Starting Your Small Business Fall 2024-2025 PDF

Starting your small business Chapter 1 © Arab Open University Dr. Sawsan Malik  Learning Objectives 1. Define the term “business”. 2. Describe the characteristics of successful entrepreneurs. 3. Explain the reason why people start small businesses. 4. Explain...

Starting your small business Chapter 1 © Arab Open University Dr. Sawsan Malik  Learning Objectives 1. Define the term “business”. 2. Describe the characteristics of successful entrepreneurs. 3. Explain the reason why people start small businesses. 4. Explain some of the current problems small businesses face. 5. Identify the areas of concern for small business owners. 6. Name some of the unique contributions of small business. 7. Discuss the role of business accelerators and incubators.  What is a business? Whether it's one person running a market stall or a big, well-known company with thousands of people working for it, all businesses make and do things people need, in exchange for something - usually money. To be successful, a business has to make more money than it spends. This is known as making a profit. What do business do? Businesses identify the needs A business might be.. of customers. A farm They purchase necessary A website resources to allow production Hotel to take place. Pharmacy They produce goods and A bank services which satisfy And more! customers’ needs, usually with the aim of making a profit. Defining small business- Not an easy task Small business must have at least two of the following features: Management is independent, because the manager usually owns the business. Capital is supplied and ownership is held by an individual or a few individuals. The area of operations is primarily local, although the market is not necessarily local. The business is small in comparison with the larger competitors in its industry. Examples of small businesses: Neighborhood grocery stores, hair stylist, dry cleaners, video or music shops and veterinarian Distinguishing between entrepreneurial ventures and small businesses Entrepreneurial Ventures Small business, sometimes called a micro- The principal objectives of the owner are business profitability and growth. Independently owned and operated and is Entrepreneur: an individual who has the idea not dominant in its field. It may never grow for a new business, starts it up and carries most large, and the owners may not want it to, as of the risks but benefits from the reward. they prefer a more relaxed approach to Starts and manages a business for many running a business. Generally, small reasons including achievement, profit, and business owner establishes a business growth, achieved through innovation and primarily to further personal goals, strategic management. including making a profit. KEY DATES 1800 French cotton manufacturer Jean-Baptiste Say popularizes the term “entrepreneur,” which is taken from the French for the verb “to undertake.” 18th century The term “entrepreneur” is used to describe someone who is willing to risk buying at certain prices and selling at uncertain prices. 1946 Professor Arthur Cole writes An Approach to Entrepreneurship, sparking interest in the phenomenon. 2005 The micro-finance, nonprofit site Kiva.com launches to make small loans to very small businesses. 2011 The number of active entrepreneurs in mature countries grows by about 20 percent, reflecting job losses due to the economic downturn. List of the World-Famous Successful Entrepreneurs 1. Elon Musk 2. Jeff Bezos 3. Sanjiv Bajaj 4. William Henry “Bill” Gate s III 5. Mark Elliot Zuckerberg 6. Nagavara Ramarao Narayana Murth y 7. Lawrence Joseph “Larry” Ellison 8. Michael Saul Dell 9. Carlos Slim 10. Sergey Brin 11. Sir Richard Charles Nichol as Branson Characteristics of successful entrepreneurs Desire independence. People who start a small businesses seek independence and want to be free of outside control. They enjoy the freedom of doing their own thing and making their own decisions- for better or worse. Have a strong sense of initiative. Sense of initiative and entrepreneurship refers to an individual's ability to turn ideas into action. It includes creativity, innovation and risk-taking, as well as the ability to plan and manage projects in order to achieve objectives. Are dedicated to their businesses. With so much time, energy, money, and emotions invested in it, entrepreneur want to make sure that nothing harm their business. Are motivated by personal and family considerations. A successful entrepreneur is motivated by personal and family considerations in seeking a rewarding work/life balance  Why People start small businesses? Satisfying Obtain personal objectives additional income. Achieve Help their independence families and personal autonomy  Why People start small businesses? Provide products not available elsewhere The saying, ‘Necessity is the mother of invention’ apply to the beginning of many small firms. Small firms produce two and a half times as many new ideas and products as large firms. Turn a hobby into a profitable enterprise Seeking a better work-life balance.  Why the interest in small business? 1. Small firms generate most new private employment as they provide opportunities for entrepreneurs and create jobs with greater job satisfaction. 2. The public favours small business: Small business owners and managers believe in free enterprise systems. Public support is growing as many consumers lose favor with big business retailers. 3. There is a growing trends toward self-employment. The availability of technology helps many individuals to start/operate their business.  Why the interest in small business? 4. There is an increasing interest in small business entrepreneurship at high schools and collage. Many university classes explore start-ups and business plan. Nowadays, more students think self-employment is a safer haven than working for big corporations. 