BA 100 Chapter 6

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CHAPTER 6
Entrepreneurship
and
Starting a
Small Business

2. ©McGraw-Hill Education.
LEARNING OBJECTIVES 1 of 2
1. Explain why people take the risks of
entrepreneurship; list the attributes of successful
entrepreneurs; and describe entrepreneurial
teams, intrapreneurs, and home- and web-based
businesses.
2. Discuss the importance of small business to the
American economy and summarize the major
causes of small-business failure.

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LEARNING OBJECTIVES 2 of 2
3. Summarize the ways to learn about how small
businesses operate.
4. Analyze what it takes to start and run a small
business.
5. Outline the advantages and disadvantages small
businesses have in entering global markets.

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PRUDENCIO UNANUE
Goya Foods
• Goya Foods has provided for
Hispanic families for over 75
years.
• Unanue, a Spanish
immigrant, opened a small
grocery store in 1936.
• Still family-owned, Goya now
employs over 3,500 and
sells more than 1,500
products.
Photo credit: © Tony Freeman/PhotoEdit

5. ©McGraw-Hill Education.
NAME that COMPANY
While I was an employee at a big company, I
developed a product that has become a staple on
most office supply lists. I needed something to mark
the pages of a hymnal without falling out or
damaging the book. What started as a simple, yellow
piece of paper with a new adhesive evolved into
many different versions—now there are Super
Sticky, recycled, Pop-Up and electronic versions of
my inventions.
Who am I, who did I work for, and what did I invent?

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WHAT is ENTREPRENEURSHIP?
Entrepreneurship -- Accepting the risk of starting and
running a business.
Photo credit: Peathegee Inc/Blend Images LLC

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NOTABLE ENTREPRENEURS
French immigrant Élruthère Irènèe 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.

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EARNING while LEARNING
Jeremy Young – Developed a prepaid laundry service
for students at his university.
Jessica Mah – Started InternshipIn that helps students
find high-quality internships.
Zach Workman – Launched Punch, an all-natural
energy drink.
John Goscha – Created her one-of-a-kind jewelery
company, Tramonti, during her freshman year.

9. ©McGraw-Hill Education.
YOU’RE NEVER TOO YOUNG
to be an ENTREPRENEUR
Four reasons to start your business right away:
1. You don’t have a mortgage or kids to take care of.
2. You can survive on little funds and work long hours.
3. No disruption to your career path. It hasn’t started yet!
4. Use your alma mater for resources.
Source: Entrepreneur, www.entrepreneur.com, accessed November 2014.

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YOU’RE NEVER TOO OLD to be
an ENTREPRENEUR EITHER!
The highest rate of
entrepreneurship activity is in
the 55-64 age group!
Since 1996, older Americans
have opened businesses at a
higher rate than 20-34 year olds.
Older entrepreneurs have
greater experience and more
financial resources.
Source: U.S. News and World Report, www.usnews.com, accessed October 2014.
Photo credit: © Dan Callister/Alamy

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WHY TAKE the RISK? LO 6-1
• Opportunity
• Profit
• Independence
• Challenge
Photocredit:(c)BrandXPictures/Superstock

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BIG TIME PROFIT LO 6-1
Michael Dell could buy 1,100
new laptops for every student at
the University of Texas at Austin!
Dietrich Mateschitz could buy
himself a can of Red Bull every
day for the next 11 million years!
Liliane Bettencourt could buy a
box of L’Oreal hair color for
every woman in the world!
Source: Forbes, www.forbes.com, accessed November 2014.
Photo Credit: Emran Kassim

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WHAT DOES IT TAKE to be an
ENTREPRENEUR? LO 6-1
Self-directed
Self-nurturing
Action-oriented
Highly energetic
Tolerant of uncertainty
Photo credit: © Brian Smale Photography

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FIVE STEPS to STARTING YOUR BUSINESS
in SCHOOL LO 6-1
1. Find a problem or need.
2. Zero in on specifics.
3. Do research on campus,
test products with students.
4. Move forward with your
ideas. Don’t wait!
5. Sacrifice.
Source: Entrepreneur, www.entrepreneur.com, accessed November 2014.
Photo credit: Shutterstock/Jakub Zak

15. ©McGraw-Hill Education.
An IDEA is a
GOOD OPPORTUNITY IF… LO 6-1
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.

