Entrepreneurship & Small Business Ownership (ch6) PDF

LE: Entrepeneurship & Small Business Ownership (ch6) Week # of sessions year 1.1.1 Lecture course MTP Big World of Small Business Small Business Company that is independently owned and operated Not dominant in its field Fewer than 500 employees Economic Roles of Small Businesses Providing jobs...

LE: Entrepeneurship & Small Business Ownership (ch6) Week # of sessions year 1.1.1 Lecture course MTP Big World of Small Business Small Business Company that is independently owned and operated Not dominant in its field Fewer than 500 employees Economic Roles of Small Businesses Providing jobs Introducing new products Freedom to innovate Small businesses receive 16 times more patents per employee than larger firms Meet the needs of larger organizations Many act as distributors, servicing agents, and suppliers to larger corporations Inject a considerable amount of money into the economy LE: Entrepeneurship & Small Business Ownership (ch6) 1 Take risks Willing mto try new and unproven ideas and risks that larger companies avoid Provide specialized goods & services Fill niches that aren’t being served by existing companies Characteristics of Small Business Modest operations with little growth potential Narrow focus Offering fewer goods andservices to fewer market segments Limited Resources Freedom to innovate and move quickly As they grow larger, compan ies tend to get slower and more bureaucratic Factors Contributing to the Increase in the Number of Small Businesses E-commerce, Social Media and Other Technologies Enables innovation in one or more Growing Diversity in Entrepeneurship Women Minorities functional areas Immigrants Allows an operation to give small businesss Military Veterans a unified presence who want to apply leadership skills online Older workers who Making it easier for can’t find shoppers to find employment to fit their interests or skills products of interest LE: Entrepeneurship & Small Business Ownership (ch6) Downsizing & Outsourcing Many companies downsize or lay off talented employees when the economy sours The large scale of downsizing from major companies will release a lot of new entrepeneurial talent and ideas 2 Avoiding high cost Younger people who Some companies of establishing a physical presence want alternatives to traditional subcontract special projects to experts while being able to employment outside the market to the entire world organization The Entrepeneurial Spirit Positive, forward thinking desire to create profitable sustainable business enterprises 💡 Vital to the health of the economy and everyone’s standard of living Why people start their own companies Want control over their future Tired of working for someone else New product ideas that they believe in with such passion that they’re willing to risk everything to start up enterprise Opportunity to be the one in control of innovation Inability to find attractive employment Qualities shared by Successful Entrepeneurs Confidence Passion Drive Control their destiny Love what they do Willing to work hard Curious and eager to learn Driven by a passion to succeed Extremely disciplined LE: Entrepeneurship & Small Business Ownership (ch6) Willing to make sacrifices in other 3 Learn from mistakes Don’t measure View failure as a chance to grow success in strictly financial terms Highly adaptable High degree of confidence and Willing to take sensible risks areas of their lives optimism Talent for inspiring others Innovation without Leaving: Intrapeneurship Intrapeneurship is a term to designate entrepeneurial effors within a larger organization Start-Up Phase: Planning & Launching a New Business Small Business Ownership Options Creating new business Some businesses can Buying an existing business Buying a franchise Financial outlay varies be started with very Considerable fiancial widely from a few little cash; others in outlay thousand to several manufacturing, may require a lot of capital Very limited possibilities for borrowing since lenders want evidence that the business can generate revenue before they offer funds Owner’s freedom and flexibility is very high, LE: Entrepeneurship & Small Business Ownership (ch6) Banks are more willing to lend to and hundred thousand dollars investors are more Many franchisors do likely to invest not allow franchises to There’s less owner’s freedom and flexibility because facilities, workforce, buy a franchise with borrowed funds, so they must have their own capital and other assets are Low to very low already in place owner’s freedom and flexibility; most Businesses processes and systems are already franchisors require rigid adherence to 4 particularly during in place which can company policies early phases be a plus or minus and processes Must be designed depending how well they work Comes with an scratch, which can be Support networks business system time consuming and already in place but expensive may need to be upgraded and created from Suppliers, bankers, and other elements of Workforce already in the network must be place which could be selected; Owner has positive or negative freedom to choose the one he specifically but at least there’s staff to operate the wants business Workforce must be It has a customer hired and trained at the owner’s expense base with ongoing sales and some Must be built from brand reputation established Some franchise companies specify which suppliers a franchise can use Workforce must be hired and trained but a franchisor usually provides training Customer base and repeat sales must be built up; established brand recognition the ground up, which can put serious strain on company finances Buying an existing business can involve less work and less risk Buying a franchise combines many of the benefits of independent business ownership with the support that