Small Business Concepts

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