Chapter 6 Entrepreneurship And Starting A Small Business PDF

Chapter 6 Entrepreneurship and Starting a Small Business ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. ©Mc...

Chapter 6 Entrepreneurship and Starting a Small Business ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. ©McGraw-Hill Education.  The Job-Creating Power of Entrepreneurs Entrepreneurship — Accepting the risk of starting and running a business. ©McGraw-Hill Education.  Why People Take the Entrepreneurial Challenge ❖ Opportunity: more opportunities than working for others. ❖ Profit: huge profit possibilities. ❖ Independence: be your own boss. ❖ Challenge: entrepreneurs take moderate, calculated risk. However, they don’t gamble. LO 6-1 ©McGraw-Hill Education.  Big Time Profit Elon Musk could gift a Tesla Model S every single day for the next 7,610 years LO 6-1 ©McGraw-Hill Education. Source: Forbes, www.forbes.com, accessed November 2017.  Why People Take the Entrepreneurial Challenge Attributes (Characteristics) of Successful Entrepreneurs Self-directed: You alone will be responsible for your success or failure. Self-nurturing: You must believe in your idea even when no one else does. Action-oriented: Great business ideas are not enough. Highly energetic: Employees have weekends and vacations; entrepreneurs often work seven days a week and don’t take vacations for years. Tolerant of uncertainty: You can’t be afraid to fail. LO 6-1 ©McGraw-Hill Education.  Why People Take the Entrepreneurial Challenge Turning Your Passions and Problems into Opportunities: An idea is a good opportunity if: It fills customers’ needs. You have the skills and resources to start a business. You can sell the product or service at a reasonable price and still profit. You can get your product or service to customers before the window of opportunity closes. You can keep the business going. LO 6-1 ©McGraw-Hill Education.  Why People Take the Entrepreneurial Challenge Entrepreneurial Teams A group of experienced people from different areas of business who join to form a managerial team with the skills to develop, make, and market a new product. An entrepreneurial team (Steve Jobs, Steve Wozniak, and Mike Markkula) was key to Apple’s success. LO 6-1 ©McGraw-Hill Education.  Why People Take the Entrepreneurial Challenge Entrepreneurship within Firms Intrapreneurs — Creative people who work as entrepreneurs within corporations. Intrapreneurs use a company’s existing resources to launch new products for the company. 3M, the maker of Post-it Notes, encourages intrapreneurship among its employees by requiring them to devote at least 15 percent of their time to think about new products. LO 6-1 ©McGraw-Hill Education.  Why People Take the Entrepreneurial Challenge Micropreneurs and Home-Based Businesses Micropreneurs — Entrepreneurs willing to accept the risk of starting and managing a business that remains small, lets them do the work they want to do, and offers them a balanced lifestyle. About half of U.S. micropreneurs are home-based business owners—writers, consultants, video producers, architects, bookkeepers, etc. Nearly 60 percent of home-based micropreneurs are men. LO 6-1 ©McGraw-Hill Education.  Why People Take the Entrepreneurial Challenge Reasons for the growth of home-based businesses: Computer technology. Corporate downsizing has led many to venture on their own. Social attitudes have changed. New tax laws have loosened restrictions on deducting expenses for home offices. LO 6-1 ©McGraw-Hill Education.  Why People Take the Entrepreneurial Challenge Micropreneurs and Home-Based Businesses continued Challenges of working at home: Getting new customers is difficult. Managing your time requires self-discipline. Work and family tasks are sometimes not separated. Government regulations may restrict your business. Homeowner’s insurance may not cover business-related claims. LO 6-1 ©McGraw-Hill Education.  Why People Take the Entrepreneurial Challenge Encouraging Entrepreneurship: What Government Can Do? Immigration Act passed in 1990 created a category of “investor visas” that encourage entrepreneurs to come to the U.S. The same is happening in KSA. Enterprise zones — Specific geographic areas to which governments try to attract private business investment by offering lower taxes and other government support. Incubators — Centers that offer new businesses low-cost offices with basic business services. LO 6-1 ©McGraw-Hill Education.  Incubators Incubators, such as this one in Washington, DC, offer new businesses low-cost offices with basic business services such as accounting, legal advice, and secretarial help. LO 6-1 ©McGraw-Hill Education. © Michel du Cille/The Washington Post/Getty Images  Incubators’ Best Benefits Jump to long description in appendix LO 6-1 ©McGraw-Hill Education. Source: “Do You Need an Incubator?,” Entrepreneur, May 2016.  Getting Started in Small Business Small versus Big Business Small business — A business that is independently owned and operated, is not dominant in its field of operation, and meets certain standards of size (set by the Small Business Administration in USA or Monshaat in KSA) in terms of employees or annual revenues. Businesses are “small” in relation to other businesses in their industries. LO 6-2 ©McGraw-Hill Education.  