Session

Session

6

Small Business, Entrepreneurship & Franchising 4-1

Business

 Kevin Plank was a football player. He hated how his cotton shirts felt when becoming wet. So a paid his tailor to stitch some tees of moisture-wicking fabric using to produce cycling pants, calling it “Under Armour”. Today he is a multi-billionaire 6-2

Business

Chapter Outline  The Nature of Entrepreneurship & Small Business  Advantages of Small Business  Disadvantages of Small Business  Starting a Small Business  The Future of Small Business  Making Big Businesses act “SMALL”

6-3

Business

Entrepreneurship & Small Business • Entrepreneurship  The process of creating and managing a business to achieve a desired objective

• Small Business  Any independently owned and operated business that is not dominant in its competitive area and employs fewer than 500 people

6-4

Business

Non-Financial Reasons To Start A Business Do Something I Love

9% 7%

More Flexibility 41%

9%

Be Key Decision Maker Change Lifestyle

13% 21%

Spend More Time With Family Don't Know or Not Stated

Source: CIBC World Markets, Economics & Strategy, “Secrets to Small Business Success”, research.cibcwm.com/economic_public/ download/sb-ssbs-10192004.pdf

6-5

Business

Financial Reasons To Start A Business Loss of Job Or Change Of Employment 27%

More Income For Necessities

39%

Second Income

13%

Bridge A Gap Till Retirement Forced Into Early Retirement

3%

12% 6%

Don't Know Or Not Stated

Source: CIBC World Markets, Economics & Strategy, “Secrets to Small Business Success”, research.cibcwm.com/economic_public/ download/sb-ssbs-10192004.pdf

6-6

Business

Facts about Small Business in USA

6-7

Business

Need For Small Businesses • Job Creation • Innovation Products/Services Processes • Important To Big Business Did You Know? • 9.1 million women-owned businesses employ 27.5 million and contribute 3.6 trillion to the economy. • 3.25 million minority-owned firms employ 4 million and account for $495 billion in revenues

6-8

Business

Industries that attract Small Business • Retailing and Wholesaling • Services • Manufacturing • High Technology Did You Know? 39 percent of high-tech jobs are in small businesses 6-9

Business

Small Business Impact By Industry

6-10

Business

Advantages of Owning a Small Business • Personal  Independence  Freedom of choice  The option of working at home

• Business  Often requires less money to start and maintain  Flexibility  The ability to focus on a few key customers  The chance to develop a reputation for quality and service Did You Know? 12% of Internet start-ups were launched in a garage.

6-11

Business

Reasons For Success

• Hard Work, Drive & Dedication • Demand For Product/Service • Managerial Competence • Luck 6-12

Business

Traits needed to Succeed in Entrepreneurship • Neuroticism  Helps entrepreneurs focus on details

• Extroversion  Facilitates network building

• Conscientiousness  Facilitates planning

• Agreeableness Facilitates networking • Openness to new ideas 6-13

Business

Entrepreneurs Yesterday

Today

Self-Reliant

Open-Minded

Male

Male or Female

Quick Decisions Relies On Others

6-14

Business

Disadvantages of Small Business Ownership High stress level High failure rate Undercapitalization Managerial inexperience or incompetence • Inability to cope with growth • • • •

6-15

Business

How Hard do They Work? Hours worked by small business owners

Source: “21st Annual Small Business Survey Summary Report,” Dun & Bradstreet (n.d.), www.sbs.dnb.com/survey/2002survey.pdf (accessed October 30, 2006).

6-16

Business

Common Mistakes made by Start-up Businesses 1. 2. 3. 4. 5. 6. 7. 8.

Failing to spend enough time researching the business idea to see if it’s viable Miscalculating market size, timing, ease of entry, and potential market share Underestimating financial requirements and timing Overprotecting sales volume and timing Making cost projections that are too low Hiring too many people and spending too much on offices and facilities Lacking a contingency plan for a shortfall in expectations Bringing in unnecessary partners

6-17

Business

Common Mistakes made by Start-up Businesses 9. 10. 11. 12. 13. 14. 15. 16. 17.

