CHAPTER 7: SMALL BUSINESS AND

ENTREPRENEURSHIP

Economic Rocket Fuel

LAUNCHING NEW VENTURES: WHAT’S IN IT FOR ME?

Greater Financial Success Independence Flexibility Challenge Survival

On any given day in the United States, more people are trying to start a new business

than are getting married or having children.

THE ENTREPRENEUR: A DISTINCTIVE PROFILE

Vision

Energy

Tolerance

of

Uncertaint

y

Self-

Reliance

Confidence

Tolerance of Failure

Entrepreneurs – People who risk their time, money, and other resources to start and manage a business.

OPPORTUNITIES AND THREATS FOR SMALL BUSINESS: A TWO-SIDED COIN

Threats:

• Higher Risk of Failure

• Lack of Knowledge and Experience

• Too Little Money

• Bigger Regulatory Burden

• Higher Health Insurance Costs

Opportunities:

• Market Niches

• Personal Customer Service

• Lower Overhead Cost

• Technology

Opportunities:

• Market Niches

• Personal Customer Service

• Lower Overhead Cost

• Technology

SMALL BUSINESS FAILURE

Year in Business

Survival Rate

Change vs. Prior Year

(%)

Year 1 81% 19%

Year 2 66% 15%

Year 3 54% 12%

Year 4 44% 10%

Year 5 38% 6%

Year 6 34% 4%

Year 7 31% 3%

Petstore.com offered a fish

delivery service. They were bought out by Pets.com for $13 million in

stock

DOT-COM DEBACLES

Webvan: the value of this early online grocer peaked at $1.2 billion, but Webvan left 2,000

people out of work when it closed its doors in the

middle of 2001.Pets.com: Shutting

down only nine months after its $82.5 million IPO, Pets.com hawked pet care products from doggie treats to kitty

litter, but lacked a workable plan for high

shipping costs.

Arrangeonline.com, Funeral.com,

Heavenly-Door.com and Plan4ever.com

marketed funeral

arrangements and related

services

LAUNCH OPTIONS

• Starting from scratch• Buying an established business• Buying a franchise

BUYING AN ESTABLISHED BUSINESS

Key Pros: Key Cons:• The concept, organizational

structure, and operating practices are in place.

• Relationships are established.

• Obtaining financing is less challenging.

• Working with someone else’s idea may not be fun.

• You may inherit old mistakes.

STARTING A BUSINESS FROM SCRATCH

Key Pros: Key Cons:• It’s all you : Your concept,

your decisions, your structure.

• You don’t have to deal with the prior owner’s bad decisions.

• It’s all you. That’s a lot of pressure.

• It can be hard to get credit.• Logistics can be challenging• It takes time, money, and

sheer sweat to build a customer base.

BUYING A FRANCHISE

Key Pros: Key Cons:

Less Risk

Training and Support

Brand Recognition

Access to Funding

Costs

Lack of Control

Negative Halo Effect

Growth Challenges

Restriction on Sale

Poor Execution

ENTERING INTO A FRANCHISE AGREEMENT

Know all the facts before signing the dotted line:

Terms and Conditions Fees and Other Payments Training and Support Specific Operational Requirements Conflict Resolution Assigned Territory

Franchisors must provide a Franchise Disclosure Document (FDD)

The Federal Trace Commission (FTC) require: The FDD must be written in plain English The franchisor must be given 14 days to review the FDD The Franchisee should have a lawyer review the

document

TOOLS FOR BUSINESS SUCCESS

Small Business Administration

Gain Experience

Learn from Others

Educate Yourself

Write a Business Plan

The Business Plan

FINDING THE MONEY: FUNDING OPTIONS

Personal Resources

Loans

Angel Investors

Venture Capital

SMALL BUSINESS AND THE ECONOMY: AN OUTSIZED IMPACT

Creating New Jobs

Fueling Innovation

Vitalizing Inner Cities

ECONOMIC IMPACT

Just 9.8% of the world’s entrepreneurs expect to create almost 75% of the jobs generated by new business ventures in the next five years.1 out of 10 adults worldwide start businesses every year Three key factors drive entrepreneurship globally:

□ Per Capita Income□ Opportunity Cost□ Cultural/Political Environment