16. ©McGraw-Hill Education.
ENTREPRENEURIAL TEAMS LO 6-1
Entrepreneurial team -- A group of
experienced people from different areas of
business who join to form a managerial
team with the skills to develop, make and
market a new product.
An entrepreneurial team (Steve Jobs,
Steve Wozniak and Mike Markkula)
was key to Apple’s success.
Photo credit: (c) Lars Niki

17. ©McGraw-Hill Education.
MICROPRENEURS LO 6-1
Micropreneurs -- 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.
About half of U.S. micropreneurs are home-based
business owners – writers, consultants, video
producers, architects, bookkeepers, etc.
Nearly 60% of home-based micropreneurs are men.

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HOME-BASED BUSINESS
GROWTH LO 6-1
• Social attitudes have changed.
• New tax laws have loosened restrictions on
deducting expenses for home offices.
• Computer technology has
leveled the playing field.
• Corporate downsizing has
led many to venture on
their own.
Photo credit: © Abbi O’Leary/MCT/Newscom

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HOME-BASED BUSINESS
ISN’T EASY LO 6-1
Getting new customers is difficult.
Managing your time requires self-discipline.
Work and family tasks are sometimes not separated.
Government ordinances may restrict your business.
Homeowner’s insurance may not cover business-
related claims.

20. ©McGraw-Hill Education.
BENEFITS of HOME-BASED
BUSINESSES LO 6-1
• Ability to start your business
immediately
• Minimal start-up 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
Photo credit: Design Pics / Don Hammond

21. ©McGraw-Hill Education.
DOWNSIDES of HOME-BASED
BUSINESSES LO 6-1
• Difficult to establish work
habits
• Limited support system
• Isolation
• Work space may be limited
• Clients may be uncomfortable
coming to your home
• Zoning restrictions
• Success is based 100% on
your efforts
Photo credit: Ingram Publishing

22. ©McGraw-Hill Education.
THINK YOU’RE READY
to WORK from HOME? LO 6-1
Yes? No?
If I don’t know the answer, I can figure it out.
I’m hardworking, self-directed and disciplined.
I’m organized and can multitask.
I don’t mind working long hours or weekends.
I regularly set goals and measure progress.
I’m happy being alone.
I’m an excellent communicator.
I can create relationships with people I’ve never met.
I’m productive on my own.
My family and friends don’t expect me to be available
when I’m working at home.
Source: Entrepreneur, June 2010.

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ONLINE BUSINESS LO 6-1
Online sales reached $262
billion in 2013, about 8% of
all retail sales.
All retail sales were up 2.5%
in 2013. However, online
retail sales grew 13%.
Photo credit: © Brian Smale Photography

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AFFILIATE MARKETING LO 6-1
Affiliate Marketing -- An online marketing strategy in
which a business rewards individuals or other
businesses for each visitor or customer the affiliate
sends to its website.
Photocredit:©TomMerton/agefotostock

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BOOSTING YOUR BUSINESS’S
ONLINE PRESENCE LO 6-1
Establish an identity.
Be easy to find.
Steal good ideas and
make them your own.
Look out for opportunities.
Remember other forms of
marketing.
Be friendly!
Source: Entrepreneur, www.entrepreneur.com, accessed November 2014.
Photo Credit: Marc Wathieu

26. ©McGraw-Hill Education.
INTRAPRENEURS
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.
LO 6-1
Photocredit:©LucidioStudio,Inc./
Moment/GettyImagesRF

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GOVERNMENT and
ENTREPRENEURSHIP LO 6-1
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.

28. ©McGraw-Hill Education.
TEST PREP 1 of 3
1. Why are people willing to take the risks of
entrepreneurship?
2. What are the advantages of entrepreneurial
teams?
3. How do micropreneurs differ from other
entrepreneurs?
4. What does the government do to promote
entrepreneurship?

29. ©McGraw-Hill Education.
SMALL BUSINESSES LO 6-2
Small Business -- Independently owned and operated,
not dominant in its field of operation and meets certain
standards of size.
Businesses are “small” in relation to other
businesses in their industries.
Photo credit: © Rick Madonik/Toronto Star/Getty Images

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SMALL BUSINESS STATISTICS LO 6-2
There are 28 million small businesses in the U.S.
Of all nonfarm businesses in the U.S., almost 97%
are considered small.
Small businesses account for over 50% of the GDP.
Small businesses have generated 65% of new jobs
since 1995.
About 80% of U.S. workers’ first jobs were in small
business.