5. Entrepreneurship is attractive to people of all ages. Entrepreneurship knows no age limit! From the very young to the very old. Age is not a requirement for success in starting small businesses. Entrepreneurship is attractive to people of all ages: Case study: KFC (Kentucky Fried Chicken) Harland D. Sanders, the founder, was born in Indiana, on September 9, 1890. When Harland was six years old, his father died, so his mother went out to work, and he had to take care of his two siblings. Hence, young Harland learned to cook, and he spent much time cooking, until he found a job-at the age of ten-working on a farm, for $2 a month. When Harland was 15, he became a streetcar conductor, and at the age of 16, he went to Cuba as a soldier. Upon his return to the USA, he obtained employment as a fireman for a railway company. He also studied law by correspondence, and he sold insurance. For a while, he operated a steam powered ferry-boat along the Ohio River. Later, he sold tires and operated a service station. Case study: KFC (Kentucky Fried Chicken). Continue… In 1930, Sanders found himself cooking for travellers who stopped at his gas station in Corbin, a small town in the state of Kentucky. There, he served meals on his own dining table, as he had no restaurant at the time. Eventually, people came to him just for meals, and he moved across the street to a motel with a restaurant seating 142 clients. In 1935, Governor Ruby Laffoon of Kentucky declared him a Kentucky Colonel, an army officer of high rank, in recognition of his contributions to the state's cuisine. In 1939, the colonel's restaurant was listed in Duncan Hines' Adventures in Good Eating. Already in his 60s, the colonel learned that a new interstate highway was planned. It would cause traffic to bypass the town of Corbin, and the colonel felt that this would be a serious threat to his business. In 1956, he sold his assets, paid his debts, and found himself living on $105 Social Security cheques. Case study: KFC (Kentucky Fried Chicken). Continue… At the age of 66, the colonel decided to travel across the USA by car, cooking chicken and proposing franchises. The deal was that he would be entitled to five cents for each chicken sold. In 1964, the 74-year old colonel sold his company, with 600 franchised outlets, to John Y. Brown Jr and a group of investors for $2 million. In 1969, the Kentucky Fried Chicken Corporation was listed on the New York Stock Exchange, and the colonel purchased the first 100 shares. In July 1971, Hublein Inc. of Hartford, Connecticut acquired the company, and a few years later, John Y. Brown Jr became the governor of Kentucky. Meanwhile, the colonel travelled 250,000 miles annually- almost the equivalent of once around the world each month-visiting the different restaurants. Colonel Sanders died in 1980. Reference: https://www.researchgate.net/publication/235298415_Kentucky_Fried_Chicken  Some current problems facing small businesses Political and economic World economy: Example, Politic Capital or financing Succession/Retirement or issues: Political issues such Covid-19 pandemic. issues. transition: Is a series of as bureaucracy and logistical and financial corruption level. Economic decisions about who will take issues such as inflation rate, over your business upon interest rate, employment retirement, death, or level. disability.  Some current problems facing small businesses Burdensome government Inadequate Management: Unexpected growth: Hiring staff regulations and paperwork Many owners tend to rely on problems, manufacturing issues, one-person management and are unexpected expenses, cash flow reluctant to release control, or to challenges (there may be a shortage delegate responsibilities. They of cash to meet expansion costs). and may not select qualified employees or may fail to give them enough authority and responsibility to manage adequately. Unique contributions of small business 1.Encourage innovation and flexibility. Small businesses are often sources of new ideas, materials, processes, and services that larger firms may be unable or reluctant to provide. As an example, Steve jobs (age 21) and Steve Wozniak (age 19) essentially started the PC industry by founding Apple computer in 1976 with capital obtained by selling Job’s Volkswagen microbus and Woznaik’s Hewlett-Packard scientific calculator. 2.Generate new employment. Small businesses generate employment by creating job opportunities Unique contributions of small business. Continue.. 3.Keep larger firms competitive. With the introduction of new products and services, small businesses encourage competition, if not in price, then at least in design and efficiency, as happened in the area of California (Silicon Valley), where the personal computer was developed. 4.Develop risk takers. Small business owners have relative freedom to enter or leave a business at will. To start small or grow big, to expand or contract, and to succeed or fail. Yet founding a business in an uncertain environment is risky, planning must before start-up. Some areas of concern for small business owners Discontinuance: A Failure: Results from Threat of inability to succeed in running failure a business. There are two types A voluntary decision to of failure: terminate a business, due to 1. Formal failures: Failures ending health, family situation, or up in court with loss to creditors. the advantages of working for 2. Personal (informal) failures: The someone else. owner who cannot make it financially and so voluntarily calls it quits. Personal failure are far more numerous than formal ones. Business accelerators and incubators Starting a new venture can be a long process. Business (also called venture) accelerators and incubators are specialized organizations devoted to developing and supporting start- ups. How it works Business accelerators and incubators provide expertise and connections in the formative stages of a business in return for a percentage of ownership. They are two separate types of services. Business accelerators are short-term programs that offer wide-ranging support, including mentorship, business advice, and connections to potential sources of financing. On the other hand, business incubators provide a supportive environment in which fledgling start-ups can develop, with technical assistance, working space, and networking opportunities. Business accelerators Suited to start-ups that have limited financing, accelerators offer short–term (one to three months) boot camps. Clients include web and software developers. Introduction to nd Links to pote t i ng a ices potential partners ntial oun serv investors Acc ncial a Fin ice adv Marketing advice Seed capital Start-up pays accelerator % of equity in the business. Management of Help with bank loans, In return, accelerator provides help funds and guarantees intellectual property programs and services. Access to mentors and Networking advisory boards Business incubators Often sponsored by nonprofit organizations, incubators tend to be longer term (one to five years) and cater for a variety of clients, many science-based. Start-up pays incubator % of equity in the business. It may also pay rent to share part of the incubator’s work space. In return, it Start-up receives a range of benefits introduced to incubator. Support and education Mentorship Specialized facilities such as science laboratories Office space to work from Interaction with other start-ups Seed money to get started  Business incubators Nurture young firms and help them to survive and grow during the start-up period when they are most vulnerable. They provide hands-on management assistance, access to financing, and orchestrated exposure to critical business or technical support services. They may even provide shared office spaces, equipment and flexible leases.  33 months the average time US start-ups spent in an incubator, during 1999–2002.