CHAPTER 6

Entrepreneurship
and
Starting a
Small Business

McGraw-Hill/Irwin Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
 LEARNING OBJECTIVES

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

Saudi economy and summarize the major causes of
small-business failure.

6-2
 LEARNING OBJECTIVES

3. Summarize the ways to learn about how small

businesses operate.

4. Analyze what it takes to start and run a small

business.

6-3
 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. 6-4
 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?

6-5
WHAT is ENTREPRENEURSHIP?

• Entrepreneurship --
Accepting the risk of starting
and running a business.

6-6
 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.
6-7
 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.
6-8
 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. 6-9

 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. 6-10
 LO 6-1
WHY TAKE the RISK?

• Opportunity

• Profit

• Independence

• Challenge

6-11
 WHAT DOES IT TAKE to be an LO 6-1

ENTREPRENEUR?

• Self-directed

• Self-nurturing

• Action-oriented

• Highly energetic

• Tolerant of uncertainty

6-12
FIVE STEPS to STARTING YOUR LO 6-1

BUSINESS in SCHOOL

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. 6-13

 An IDEA is a LO 6-1

GOOD OPPORTUNITY IF…

• 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.

6-14
 LO 6-1
ENTREPRENEURIAL TEAMS

• 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.
6-15
 LO 6-1
MICROPRENEURS

• 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.
6-16
 HOME-BASED BUSINESS LO 6-1

GROWTH

• Computer technology has leveled the playing

field.
• Corporate downsizing has led many to venture on
their own.
• Social attitudes have
changed.

6-17
 HOME-BASED BUSINESS LO 6-1

ISN’T EASY

• Getting new customers is difficult.

• Managing your time requires self-discipline.

• Work and family tasks are sometimes not

separated.

• Government regulations may restrict your

business.

6-18
 BENEFITS of HOME-BASED LO 6-1

BUSINESSES
• 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 6-19
 DOWNSIDES of HOME-BASED LO 6-1

BUSINESSES
• Difficult to establish work
habits
• Limited support system
• Isolation
• Work space may be limited
• Clients may be uncomfortable
coming to your home
• Success is based 100% on
your efforts
6-20
 THINK YOU’RE READY LO 6-1

to WORK from HOME?

Source: Entrepreneur, June 2010. 6-21

 LO 6-1
ONLINE BUSINESS

• 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%.

6-22
 LO 6-1
AFFILIATE MARKETING

• 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.

6-23
 BOOSTING YOUR BUSINESS’S LO 6-1

ONLINE PRESENCE
• Establish an identity.
• Be easy to find.
• Steal good ideas and
make them your own.
• Look out for
opportunities.
Photo Credit: Marc Wathieu

• Remember other forms

of marketing.
• Be friendly!
Source: Entrepreneur, www.entrepreneur.com, accessed November 2014. 6-24
 LO 6-1
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.
6-25
 GOVERNMENT and LO 6-1

ENTREPRENEURSHIP

• 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.

6-26
 TEST PREP

• Why are people willing to take the risks of

entrepreneurship?

• What are the advantages of entrepreneurial

teams?

• How do micropreneurs differ from other

entrepreneurs?

• What does the government do to promote

entrepreneurship?
6-27
 LO 6-2
SMALL BUSINESSES

• 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.

6-28
 ADVANTAGES of SMALL OVER LO 6-2

BIG BUSINESS

• More personal customer service.

• The ability to respond quickly to opportunities.

Photo Credit: Elliot Brown

6-29
BUSINESS FAILURES are LOWER LO 6-2

THAN the REPORTS BECAUSE…

• 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.”

6-30
 THEY DID WHAT? LO 6-2

Famous Business Failures

• Tommy Hilfiger – First store went bankrupt

• Milton Hershey – First confectionery 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. 6-31
 LEARNING ABOUT LO 6-3

SMALL BUSINESS

• 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.
6-32
 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?
6-33
 LO 6-4
MAJOR BUSINESS FUNCTIONS

• Planning

• Financing

• Knowing customers

• Managing employees

• Keeping records

6-34
 LO 6-4
BUSINESS PLANS

• 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.
6-35
 LO 6-4
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.
• Getting the plan into
the right hands is
almost as important
as getting the right
information in it.

6-36
 A FAMILY AFFAIR LO 6-4

What to Consider Before Starting a Family Business

• 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. 6-37
 LO 6-4
SOURCES of CAPITAL

• 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. 6-38
 FUNDING YOUR DREAM LO 6-4

Getting Cash When Financing Isn’t an Option

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.

6-39
Source: Inc., www.inc.com, October 2014.
 LO 6-4
KNOWING the MARKET

• 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.

6-40
 LO 6-4
MANAGING EMPLOYEES

• 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.

6-41
 LO 6-4
ACCOUNTING ASSISTANCE

• 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.
6-42
 LO 6-4
LEGAL HELP

• 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
6-43
 LO 6-4
MARKETING RESEARCH

• 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.

6-44
 WHAT WENT WRONG? LO 6-4

Five Mistakes Business Owners Make

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. 6-45
 TEST PREP

• 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?

6-46