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ADVANTAGES of SMALL OVER
BIG BUSINESS LO 6-2
More personal customer service.
The ability to respond quickly to opportunities.
Photo Credit: Elliot Brown

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BUSINESS FAILURES are LOWER THAN the
REPORTS BECAUSE… LO 6-2
• 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.”
Photo credit: Ingram Publishing

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THEY DID WHAT?
Famous Business Failures LO 6-2
Walt Disney – First film company went bankrupt
Henry Ford – First two car companies failed
L.L. Bean – Almost went bankrupt in first year
Tommy Hilfiger – First store went bankrupt
Milton Hershey – First confectionery failed
H.J. Heinz – Company went bankrupt six
years after start
Source: World Features Syndicate.
Photocredit:ChloeJohnson/Alamy

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CAUSES of SMALL BUSINESS
FAILURES LO 6-2
Jump to Appendix 1 for long image description

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INCREASING SMALL BUSINESS
SUCCESSES LO 6-2
Jump to Appendix 2 for long image description

36. ©McGraw-Hill Education.
LEARNING ABOUT
SMALL BUSINESS LO 6-3
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.

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SHOULD YOU STAY or
SHOULD YOU GO?
Suppose you worked in a company for two years
and you see signs of it faltering. You and a coworker
have ideas about how to succeed and are
considering quitting to start your own company.
Should you approach other coworkers about working for
your new venture?
Will you try to lure your old boss’s customers?
What are the alternatives?
What are the consequences?
What is the most ethical choice?

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MAJOR BUSINESS FUNCTIONS LO 6-4
• Planning
• Financing
• Knowing customers
• Managing employees
• Keeping records
Photo credit: © Annie Tritt/The New York Times/Redux

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BUSINESS PLANS LO 6-4
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.

40. ©McGraw-Hill Education.
WRITING a BUSINESS PLAN LO 6-4
Getting the plan into the right hands is almost as
important as getting the right information in it.
A good plan takes a long time to prepare.
A good executive summary catches interest and
tempts potential investors to read on.
Photo credit: Caiaimage/Glow Images

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A FAMILY AFFAIR
What to Consider Before Starting a Family Business LO 6-4
Clarify Expectations – What will each person
contribute?
Discuss Work/Family Boundaries – What is the line
that separates work from personal relationships?
Develop Good Communication – Agree about types
of decisions you’ll make jointly and on your own.
Clarify Long-Term Intentions – Discuss how long
everyone will work full time and goals for the business.
Have an Escape Hatch – Have a Plan B.
Source: Bloomberg Businessweek, www.businessweek.com, accessed November 2014.

42. ©McGraw-Hill Education.
SOURCES of CAPITAL LO 6-4
• 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.
Photo credit: Shutterstock / Givaga

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FUNDING YOUR DREAM
Getting Cash When Financing Isn’t an Option LO 6-4
1. Get close to your customers.
2. Make clients pay upfront.
3. Outsource tasks on the cheap.
4. Get in front of customers
quickly.
5. Become an expert.
6. Ask for help.
7. Be patient.
Source: Inc., www.inc.com, October 2014.
Photocredit:©JohnLund/BlendImages/GettyImagesRF

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COMMUNITY DEVELOPMENT FINANCIAL
INSTITUTIONS LO 6-4
CDFIs are playing a big role in the economic
recovery.
First formed in the early 1980s; by 2009, over $1
billion flowed into CDFIs from investment
companies.
Only 1% of loans were not paid back in the last 30
years!

45. ©McGraw-Hill Education.
STATES TEST NEW CROWDINVESTING
RULES
• Sites like Kickstarter and
Indiegogo have connected loan
seekers to potential lenders.
• When the JOBS Act was
passed in 2012, the goal was
to make crowdfunding more
accessible.
• It’s still too early to know how
this will affect companies and
investors.
Photocredit:©PeterTitmuss/Alamy

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The SMALL BUSINESS
ADMINISTRATION LO 6-4
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 based on the borrowers’
integrity and soundness of their business ideas.

47. ©McGraw-Hill Education.
The SMALL BUSINESS
INVESTMENT COMPANY LO 6-4
Small Business Investment Company (SBIC) -- A
program through which private investment companies
licensed by the SBA lend money to small businesses.
An SBIC must have a minimum of $5 million in
capital and can borrow up to $2 from the SBA for
each $1 of capital it has.
SBICs are able to identify a business’s trouble spots
early, giving entrepreneurs advice, and in some
cases rescheduling loan payments.

48. ©McGraw-Hill Education.
SMALL BUSINESS
DEVELOPMENT CENTERS LO 6-4
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.

