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*Chapter Six
Entrepreneurship and Starting a
Small Business
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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*The Job-Creating Power of Entrepreneurship in the U.S.
• Entrepreneurship -- Accepting the risk of starting and running a business.
WHAT is ENTREPRENEURSHIP?
6-2
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*Why People Take the Entrepreneurial Challenge
• Opportunity
• Profit
• Independence
• Challenge
LG1
WHY TAKE the RISK?
6-3
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*Why People Take the Entrepreneurial Challenge
• Self-directed
• Self-nurturing
• Action-oriented
• Highly energetic
• Tolerant of uncertainty
LG1
WHAT DOES IT TAKE to be an ENTREPRENEUR?
6-4
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*Turning Your Passion and Problems into Opportunities
• 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.
LG1
An IDEA is a GOOD OPPORTUNITY IF…
• You can get your product or service to customers before the window of opportunity closes.
• You can keep the business going.
6-5
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* Micropreneurs and Home-Based Businesses
• Micropreneur -- 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 a balanced lifestyle.
• Many micropreneurs are home-based business owners – writers, consultants, video producers, architects, bookkeepers, etc.
• Nearly 60% of home-based micropreneurs are men.
LG1
MICROPRENEURS
6-6
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*Micropreneurs and Home-Based Businesses
• Computer technology has leveled the playing field.
• 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.
LG1
HOME-BASED BUSINESS GROWTH
6-7
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Source: St. Louis Small Business Monthly, February, 2004.
• Ability to start your business immediately• Minimal startup capital needed• No rent or excessive set-up charges• Comfortable working conditions
Micropreneurs and Home-Based Businesses
LG1
BENEFITS of HOME-BASED BUSINESSES
• Reduced wardrobe expenses• No commuting• Tax benefits• Elimination of office politics• Low risk for trial and error
6-8
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Source: St. Louis Small Business Monthly, February, 2004.
• Difficult to establish work habits
• Limited support system
• Isolation
• Work space may be limited
• Disruption of personal life
• Clients may be uncomfortable coming to your home
• Zoning restrictions
• Success is based 100% on your efforts
Micropreneurs and Home-Based Businesses
LG1
DOWNSIDES of HOME-BASED BUSINESSES
6-9
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*Web-Based Businesses
• Affiliate Marketing -- An Internet-based marketing strategy in which a business rewards individuals or other businesses for each visitor or customer the affiliate sends to its website.
LG1
ONLINE BUSINESS
• Web-based businesses have more unique products than most brick and mortar stores.
• Online sales reached $165.9 billion in 2007, 8% of all retail sales.
6-10
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*Entrepreneurship Within Firms
• Intrapreneur -- A creative person who works as an entrepreneur within a corporation.
• Intrapreneurs use a company’s existing resources to launch new products for the company.
LG1
INTRAPRENEURS
6-11
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*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.
• Enterprise Zones -- Specific geographic areas to which governments attract private business investment by offering lower taxes and other government support.
• Incubators -- Offer new businesses low-cost offices with basic services.
LG1
GOVERNMENT and ENTREPRENEURSHIP
6-12
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*Small Versus Big Business
• Small Business -- Independently owned and operated, not dominant in its field of operation and meets certain standards of size.
• Businesses are “small” in relationship to other businesses in their industries.
LG2
SMALL BUSINESSES
6-13
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*Importance of Small Business
• More personal customer service.
• The ability to respond quickly to opportunities.
LG2
ADVANTAGES of SMALL OVER BIG BUSINESS
6-14
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*Learning About Small Business Operations
• Learn from Others – Investigate your local colleges for classes on small business and entrepreneurship; talk to and work for successful local entrepreneurs.
• Get Some Experience – Gain three years experience in the field; then start a part-time small business.
• Take Over a Successful Firm – Serve as an apprentice and eventually take over once the owner steps down.
LG3
LEARNING ABOUT SMALL BUSINESS
6-15
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*Managing a Small Business
• Planning
• Financing
• Knowing customers
• Managing employees
• Keeping records
LG4
MAJOR BUSINESS FUNCTIONS
6-16
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*Begin with Planning
• Business Plan -- A detailed written statement that describes the nature of the business, the target market, the advantages the business will have over competition, and the resources and owners qualifications.
• 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.
LG4
BUSINESS PLANS
6-17
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*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.
LG4
WRITING a BUSINESS PLAN
• Getting the plan into the right hands is almost as important as getting the right information in it.
6-18
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*Getting Money to Fund a Small Business
• Personal savings
• Relatives
• Former employers
• Banks & finance companies
• Government agencies
• Angel investors
• Venture capitalists -- Individuals or companies that invest in new businesses in exchange for partial ownership.
LG4
SOURCES of CAPITAL
6-19
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*Going International: Small Business Prospects
• Small and medium-sized businesses accounted for 99% 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.
LG5
SMALL BUSINESS PROSPECTS ABROAD
6-20