comes with being part of a larger organization Blueprint for an Effective Business Plan LE: Entrepeneurship & Small Business Ownership (ch6) 5 Business Plan Document that summarizes a proposed business venture, its goals, and plans for achieving those goals Three important functions Guides the company operations & outlines Helps persuade the lenders & investors to Provide a reality check in case an idea a strategy for turning finance your just isn’t feasible an idea into reality business if outside money is required Can be written when: Before company is launched Founders are defining their vision of what the company will be Company is seeking funding After the company is up and running Plan serves as a monitor and control mechanism to make sure operations are staying on track 💡 Forces you to think about personnel, marketing, facilities, suppliers, distribution, and a host of other issues vital to a company’s success Sections typically included in a plan Summary Summarize your business model Highlight some about your company and its leaders that will distinguish your firm from the competition Mission & Objectives Purpose of your business and what you hope to accomplish Company overview Full background information on the origins and structure of your venture LE: Entrepeneurship & Small Business Ownership (ch6) 6 Products or services Describe your products, focusing on their unique attributes Management and key personnel Background and qualifications of the people most responsible for company’s success Target market Identify stregths & weaknesses of your competitors Marketing strategy Projections of sales volume and market share; Strategy for reaching potential customers, setting prices, and providing customer support Design & development plans Nature and extent of what needs to be done Operations plans Information on facilities, equipment, and personnel requirements Start up schedule Forecast development of the company in terms of completion dates for major aspects of the business plan Major risk factors Identify potentially negative information Financial projections and requirements Budget of start up and operating costs Exit strategy Explain how investors will be able to cash out or sell their investment 💡 “The grab”, a compelling one or two sentence statement that gets an investor’s attention Growth Phase: Nurturing & Sustaining a Young Business New Business Failure Rate Why new businesses fail? Leadership issues Managerial Marketing & Sales issues Financial Issues Ineffective marketing financing Poor location Poor cash Poor inventory Uncontrolled growth management control incompetence Lack of strategic planning LE: Entrepeneurship & Small Business Ownership (ch6) Inadequate Systems & Facilities issues 7 Lack of Overreliance Too much relevant experience on a single customer overhead Inability to make the transition from employee to entrepeneur Business incubators Facilities that house smal businesses and provide support services during the company’s early growth phases Provides advice, financial support, access to industry insiders, connections and facilities Financing Options for Small Businesses Private Financing Seed money First infusion of capital used to get a business started Common categories of private financing Banks & Venture Capitalists Angel Investors Personal Credit & Microlenders Investors who provide money to Private individuals who Lines of Credit expansions and other finance new businesses in exchange for a invest money in start ups, with the goal of eventually major expenses portion of ownership selling their interest for a Helps you finance Risky, although it may be the only option for many people profit LE: Entrepeneurship & Small Business Ownership (ch6) 8 Banks won’t lend money to a start up that hasn’t established Provides money Provides management expertise Often stay involved with the company for a longer period of time than VCs a successful track record Public Financing Initial Public Offering (IPO) Corporation’s first offering of shares to the public CrowdFunding Soliciting project funds, business investment,or business loans from members of the public Combines elements of public and private financing Franchise Alternative Franchise Franchisee Franchisor Business arrangement in which one company obtains the rights to sell Business owner who pays for the rights to sell the products and use the Company that licences elements of its business system to other the products and use various elements of a business system of a franchisor companies business system of another company Pays an initial start up fee, then monthly royalties based on sales LE: Entrepeneurship & Small Business Ownership (ch6) 9 Types of Franchises Product Franchise Manufacturing Franchise Business-Format Franchise Gives you the right to sell Gives you the Gives you the trademarked right to produce right to open a goods to produce & distribute the business using a franchisor’s name manufacturer’s and format of products doing business Car dealers & Gasoline stations Coca Cola Pizza Hut, UPS, Taco Bell Advantages of Franchising Working for yourself with many advantages of being part of a larger established organization Viable business model Benefit of instant name recognition, national advertising programs, and standardized quality of goods & services Access to support network (and in many cases a ready made blueprint for building a business) Disadvantages of Franchising Relative lack of control Franchisors have control over decisions regarding product supplies, advertising, and pricing If system no longer works, you don’t have the option of independently changing your business LE: Entrepeneurship & Small Business Ownership (ch6) 10 Involves initial costs and regular payments after that, based on sales revenue LE: Entrepeneurship & Small Business Ownership (ch6) 11