability to respond quickly to opportunities.
LG2
ADVANTAGES of SMALL OVER
BIG BUSINESS
6-23
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*Small Business
Success &
Failure
• 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.”
LG2
BUSINESS FAILURES are LOWER
THAN the REPORTS BECAUSE…
6-24
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Source: World Features Syndicate, 2009.
• Tommy Hilfiger – First store went bankrupt
• Milton Hershey – First confectionary failed
• H.J. Heinz – Company went bankrupt six years after
start
Small Business
Success &
Failure
LG2
THEY DID WHAT?Famous Business Failures
• Walt Disney – First film company
went bankrupt
• Henry Ford – First two car
companies failed
• L.L. Bean – Almost went bankrupt
in first year
6-25
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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.
LG3
LEARNING ABOUT
SMALL BUSINESS
6-26
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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?
GOING DOWN WITH the SHIP(Making Ethical Decisions)
6-27
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*Managing a
Small Business
• Planning
• Financing
• Knowing customers
• Managing employees
• Keeping records
LG4
MAJOR BUSINESS FUNCTIONS
6-28
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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.
LG4
BUSINESS PLANS
6-29
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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.
LG4
WRITING a BUSINESS PLAN
• Getting the plan into
the right hands is
almost as important
as getting the right
information in it.
6-30
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Source: Bloomberg BusinessWeek, http://www.businessweek.com, accessed September 2010.
• 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
LG4
A FAMILY AFFAIRWhat to Consider Before Starting a Family Business
6-31
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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.
LG4
SOURCES of CAPITAL
6-32
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Source: CFO Magazine, http://www.cfo.com, accessed September 2010.
Getting Money
to Fund a Small
Business
LG4
ANGELS ABOVEIndustry Sectors Favored by Angel Investors
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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.
LG4
The SMALL BUSINESS
ADMINISTRATION
6-34
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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.
LG4
The SMALL BUSINESS
INVESTMENT COMPANY
6-35
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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.
LG4
SMALL BUSINESS
DEVELOPMENT CENTERS
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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.
LG4
The MARKET
6-37
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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.
LG4
MANAGING EMPLOYEES
6-38
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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.
LG4
ACCOUNTING ASSISTANCE
6-39
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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
LG4
LEGAL HELP
6-40
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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.
LG4
MARKETING RESEARCH
6-41
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*Looking for Help
• A commercial loan officer can help:- Design an acceptable business plan.
- Give financial advice.
- Lend money.
• An insurance agent can help you:- Know the risks associated with the business.
- How to cover risks with insurance.
- How to prevent risks with safety devices.
• Service Corps of Retired Executives- More than 10,500 volunteers from industry, trade
associations, and education who counsel small
business at no cost.
LG4
OTHER FORMS OF HELP
6-42
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*Progress
Assessment
• Can you describe at least five sections of a
business plan?
PROGRESS ASSESSMENT
6-43
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*Going
International:
Small Business
Prospects
• 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.
LG5
SMALL BUSINESS PROSPECTS
ABROAD
6-44
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*Progress
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?
PROGRESS ASSESSMENT
6-45