Small Business Concepts
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Questions and Answers

What is a key advantage of starting a business from scratch?

  • Standardized quality control systems
  • Access to existing brand recognition
  • Financial assistance from a franchisor
  • Complete control over decision-making (correct)

    • What is a disadvantage of buying a franchise?

  • Need to pay fees for running the business (correct)
  • No possibility of market saturation
  • Limited access to training and resource access
  • Increased strategic flexibility

    • What is an example of a large business internalizing a small business model?

  • Apple's development of the iPod and iPhone (correct)
  • Venture capitalists investing in a startup
  • A small business owner taking out a loan from a bank
  • McDonald's creating a new franchise location

    • What is bartering an example of?

    <p>Alternative financing option</p> Signup and view all the answers

    What is a benefit of buying a franchise?

    <p>Access to existing brand recognition</p> Signup and view all the answers

    What percentage of new jobs are created by small businesses in the United States?

    <p>66.3%</p> Signup and view all the answers

    What is a common characteristic of successful entrepreneurs?

    <p>Persistent and resourceful</p> Signup and view all the answers

    What is a major advantage of small businesses?

    <p>Flexibility in work schedule</p> Signup and view all the answers

    What is a common reason for business failure?

    <p>Lack of resources</p> Signup and view all the answers

    What is a crucial step in making a business successful?

    <p>Creating a business plan</p> Signup and view all the answers

    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

    • 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 means beginning with no customers, brand, or market, and having complete control over decision-making

    • 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.

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