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11Small Business:Small Business:

Its Opportunities and Its Opportunities and RewardsRewards

McGraw-Hill/Irwin ©2007 by the McGraw-Hill Companies, Inc. All rights reserved.

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Objectives:Objectives:

• Understand the scope of small business in the U.S.

• Learn the differences between small business and high-

growth ventures

• Discover the rewards entrepreneurs can achieve through

their businesses

• Be able to dispel key myths about small businesses

• Identify actions key to becoming a small business owner

• Understand how small businesses are important to our

economy and your community

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bAaron the CartoonistAaron the Cartoonist

• Aaron McGruderAaron McGruder loved to draw cartoons

• Passionate about becoming professional cartoonist

• Fewer than a dozen African-American cartoonistsFewer than a dozen African-American cartoonists

• Decided to perfect art and business simultaneously

• 1996 – published on “The Hitlist”“The Hitlist” online

• 1997 – published in The DiamondbackThe Diamondback and The SourceThe Source

• 1999 – The BoondocksThe Boondocks begins national syndication

• Income in “six-figure” range in first year, largely due to

retaining rights to his work

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• Small BusinessSmall Business: involves 1-50 people and has its owner managing the business on a day-to-day basis

– Over a millionmillion new businesses per year in U.S.

• EntrepreneurEntrepreneur: a person who owns or starts an organization, such as a business

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• Small Business AdministrationSmall Business Administration: a part of U.S. government which provides support and advocacy for small business

• SBA reports on new business survival ratesnew business survival rates after four years:

– With employeesWith employees: about 2/3 survive

– Owner-onlyOwner-only: about 1/2 survive

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• Small Business Development CenterSmall Business Development Center: offices co-sponsored by states and the federal government that offer free or low-cost help to existing or potential small business

– More than 81%81% of SBDC clients were still in operation after five years

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• IncubatorsIncubators: a facility which offers subsidized space and business advice to companies in their earliest stages of operation

– More than 87%87% of firms receiving help from incubators were still in operation after four years

• Small business knowledgeknowledge means small business

successsuccess!

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Defining a Small Business:Defining a Small Business:

• Small and Medium Enterprise (SME)Small and Medium Enterprise (SME): international term for small businesses

– SmallSmall enterprises: 1-501-50 people

– MediumMedium enterprises: 51-10051-100 people

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• Independent Small BusinessIndependent Small Business: a business owned by an individual or small group

• Owner-managerOwner-manager: individual who owns and runs a business

• Absentee ownerAbsentee owner: profits from business, but not involved in daily activities

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Small Business Owners and Entrepreneurs:Small Business Owners and Entrepreneurs:• Entrepreneurial businesses are characterized by

noveltynovelty in their products, services, or business models

• Small businesses are imitativeimitative, providing only minor variations on an established model

• Self-employedSelf-employed: working for yourself– About 10 million10 million self-employed people in 2005

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Small Business Owners and Entrepreneurs:Small Business Owners and Entrepreneurs:

• EntrepreneurEntrepreneur: anyone who owns a business

• Groups within population of entrepreneurs:

– FoundersFounders: people who create or start new businesses

– FranchiseFranchise: prepackaged business bought, rented, or

leased from a company called a franchisorfranchisor

– BuyersBuyers: people who purchase and existing business

– HeirHeir: person who becomes an owner through

inheriting or being given a stake in a family business

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bChapter 1Chapter 1

Small Business High-Growth Venture

Preferred Funding Source Owner’s Own MoneyOwner’s Own Money Other People’s Other People’s MoneyMoney

When Firm’s In Trouble Cut CostsCut Costs Sell MoreSell More

What’s More Important SalesSales MarketingMarketing

Personal Control Preference

Retain AutonomyRetain Autonomy Involve Key OthersInvolve Key Others

Focus EfficiencyEfficiency EffectivenessEffectiveness

Metastrategy ImitationImitation NoveltyNovelty

Small Business Small Business vs. High-Growth Ventures High-Growth Ventures

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Small Business Small Business vs. High-Growth Ventures High-Growth Ventures (cont.)

Small Business High-Growth Venture

External Control Preference

Control FirmControl Firm Control MarketControl Market

Grow When NecessaryWhen Necessary When PossibleWhen Possible

Human Resources PersonalizePersonalize ProfessionalizeProfessionalize

Acceptance Personal ValidationPersonal Validation External LegitimacyExternal Legitimacy

What Limits Growth Loss of ControlLoss of Control Market ResponseMarket Response

Delegation Orientation DifficultDifficult EssentialEssential

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Rewards for Starting a Small Business:Rewards for Starting a Small Business:

• 3 Key Rewards:

1.1. FlexibilityFlexibility

2.2. Livable incomeLivable income

3.3. Personal growthPersonal growth

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Myths about Small Businesses:Myths about Small Businesses:• There’s not enough financing to start a business.

• Truth:Truth:

– This is predominantly an issue that occurs at the initial start-up

– In a recent survey, financing problems ranked 6666thth and 6969thth on the list

– There are a wide variety of fundraising techniques, including investors, borrowing, and saving

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Myths about Small Businesses:Myths about Small Businesses:• You need to make something (or something high-tech)

to start a business.

• Truth:Truth:

– Growth is in the service industryservice industry.

– 40 million40 million of the 110 million people working in the U.S. in 2001 worked in service industries.

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Myths about Small Businesses:Myths about Small Businesses:• Seventy percent (or 80% or 90%) of all new business

fail within two years.

• Truth:Truth:

– 50%50% of business with employees survive 4 years or more

– 87%87% of incubator-aided businesses survive 5 years or more

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The BRIE ModelThe BRIE Model

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IntentionIntentionThe desire to start a business

BoundaryBoundaryCreating a place for your business –

in location and in people’s minds

ResourcesResourcesThe money, product knowledge, etc,

that make up the business

ExchangeExchangeMoving resources/products/

services in exchange for money

Your Small BusinessYour Small Business

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Small Business and the Economy:Small Business and the Economy:• Small business is vitally important to our communities

and our economy.

1. New jobs

2. Innovations

3. New opportunities

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Small Business and the Economy:Small Business and the Economy:• New JobsNew Jobs: small businesses created 75%75% of the last 3.4

million jobs created

– Small business is the engine of job creation

– Occupational StructureOccupational Structure: the sequence or organization of jobs and careers in the economy

– Small businesses employ more than half of all Americans

– Small businesses are key employerskey employers – they employ people who have atypical work histories or needs

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Small Business and the Economy:Small Business and the Economy:• InnovationsInnovations: promotes creative destruction

– Creative DestructionCreative Destruction: the way that newly created goods, services, or firms can hurt existing competitors

– Small businesses generate 13-14 times13-14 times more patents than big businesses

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Small Business and the Economy:Small Business and the Economy:• New OpportunitiesNew Opportunities: small business presents the best

opportunities for many people who foresee problems fitting into mainstream jobs

– Small businesses are the supportsupport for the boat that carries the economy: high-growth ventures and large companies

• Small businesses provide cheaper alternativescheaper alternatives to product manufacture, distribution, and ideas

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Questions?Questions?

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