Entrepreneurship and Small-Business Ownership PDF

Chapter 6: Characteristics of a small business: Lifestyle businesses: Built around the personal and financial needs Entr...

Chapter 6: Characteristics of a small business: Lifestyle businesses: Built around the personal and financial needs Entrepreneurship and of an individual or a family. ○ Most single person operations Small-business ownership ○ Limited potential to grow beyond providing income for their independent owners 1 Highlight the contributions small businesses make to the U.S. High Growth Ventures: Run by a team rather than by one individual, economy. they expand rapidly by obtaining a sizable supply of investment capital and by introducing new products or services to a large Small businesses: A company that is independently owned and market operated, is not dominant in its field, and employs fewer than 500 Potential to grow if owners desire people. Adding additional retail locations, designing new products Economic roles of small businesses (5): Main difference between large and small companies 1. Provide jobs Narrow focus, offering fewer goods to fewer market 2. Introduce new products that fulfil unmet market needs segments 3. Meet the needs of larger organisations. limited resources (financial) a. Act as distributors, servicing agents, and suppliers to More freedom to innovate and move quickly as they grow larger corporations and to numerous government larger companies tend to get slower and more bureaucratic agencies. 4. Take risks that larger companies sometimes avoid a. Entrepreneurs, risk takers—people willing to try new and unproven ideas. 5. They provide economic opportunities for a diverse range of people 2 List the most common reasons people start their own companies, People start businesses for a variety of reasons including (5): and identify the common traits of successful entrepreneurs. 1. Gaining more control over their future 2. Wanting to avoid working for someone else Entrepreneurial spirit: The positive, forward-thinking desire to create 3. Having new product ideas that they are deeply passionate profitable, sustainable business enterprises. about 4. Pursuing business goals that are important to them on a Qualities of successful entrepreneurs personal level, or seeking income alternatives when they 1. Confidence can’t find jobs that fit. 2. Passion 5. Successful entrepreneurs are disciplined, willing to work 3. Drive: hard, are confident, and optimistic - they relate to others, inspire them, are curious, and are moderate but careful risk takers Intrapreneurs: Employees who approach their work with the imagination and drive of typical entrepreneurs, in a company. Essential sources of product and process innovation in almost any company Harder to excel in a company as these can be more deliberate, structure and cautious as they mature 3 Explain the importance of planning a new business, and outline Owners freedom and Flexibility: the key elements in a business plan. ○ Less than creating a business, facilities workforce and other assets are already in place Creating a new business Business Processes and systems: Financial Outlay: ○ Already in place, can be a positive or negative ○ Little cash, or lots of capital such as manufacturing Support Networks: Possibilities for borrowing starting capital and investors: ○ Some elements are already in place but may need to ○ Very limited, most lenders want evidence that be upgraded business can generate revenue before they offer Workforce: funds ○ Already in place, there is staff to operate the Owners freedom and Flexibility: business, might need to be upgraded ○ Very high Customer Base, Brand Recognition and Sales: Business Processes and systems: ○ Can have ongoing sales and some brand reputation ○ Must be designed and created from scratch can be time consuming and expensive Buying a Franchise Support Networks: Financial Outlay: ○ Suppliers, bankers and other elements must be ○ Varies widely from few thousands to six figures selected Possibilities for borrowing starting capital and investors: Workforce: ○ Varies, many franchisors do not allow franchises to ○ Must be hired trained at owner's expense buy a franchise with borrow funds, own capital Customer Base, Brand Recognition and Sales: Owners freedom and Flexibility ○ None, must be built from group up, can have strain in ○ Low very low, require adherence to the company company finances until sales build Business Processes and systems: ○ Already established business systems Buying an existing business: Support Networks: Financial Outlay: ○ Varies, some specify which suppliers to use ○ Can be considerable some companies Workforce: Possibilities for borrowing starting capital and investors: ○ Must be hired and trained, many provide training ○ Banks are more willing to lend to established Customer Base, Brand Recognition and Sales: profitable businesses and investors are more likely to ○ Customer base and repeat sales need to be built, invest in them brand recognition is established Parts of a business plan (13): 7. Marketing strategy: a. Provide projections of sales volume and market 1. Summary share outline a strategy for identifying and reaching a. In one or two paragraphs, summarise your business potential customers concept, particularly the business model b. Prices and more b. Describe your product or service and its market potential. 8. Design and development plans: c. Distinguish your firm from the competition a. Describe the nature and extent of what needs to be d. Financial projections, how much money you will done, including costs and potential problems. need from investors or lenders 9. Operations plan: 2. Mission and objectives: a. Provide information on facilities, equipment, and a. Purpose of your business and what you hope to personnel requirements. accomplish 10. Start-up schedule: 3. Company overview: a. Forecast development, completion dates a. Background information on the origins and structure 11. Major risk factors 4. Products or services: a. Identify all potential negative factors and discuss a. Describe their appeal to customers them honestly. 5. Management and key personnel: 12. Financial projections and requirements: a. Summarise the background and qualifications of the a. Identify the company’s financing needs and potential people for the company’s success. sources. 6. Target market: 13. Exit strategy: a. Provide data that will persuade an investor that you a. Explain how investors will be able to cash out or sell understand your target market their investment b. Strengths and weaknesses of your competitors. 