49. ©McGraw-Hill Education.
HELP PLEASE!
More SBA Resources and Other Helpful Groups LO 6-4
Small Business Investment Companies
The Office of Innovation & Entrepreneurship
SCORE
Entrepreneurship.org
LO 6-4

50. ©McGraw-Hill Education.
KNOWING the MARKET LO 6-4
Market -- Consumers with unsatisfied wants and needs
who have both resources and willingness to buy.
Set out to fill the market’s needs by offering top
quality and great service at a fair price.
One of the great advantages of small businesses is
the ability to know the market and quickly adapt to
market needs.

51. ©McGraw-Hill Education.
BEYOND KNOWING WHAT YOUR
CUSTOMERS NEED
• Quirky allows customers to
take part in designing
products.
• Anyone in the community
can take part in design,
style, naming, packaging,
and pricing.
• Products are sold through
the site and can even be
found in brick and mortar
stores.
Photo credit: Courtesy of Quirky

52. ©McGraw-Hill Education.
MANAGING EMPLOYEES LO 6-4
Hiring, training and motivating employees is critical.
Employees of small companies are often more
satisfied with their jobs – they feel challenged and
respected.
Entrepreneurs best serve themselves and the
business if they recruit and groom employees for
management positions.

53. ©McGraw-Hill Education.
ACCOUNTING ASSISTANCE LO 6-4
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.

54. ©McGraw-Hill Education.
LEGAL HELP LO 6-4
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

55. ©McGraw-Hill Education.
MARKETING RESEARCH LO 6-4
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.

56. ©McGraw-Hill Education.
OTHER FORMS OF HELP LO 6-4
A commercial loan officer can help:
- Design an acceptable business plan.
- Give financial advice.
- Lend money.
An insurance agent can help you:
- Know the risks associated with the business.
- How to cover risks with insurance.
- How to prevent risks with safety devices.
Service Corps of Retired Executives
- More than 13,000 volunteers from industry, trade
associations, and education who counsel small business at
no cost.

57. ©McGraw-Hill Education.
WHAT WENT WRONG?
Five Mistakes Business Owners Make LO 6-4
1. They’re too afraid to take the leap!
2. They hire the wrong people.
3. They don’t want to give up control.
4. They become complacent.
5. They fail to see new opportunities.
Source: Alan Hughes, www.blackenterprise.com, accessed September 2014.

58. ©McGraw-Hill Education.
TEST PREP 2 of 3
1. A business plan is probably the most important
document a small business owner will ever
create. There are nine sections in the business
plan outline. Can you describe at least five
sections of a business plan?

59. ©McGraw-Hill Education.
SMALL BUSINESS PROSPECTS
ABROAD LO 6-5
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.

60. ©McGraw-Hill Education.
TEST PREP 3 of 3
1. Why do many small businesses avoid doing
business globally?
2. What are some of the advantages small
businesses have over large businesses in selling
in global markets?

61. ©McGraw-Hill Education.
Appendix 1: CAUSES of SMALL BUSINESS
FAILURES
Some of the reasons for small-business failure are:
Plunging in without first testing the waters on a small scale.
Underpricing or overpricing goods or services.
Underestimating how much time it will take to build a market.
Starting with too little capital.
Starting with too much capital and being careless in its use.
Going into business with little or no experience and without first learning something about the industry
or market.
Borrowing money without planning just how and when to pay it back.
Attempting to do too much business with too little capital.
Not allowing for setbacks and unexpected expenses.
Buying too much on credit.
Extending credit too freely.
Expanding credit too rapidly.
Failing to keep complete, accurate records, so owners drift into trouble without realizing it.
Carrying habits of personal extravagance into the business.
Not understanding business cycles.
Forgetting about taxes, insurance, and other costs of doing business.
Mistaking the freedom of being in business for oneself for the liberty to work or not, according to whim.
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62. ©McGraw-Hill Education.
Appendix 2: INCREASING SMALL BUSINESS
SUCCESSES
The following factors increase the chances of small-business success:
The customer requires a lot of personal attention, as in a salon.
The product is not easily made by mass-production techniques (e.g., custom-tailored
clothes or custom auto-body work).
Sales are not large enough to appeal to a large firm (e.g., a novelty shop).
The neighborhood is not attractive because of crime or poverty. This provides a
unique opportunity for small grocery stores and laundries.
A large business sells a franchise operation to local buyers. (Don’t forget franchising as
an excellent way to enter the world of small business.)
The owner pays attention to new competitors.
The business is in a growth industry (e.g., computer services or web design).
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