1. *
Chapter Six
*
Entrepreneurship
and Starting a
Small Business
McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

2. *The Job-Creating
WHAT is ENTREPRENEURSHIP? Power of
Entrepreneurship
*
in the U.S.
• Entrepreneurship -- Accepting the risk of
starting and running a business.
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3. *The Job-Creating
NOTABLE ENTREPRENEURS Power of
Entrepreneurship
*
in the U.S.
• French immigrant É lruthè re Irè nè e du Pont de
Nemours started Du Pont in 1802.
• David McConnell borrowed $500 from a friend to
start Avon.
• George Eastman started Kodak with a $3,000
investment in 1880.
• Jeff Bezos started Amazon.com with investments
from his family and friends.
6-3

4. *
YOU’RE NEVER TOO YOUNG
to be an ENTREPRENEUR
(Spotlight on Small Business) *
• Leanna Archer – At 12 years old, she has her
own hair care line.
• Alexis Holmes – Started baking for a fundraiser,
now the 16-year-old owns her own bakery.
• Jack Short & Daniel Lyons – The two medical
students started Factory Green, a carbon neutral
apparel company, as undergrads.
• Mark Zuckerberg – Launched Facebook as a
Harvard freshman.
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5. * The Job-Creating
YOU’RE NEVER TOO OLD to be Power of
Entrepreneurship
an ENTREPRENEUR EITHER!
*
in the U.S.
Percent Identified as
Age Range
Self-Employed
55 to 59 28%
60 to 65 36%
66 to 70 42%
Source: Entrepreneur, www.entrepreneur.com, March 2009.
6-5

6. *
Why People
WHY TAKE the RISK? Take the
Entrepreneurial
Challenge
LG1
*
• Opportunity
• Profit
• Independence
• Challenge
6-6

7. * Why People
WHAT DOES IT TAKE to be an Take the
Entrepreneurial
ENTREPRENEUR? Challenge
LG1
*
• Self-directed
• Self-nurturing
• Action-oriented
• Highly energetic
• Tolerant of uncertainty
6-7

8. *Turning Your
An IDEA is a Passion and
Problems into
GOOD OPPORTUNITY IF… Opportunities
LG1
*
• 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.
6-8

9. *Micropreneurs
HOME-BASED BUSINESS and Home-Based
Businesses
GROWTH LG1
*
• 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.
6-9

10. *
Micropreneurs
BENEFITS of HOME-BASED and Home-Based
Businesses
BUSINESSES LG1
*
• Ability to start your business immediately
• Minimal startup capital needed
• No rent or excessive set-up charges
• Comfortable working conditions
• Reduced wardrobe expenses
• No commuting
• Tax benefits
• Elimination of office politics
• Low risk for trial and error
Source: St. Louis Small Business Monthly, February, 2004.
6-10

11. *
Micropreneurs
DOWNSIDES of HOME-BASED and Home-Based
Businesses
BUSINESSES LG1
*
• 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
Source: St. Louis Small Business Monthly, February, 2004.
6-11

12. *
OUTSOURCING YOUR SMALL
BUSINESS
(Reaching Beyond Our Borders) *
• The latest outsourcing trend is using the Internet
to find affordable labor around the world.
• Elance provides small businesses with a hub to
find low-cost contractors.
• Thanks to the inexpensive freelancers, Elance
now has 48,500 clients, up 70% since 2007.
6-12

13. *Web-Based
ONLINE BUSINESS Businesses
LG1
*
• 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.
• 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.
6-13

14. *
INTRAPRENEURS Entrepreneurship
Within Firms
LG1
*
• 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.
• Art Fry of 3M developed Post-
Its when he was trying to mark
pages of his hymnal without
damage.
6-14

15. *Small Versus
SMALL BUSINESSES Big Business
LG2
*
• 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.
6-15

16. *Small Versus
SMALL BUSINESS STATISTICSBig Business
LG2
*
• There are 26.8 million small businesses in the
U.S.
• Of all nonfarm business in the U.S., almost 97%
are considered small.
• Small businesses account for over 50% of the
GDP.
• Small businesses generate 60-80% of new jobs.
• About 80% of U.S. workers first jobs were in
small business.
6-16

17. *
ADVANTAGES of SMALL OVER Importance of
Small Business
BIG BUSINESS LG2
*
• More personal customer service.
• The ability to respond quickly to opportunities.
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18. *Small Business
BUSINESS FAILURES are LOWER
Success &
Failure
THAN the REPORTS BECAUSE… LG2 *
• 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.”
6-18

19. *Small Business
THEY DID WHAT? Success &
Famous Business Failures Failure
LG2
*
• Tommy Hilfiger – First store went bankrupt
• Milton Hershey – First confectionary failed
• H.J. Heinz – Company went bankrupt six years
after start
• Walt Disney – First film
company went bankrupt
• Henry Ford – First two car
companies failed
• L.L. Bean – Almost went
bankrupt in first year
Source: World Features Syndicate, 2009.
6-19

20. *Learning About
LEARNING ABOUT Small Business
Operations
SMALL BUSINESS LG3
*
• 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.
6-20

21. *
MARKETING RESEARCH Looking for Help
LG4
*
• Marketing decisions need to be made long before
introducing a product or opening a store.
• A marketing research study can help you:
- Determine where to locate.
- Whom to select as your target market.
- What is an effective strategy for reaching the
market.
6-21

22. *
BUSINESS PLANS Begin with
Planning
LG4
*
• 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.
6-22

23. *
WRITING a BUSINESS PLAN Writing a
Business Plan
LG4
*
• 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.
6-23

24. *Getting Money
SOURCES of CAPITAL to Fund a Small
Business
LG4
*
• 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.
6-24

25. *The Small
The SMALL BUSINESS Business
Administration
ADMINISTRATION LG4
*
• Small Business Administration (SBA) -- A
U.S. government agency that advises and assists
small businesses by providing management training
and financial advice.
• SBA started a microloan program in 1991 that
provides very small loans to small business
owners.
• Program judges worthiness on belief of the
borrower’s integrity and soundness of their
business ideas.
6-25

26. *The Small
SMALL BUSINESS Business
Administration
DEVELOPMENT CENTERS LG4
*
• Small Business Development Centers (SBDC)
are funded jointly by the federal government and
individual states.
• SBDCs are able to evaluate the feasibility of
your idea, develop your business plan and
complete your funding application – for no
charge.
6-26

27. *
ACCOUNTING ASSISTANCE Keeping Records
LG4
*
• Computers simplify the process by helping with
inventory control, customer records and payroll.
• 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.
6-27

28. *
LEGAL HELP Looking for Help
LG4
*
• Owners need outside consulting advice early in
the process.
• Small and medium-sized firms cannot afford to
hire experts as employees.
• A competent lawyer can help with:
- Leases
- Contracts
- Partnership agreements
- Protection against liabilities
6-28

29. *
OTHER FORMS OF HELP Looking for Help
LG4
*
6-29