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Questions and Answers
What is a key advantage of starting a business from scratch?
What is a disadvantage of buying a franchise?
What is an example of a large business internalizing a small business model?
What is bartering an example of?
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What is a benefit of buying a franchise?
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What percentage of new jobs are created by small businesses in the United States?
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What is a common characteristic of successful entrepreneurs?
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What is a major advantage of small businesses?
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What is a common reason for business failure?
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What is a crucial step in making a business successful?
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Study Notes
What is a Small Business?
- A small business is a business with a small size, with less than 500 employees in the United States.
- The definition of a small business varies by country, for example, in Spain, it is a business with 50 or less employees.
- Two-thirds of small businesses have 20 or less employees.
Importance of Small Businesses
- Small businesses create most new jobs in the United States, with 66.3% of new jobs created by small businesses.
- Most people in the United States are employed by companies with 500 people or less.
Characteristics of Entrepreneurs
- Entrepreneurs are risk takers who are willing to put their time, effort, and resources at risk to start a new business.
- Successful entrepreneurs are persistent, resourceful, and willing to take calculated risks.
Advantages of Small Businesses
- Independence: entrepreneurs get to be their own boss.
- Flexibility: entrepreneurs get to work on what they want, when they want.
- Focus: entrepreneurs have a clear goal and can focus on making it a success.
- Building a reputation: entrepreneurs can build a reputation for themselves and their business.
Disadvantages of Small Businesses
- High stress levels: entrepreneurs often work long hours and face significant challenges.
- High failure rate: most new businesses fail, with a failure rate of over 90%.
- Underfunding: many small businesses lack the resources needed to get off the ground.
Reasons for Business Failure
- Lack of resources: many entrepreneurs underestimate the resources needed to start a business.
- Poor marketing: failing to understand the competition and customers.
- Lack of a business plan: not having a clear plan for the business.
How to Make a Business Successful
- Need a plan: a set of actions to achieve a set of goals.
- Decide on a business organization: sole proprietorship, partnership, or corporation.
- Secure funding: personal assets, venture capitalists, or debt financing.
Financing Options
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Venture capitalists: invest in businesses with high growth potential.
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Debt financing: loans from banks or other lenders, often requiring collateral.
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Line of credit: a pre-approved amount of revolving credit for business operations.
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Bartering: exchanging goods or services instead of cash.### Starting a New Business
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Two main ways to start a new business: starting from scratch or buying a franchise
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Starting from scratch means beginning with no customers, brand, or market, and having complete control over decision-making
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Starting from scratch has a huge advantage in allowing complete control, but also a huge disadvantage in having no existing brand recognition or market knowledge
Franchise
- A franchise allows an individual to tap into an existing brand, using assets such as brand recognition, training, and resource access
- Typical example of a franchise is McDonald's, where franchisees own and operate restaurants using the McDonald's brand and resources
- The franchisor provides training, access to suppliers, and quality standards, and the franchisee benefits from the brand's advertising efforts
- Financial assistance may also be provided to franchisees
Pros and Cons of Franchise
- Advantages:
- Access to existing brand recognition
- Access to training and resource access
- Standardized quality control systems
- Benefits from brand advertising
- Financial assistance
- Disadvantages:
- Need to pay fees for running the business
- Must follow strict standards and guidelines
- Limited strategic flexibility
- Possibility of market saturation
Other Business Models
- Large businesses may try to internalize small business models to innovate and stay competitive
- This can be done by creating small businesses within the larger organization, allowing for flexibility and innovation
- Examples include Apple's development of the iPod and iPhone, which were created by separate teams within the organization
Definition of a Small Business
- A small business in the United States has fewer than 500 employees.
- The definition of a small business varies by country, with Spain defining it as 50 or fewer employees.
Importance of Small Businesses
- Small businesses create most new jobs in the United States, with 66.3% of new jobs created by small businesses.
- Most people in the United States are employed by companies with 500 people or less.
Characteristics of Entrepreneurs
- Entrepreneurs are risk-takers willing to put their time, effort, and resources at risk to start a new business.
- Successful entrepreneurs are persistent, resourceful, and willing to take calculated risks.
Advantages of Small Businesses
- Independence: entrepreneurs get to be their own boss.
- Flexibility: entrepreneurs get to work on what they want, when they want.
- Focus: entrepreneurs have a clear goal and can focus on making it a success.
- Building a reputation: entrepreneurs can build a reputation for themselves and their business.
Disadvantages of Small Businesses
- High stress levels: entrepreneurs often work long hours and face significant challenges.
- High failure rate: most new businesses fail, with a failure rate of over 90%.
- Underfunding: many small businesses lack the resources needed to get off the ground.
Reasons for Business Failure
- Lack of resources: many entrepreneurs underestimate the resources needed to start a business.
- Poor marketing: failing to understand the competition and customers.
- Lack of a business plan: not having a clear plan for the business.
How to Make a Business Successful
- Need a plan: a set of actions to achieve a set of goals.
- Decide on a business organization: sole proprietorship, partnership, or corporation.
- Secure funding: personal assets, venture capitalists, or debt financing.
Financing Options
- Venture capitalists: invest in businesses with high growth potential.
- Debt financing: loans from banks or other lenders, often requiring collateral.
- Line of credit: a pre-approved amount of revolving credit for business operations.
- Bartering: exchanging goods or services instead of cash.
Starting a New Business
- Two main ways to start a new business: starting from scratch or buying a franchise.
- Starting from scratch allows for complete control but lacks brand recognition and market knowledge.
- Starting a franchise allows access to an existing brand and resources.
Franchise
- A franchise allows an individual to tap into an existing brand, using assets such as brand recognition, training, and resource access.
- Examples include McDonald's, where franchisees own and operate restaurants using the McDonald's brand and resources.
Pros and Cons of Franchise
- Advantages:
- Access to existing brand recognition
- Access to training and resource access
- Standardized quality control systems
- Benefits from brand advertising
- Financial assistance
- Disadvantages:
- Need to pay fees for running the business
- Must follow strict standards and guidelines
- Limited strategic flexibility
- Possibility of market saturation
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Description
Understanding the definition and importance of small businesses, including their role in job creation.