Getting Started in Small Business Small versus Big Business continued Small business statistics: There are 28 million small businesses in the U.S. Of all nonfarm businesses in the U.S., almost 97% are considered small. Small businesses account for over 50% of the GDP. Nearly 600,000 businesses are started every year. Small businesses have generated 65% of new jobs since 1995. Small businesses employ about half of all private-sector employees. About 80% of U.S. workers’ first jobs were in small businesses. LO 6-2 ©McGraw-Hill Education.  Getting Started in Small Business Importance of Small Businesses Providing employment opportunities. More personal customer service Ability to respond quickly to opportunities LO 6-2 ©McGraw-Hill Education.  Getting Started in Small Business Small-Business Success and Failure Business failures are lower than the reports because: Owner closing a business to start another is reported as a “failure.” Changing forms of ownership is reported as a “failure.” Retirement is reported as a “failure.” LO 6-2 ©McGraw-Hill Education.  Famous Business Failures and Comebacks Walt Disney – First film company went bankrupt Henry Ford – First two car companies failed Milton Hershey – First confectionery failed H.J. Heinz – Company went bankrupt six years after start LO 6-2 ©McGraw-Hill Education. Source: Entrepreneur, www.entrepreneur.com, accessed November 2017.  Figure 6.3 Causes of Small-Business Failure Jump to long description in appendix LO 6-2 ©McGraw-Hill Education.  Figure 6.4 Situations for Small- Business Success Jump to long description in appendix LO 6-2 ©McGraw-Hill Education.  Managing a Small Business 1 of 14 Major Business Functions 1. Planning 2. Financing (Finance) 3. Knowing customers (Marketing) 4. Managing employees (Human Resources Management) 5. Keeping records (Accounting) LO 6-4 ©McGraw-Hill Education.  Managing a Small Business 2 of 14 1. Planning Your Business Business plan — A detailed written statement that describes the nature of the business, the target market, the advantages the business will have in relation to competition, and the resources and qualifications of the owner(s). A business plan forces potential owners to be specific about what they will offer. A business plan is mandatory for talking with bankers or investors. LO 6-4 ©McGraw-Hill Education.  Managing a Small Business 3 of 14 Writing a business plan A good plan takes a long time to prepare. A good executive summary catches interest and tempts potential investors to read on. Getting the plan into the right hands is almost as important as getting the right information in it. LO 6-4 ©McGraw-Hill Education.  Managing a Small Business 4 of 14 2. Financing Your Small Business (Finance) Sources of capital: Personal savings Family Business associates Banks and finance institutions Government agencies Angel investors Venture capitalists — Individuals or companies that invest in new businesses in exchange for partial ownership of those businesses. LO 6-4 ©McGraw-Hill Education.  Managing a Small Business 6 of 14 The Small Business Administration (SBA) Small Business Administration (SBA) — A U.S. government agency that advises and assists small businesses by providing management training and financial advice and loans. SBA started a microloan program in 1991 that provides very small loans to small-business owners. The program judges worthiness based on the borrowers’ integrity and soundness of their business ideas. LO 6-4 ©McGraw-Hill Education.  Managing a Small Business 9 of 14 3. Knowing Your Customers (Marketing) Market — People with unsatisfied wants and needs who have both resources and willingness to buy. Set out to fill the market’s needs by offering top quality and great service at a fair price. One of the great advantages of small businesses is the ability to know the market and quickly adapt to market needs. LO 6-4 ©McGraw-Hill Education.  Managing a Small Business 10 of 14 4. Managing Your Employees (HRM) Hiring, training, and motivating employees is critical. Employees of small companies are often more satisfied with their jobs because they feel challenged and respected. Entrepreneurs best serve themselves and the business if they recruit and groom employees for management positions. LO 6-4 ©McGraw-Hill Education.  Managing a Small Business 11 of 14 5. Keeping Records (Accounting) A good accountant can help in: Deciding whether to buy or lease equipment Deciding whether to own or rent a building Tax planning Financial forecasting Choosing sources of financing Writing requests for funds LO 6-4 ©McGraw-Hill Education.  Going Global: Small-Business Prospects Small and medium-sized businesses accounted for 99 percent of recent export growth. Advantages of global trade for small businesses: Overseas buyers enjoy dealing with individuals. Small companies can usually begin shipping much faster. They provide a wide variety of suppliers. They can give more personal service and attention. LO 6-5 ©McGraw-Hill Education.