Understanding business 8th by mcchugh nickels chapter 06

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CHAPTER

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Entrepreneurship
and Starting
a Small
Business

6

Nickels

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McHugh

McGraw-Hill/Irwin
Understanding Business, 8e

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McHugh
1-1

6-1

© 2008 The McGraw-Hill Companies, Inc., All Rights


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Guess Which Company?
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He was selling baking soda & decided to entice
customers by putting in two packages of
chewing gum with each sale. The excitement
over the gum started him thinking.

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Two Seattle teenagers pooled their money &
came up with $100. They started delivering
messages & parcels for local merchants.

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Though he didn’t graduate from college, he
found out college students eat a lot of pizza.
He started his first pizzeria with $900 near a
campus with a promise of 3-minute delivery.
6-2

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Entrepreneurship

• Definition
• Why take the entrepreneurial
challenge?

• Opportunity
• Profit
• Independence
• Challenge
6-3


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Who Starts
New Businesses?
AGE AT STARTUP- 24
18
8%

25 - 34

35 - 44
45 - 54
55+

71%
13%
6%
2%
6-4


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Entrepreneurial
Attributes

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Self-Directed & SelfDisciplined

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Self-Nurturing
Action-Oriented
Highly Energetic

Tolerant of
Uncertainty
6-5


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Entrepreneurship
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Entrepreneurial Teams

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Micropreneurs and Home-Based Businesses

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Web-Based Businesses

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Intrapreneurs

6-6


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Reasons for Growth of
Home-Based Businesses

• Technology
• Downsizing
• Attitudes
• Tax Advantages
6-7


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Home-Based Business
Focus

Challenges

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New Customers
Time Management

Work vs. Family
City Ordinances
Risk

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Find Opportunity
Results vs. Routine
Profit vs. Paycheck
New Ideas
Long Term vs. Short
Term

6-8


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Most Common Types of
Home-Based Businesses

Source: Independent Insurance Agents of America

6-9

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Government &
Entrepreneurship

• Immigration Act of 1990Investor Visa

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Enterprise Zones

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Incubators

6-10


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1.
2.
3.
4.

5.

Top Ten States Where
Businesses Have Started
6. Washington D.C.
Utah
7. Maryland
Nevada
8. Georgia
Washington
9. Tennessee
Florida
10.Alaska
Colorado
Source: Investor Business Daily, June 24, 2004

6-11


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1.
2.
3.
4.
5.

Top Ten States Where

Businesses Have Closed
Utah
6. Missouri
Washington
7. Arizona
New Mexico
8. Vermont
Nevada
9. Georgia
Idaho
10.California
Source: Investor Business Daily, June 24, 2004

6-12


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What is Small Business?
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Independently Owned

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Not Dominant in Its Field

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Meet Certain Standards of
Size (Employees, Annual
Receipts)

6-13


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U.S. Small Businesses
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20 Million Full/Part-time Businesses

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Jobs

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Account for More Than 50% of Gross
Domestic Product (GDP)

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80% of Americans 1st job is in small business
75% of new jobs are created by small businesses

Minority-owned Businesses Growing
Rapidly

6-14


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Business Ownership
by Gender

Source: USA Today

6-15


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Female Owners’
Top Industries

SOURCE: USA Today

6-16


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Small Business –
Major Causes of Failure
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Plunging in without first
testing
Under/over pricing
Too little capital
Little/no experience
Borrowing money
without planning
Trying to do too much
with too little
Buying too much on
credit

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Expanding credit too
freely and rapidly
Incomplete and/or
inaccurate records
Not understanding
business cycles
Forgetting about taxes,
insurances, etc.
Owner working or not,
according to whim

6-17


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Small Business –
Situations for Success
• Personal attention
• Unattractive
neighborhood
• Products not easily
made by mass

• Franchising
production
• Paying attention to
new competitors
• Sales are not large
enough for a large
• The business is in a
firm

growth industry

6-18


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Learning about Small
Business Operations

• Learn from Others
• Get Experience
• Take Over a Successful
Firm

6-19


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Where Did They Start?
Hallmark

YMCA room

WilliamsSonoma

Abandoned Hardware Store

Estee Lauder

Vacant Former Restaurant

Walt Disney

Created Mickey in a Garage

Source: World Features Syndicate

6-20


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Early Sales of

Well-Known Companies
Johnson &
Johnson

$3,000 Worth of Band-Aids 1st Year

Cyrus
McCormick

Sold No Reapers 1st 10 Years

Subway

312 Sandwiches 1st Day

Burton’s
Snowboards

Sold One 1st Year

Bose

Sold 40 Speakers 1st Year (today #1
in market)

Source: World Features Syndicate

6-21

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Managing a Small Business
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Business Plan
Adequate Funding

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Professional Advice/Help

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Know Your Customer
Manage Human Resources
Keep Good Records

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Lenders/Investors
“Angels”
Venture Capitalists

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SBA and SBIC Program
Lawyers, Loan Officers, Insurance Agents
SCORE
Local College/universities

6-22


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Reasons for a
Banker To Say “No”

• I don’t know

enough about
you or your
business.

• You haven’t

clearly stated

why you need the
money.

• Your numbers

don’t support the
loan request.

• Your collateral is
lacking.

• Your business

does not support
the loan on its
own merits.
6-23


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Small Business
Collaborators

• Small Business Administration
(SBA)
• Microloan program
• SBICs

• SBDCs

• Service Corps of Retired Executives
(SCORE)

6-24


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Small Business
Strategies

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Examine Marketing & ID Areas for Growth

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Invest in Sales Training & Technology

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Streamline Business & Eliminate Waste

Profile Best Customers & Market to Similar

Prospects
Refresh Business Perspective With Outside
Views

6-25