4 Identify the major causes of business failures, explain what Pivoting: Adjusting a firm’s business model when a better pivoting means, and identify sources of advice and support for opportunity presents itself business owners. This can range from adjusting the feature set of an individual product all the way up to taking the company in a completely Why businesses Fail (4): new direction, and some companies pivot multiple times until they find the right product-market fit. Strategic Issues Little to no Demand Advice and support for business owners (6) Lack of strategic Planning 1. Government Agencies and Not-for-Profit Organizations Failure to Pivot 2. Business Partners Overpowering competition 3. Mentors and Advisory Boards Leadership Issues Advisory boards: A team of people with subject area expertise or Managerial incompetence vital contacts who help a business owner review plans and Lack of relevant experience decisions. Inability to make the transition from employee to entrepreneur 4. Networks and Support Groups Motivational collapse 5. Business Incubators and accelerators Marketing and Sales Issues Business Incubators: Facilities that help early-stage entrepreneurial Ineffective Marketing teams develop ideas into workable business models and establish Uncontrolled growth company frameworks for commercialising products. Poor Location Customer Neglect Business Accelerators: Organisations that work with existing companies with the primary goal of making them more attractive to Financial Issues investors Inadequate Financing Poor Cash Management Excessive overhead Poor inventory control 5 Discuss the principal sources of funding for small businesses. 4. Corporate Sponsors: Major corporations run programs to provide selected small companies with financial and Equity: You give investors a share of the business in exchange for managerial assistance their money 5. Credit Cards and lines of credit: Some entrepreneurs have Debt: Borrowed money that must be repaid used them to launch successful, multimillion-dollar businesses, others have damaged their credit ratings and Private Financing for Seed money: The first infusion of capital used racked up debts to get a business started: 6. Small Business Administration Assistance Private Finance (6): a. Offers several financing programs for small 1. Banks and Microlenders: businesses a. Banks require a company to have an established b. Apply to a regular bank or credit union, which track record, positive cash flow, and collateral, actually provides the money buildings/equipment, to back the loan. c. Manages a microloan program in conjunction with not-for-profit, community-based lenders and backs Microlenders: Organisations, often not-for- profit, that lend smaller small business investment companies that offer amounts of money to business owners who might not qualify for loans, venture capital, or a combination of the two conventional bank loans. Public Financing: 2. Venture Capitalists: Investors who provide money to finance The shares offered for sale at this point are the company’s new businesses in exchange for a portion of ownership, with initial public offering (IPO). Going public is an effective the objective of selling their shares at a significant gain. method of raising needed capital It can be an expensive and time-consuming process with no 3. Angel Investors: Private individuals who invest money in guarantee of raising the start-ups, usually earlier in a business’s life and in smaller amount of money needed. amounts than VCs are willing to invest or banks are willing to lend Crowdfunding: Soliciting project funds, business investment, or business loans from members of the public. 6 Explain the advantages and disadvantages of franchising. Money Side of Franchising Initial Franchising Costs: Franchise: A business arrangement in which one company (the 1. One time payment called the franchise fee: for franchisee) obtains the rights to sell the products and use various launching franchise: elements of a business system of another company (the franchisor). a. Access to the system along with a variety of start-up services that can include site location Franchisor: A company that licences elements of its business studies, market research, training… system to other companies (franchisees). b. Costs associated with buying, building, and The company that founded the business equipping a facility as needed ○ A franchisee must also meet minimum levels of liquid Franchisee: An individual or company that buys the rights to use assets and personal net worth some aspect of that business Ongoing Franchising Costs: A business owner who pays for the rights to sell the 1. Royalty Fees: based on percentage of revenue products and use the business system of a franchisor. 2. Regular payments to an advertising fund Types of Franchisee: Advantages of Franchising (8) 1. Business-format franchise: 1. You can be your own boss a. Franchisee gains the right to use an entire business 2. Hire your own employees system, including brand names, store designs, 3. Benefit directly from your own hard work operating process 4. Added benefit of instant name recognition 2. Product-distribution franchisee: 5. National advertising programs a. Independent business owners to affiliate with well 6. Standardised quality of goods and services known brand names and sell popular products 7. A support network of other franchisees without the constraints of operating within a strictly 8. Financial assistance defined business format b. Right to sell products as part of franchisors Disadvantages of franchising (3) distribution system 1. No flexibility in many systems; follow due to the brand 2. Little control over decisions the franchisor makes that affect the entire system 3. No option to independently changing your business in response to the franchise system no longer working 7 Define machine learning and deep learning , and describe their importance to contemporary business. Machine Learning: The general capability of computers to learn and adapt without receiving explicit human instructions. Deep Learning: Deep learning is a type of machine learning that uses layers of artificial neural networks to process incoming data and dynamically learn how to become more accurate Both categories are used widely in business today with applications in virtually every functional area. Importance to Business 1. Text analytics, including understanding social media conversations and summarising 2. Documents 3. Interactive chatbots 4. Image analysis, including identifying people in photos 5. Video analysis, including identifying scenes, following people or objects through a video 6. Text translation 7. Speech-to-text and text-to-speech conversion 8. Manufacturing and maintenance optimization 9. Fraud detection in financial services 10. Content moderation to stop objectionable content from being posted online 11. Virtual health-care assistants 12. Automated and assisted decision-making