Focusing too much on sales volume and company size rather than profit Hiring for convenience rather than skill requirements. Neglecting to manage the entire company as a whole. Accepting that it’s “not possible” too easily rather than finding a way. Seeking confirmation of your actions rather than seeking the truth. Lacking simplicity in your vision. Lacking clarity of your long-term aim and business purpose. Lacking focus and identity. Lacking an exit strategy.

6-18

Business

Reasons For Failure Poor Financial Management

3% 15% 32% 11%

12%

15% 12%

Incompetence or Inexperience Bad Economic Conditions Poor Books or Records Marketing Problems Staff or Union Problems Did Not Use External Advice

Source: The Coleman Chronicles, Vol. 1 Issue 20, “The Most Common Reasons for Small Business Failure… http://www.coleman.bc.ca/publications/chronicles/vol1issue20.htm

6-19

Business

Start/Operate Small Business Business Plan

Buying Existing?

Start From Scratch?

Financing 6-20

Business

The Keys to starting a Small Business Success

• A comprehensive business plan • The right form of ownership • Adequate financing

6-21

Business

Business Plan • Summarizes Strategy • Identifies Implementation • Includes: Goals and Objectives Sales Forecast

6-22

Business

Business Plan- Projected Financial Statements

• Cash Budget Most Important • Income Statement • Balance Sheets • Breakeven 6-23

Business

Financial Resources • Debt Financing

• Equity Financing Owner’s funds Venture capitalists

Loans & collateral Lines of credit Trade credits Barter

6-24

Business

Share of Outstanding Debt for Small Firms By Supplier of Credit 1998 Owner Loan 10%

Other 8%

Thrift 3%

Unknown 2% Family & Friends 3%

Commerical Bank 48%

Leasing 17% Fin. Co. 9% Source: Small Business Administration- Office of Advocacy, “Financing Patterns of Small Firms: Findings from the 1998 Survey of Small Business Finance” Sept. 2003. www.sba.gov/advo/stats/ssbf_98.pdf

6-25

Business

Percentage of Small Business Loans From Commercial Banks $100$249K 7%

Under $100K 87%

$250K$1M 6%

Source: Small Business Administration- Office of Advocacy, “Financing Patterns of Small Firms: Findings from the 1998 Survey of Small Business Finance” Sept. 2003. www.sba.gov/advo/stats/ssbf_98.pdf

6-26

Business

The Marketing & Communication Tools for Small Business Success Online features that small and midsize businesses use or are interested in using to have a competitive advantage:

Blogs explaining service/ product

19%

Pay-per-click advertising

20%

Online coupons Business website appearance in search engines E-mail marketing

27% 54% 60% 0% 10% 20% 30% 40% 50% 60% 70% 6-27

Business

Franchise System • Franchise:  A license to sell another’s products or to use another’s name in business or both

• Franchiser:  The company that sells a franchise

• Franchisee:  The purchaser of a franchise 6-28

Business

Franchise Contract Franchisor, Inc.

Branded Product/Service Performance Monitoring

$$$$$ Franchisee 6-29

Business

Franchising Advantages To Franchisee

+Business

Ownership +Access To Mgmt. Skills +Low Failure Rate

Disadvantages To Franchisee

-

High start-up costs % Of Sales To Franchiser

To Franchiser

+Rapid Growth

Using Other People’s Money

6-30

Business

Developing Trends In Small Business • Demographic Trends  Baby boomers & Echo boomers

• Technological Trends  Increase in Internet usage  Major breakthroughs in technology

• Economic Trends  Economic turbulence creates economic threats and new opportunities

6-31

Business

Growth of E-Commerce

6-32

Business

Making Big Businesses act “SMALL” • More and more firms are emulating small businesses in an effort to improve their own bottom line by Downsizing Making their operating units function more like independent small businesses • Intrapreneurs

6-33

Business

Business Plan

6-34