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Intro to Business, 7e

CHAPTER 6

Entrepreneurship and
Small Business Management
6-1

Becoming an Entrepreneur

6-2
6-3

Small Business Basics


Starting a Small Business

2009 South-Western, Cengage Learning

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Intro to Business, 7e

6-1 Becoming an
Entrepreneur
Goals
Identify characteristics of successful
entrepreneurs.
Recognize the importance of entrepreneurship
in the economy.
Describe opportunities and risks of
entrepreneurship.

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Key Terms
entrepreneur
entrepreneurship
venture capital
innovation
improvement

2009 South-Western, Cengage Learning

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Intro to Business, 7e

CHARACTERISTICS OF
ENTREPRENEURS

Chapter 6

Desire to be your own boss


Special skills and abilities

2009 South-Western, Cengage Learning

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Intro to Business, 7e

ENTREPRENEURS
IN ACTION

Chapter 6

Pankaj Arora
Rich Stachowski
Jeffrey Rodriguez and John Serrano
Abbey Fleck

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

WHAT DOES IT TAKE?


Entrepreneurs are more
persistent
inquisitive
energetic
goal oriented
independent

self-confident
creative
reliable
competitive

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

WHAT DOES IT TAKE?

(continued)

Entrepreneurs have
problem-solving skills
tolerance for ambiguity
strong integrity
personal initiative
ability to secure resources
capability to learn from failure
willingness to work hard
2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Checkpoint >>
What personal characteristic are common to most
successful entrepreneurs?
Answer
Any characteristics listed in Figure 6-1 are acceptable, such
as persistence, inquisitiveness, self-confidence, creativity,
and so forth.

2009 South-Western, Cengage Learning

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Intro to Business, 7e

ENTREPRENEURSHIP
AND THE ECONOMY

Chapter 6

Employment
Financing
Productivity

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Source: U.S. Bureau of Labor Statistics

Employment Growth by Business Size


2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Checkpoint >>
What are the sources of financing that entrepreneurs
use for their new businesses?
Answer
personal savings
friends and family
venture capital
bank loans

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

OPPORTUNITIES
Innovation
Improvement

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

RISKS
Recognizing risks
Lack of adequate capital
Low sales
Higher than expected expenses
Competitive pressure
An owner unprepared to manage a growing
business
Operations requiring more time than the owner
is willing to commit
2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Checkpoint >>
Where do entrepreneurship opportunities begin?
Answer
Opportunities begin with innovations (ideas about new
products and services) or improvements (ideas for changes to
existing products, services, or processes).

2009 South-Western, Cengage Learning

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Intro to Business, 7e

6-2 Small Business Basics

Goals
Identify important characteristics of small
businesses.
Recognize the competitive advantages of
small businesses.
Identify problems faced by many small
businesses.

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Key Terms
small business
Small Business Administration (SBA)

2009 South-Western, Cengage Learning

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Intro to Business, 7e

SMALL BUSINESS
OWNERSHIP

Chapter 6

Description of a small business


Owner is usually the manager
Operates in one or very few locations
Typically serves a small market
Not dominant in its field

Small business employment


Ownership diversity
2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

COMMON TYPES OF
SMALL BUSINESSES

Source: Small Business Administration


and U.S. Census Bureau

Common
Types of
Small
Businesses

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Checkpoint >>
What percentage of employees in the United States
work for small businesses?
Answer
Nearly 50 percent of the American workforce is employed by
small businesses.
Small businesses are also responsible for 6080 percent of all
new jobs.

2009 South-Western, Cengage Learning

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Intro to Business, 7e

SMALL BUSINESS
ADVANTAGES

Chapter 6

Meeting customer needs


Providing unique services

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Checkpoint >>
How can small businesses compete successfully with
larger businesses?
Answer
Smaller businesses are able to provide more personalized
products and services to their customers.
They are able to provide products and services where smaller
orders and projects are required and tend to fill unique
customer needs, which larger companies do not provide.
2009 South-Western, Cengage Learning

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Intro to Business, 7e

COMMON REASONS FOR


SMALL BUSINESS FAILURE

Chapter 6

Not keeping adequate records


Not having enough start-up money
Lack of management experience
Lack of experience with the type of business
Not controlling operating expenses
Poor location for the business
Failure to manage credit offered to customers
2009 South-Western, Cengage Learning

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Intro to Business, 7e

SMALL BUSINESS
ASSISTANCE

Chapter 6

Faculties of universities and colleges


Local groups of business people
Small Business Administration (SBA)

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Checkpoint >>
List common reasons for small business failure.
Answer
not keeping adequate records
insufficient start-up money
lack of management experience
lack of experience with the type of business
not controlling operating expenses
poor location
failure to manage credit
2009 South-Western, Cengage Learning

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Intro to Business, 7e

6-3 Starting a Small Business

Goals
Recognize important factors to be considered
when starting a business.
Describe the elements of a business plan.
Identify types and sources of financing for a
small business.

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Key Terms
business plan
start-up financing
short-term financing
long-term financing

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

THE BUSINESS DECISION


An idea plus experience
Right place and time
Team approach
Preparation and research

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Checkpoint >>
Why is it important to use a team approach when
starting a new business?
Answer
A team approach allows employees to feel valued and
motivated to take personal responsibility for the benefit of
the business.
Owners cannot expect to be able to do everything alone.
Building a team will allow the business to increase
productivity and, ultimately, profits.
2009 South-Western, Cengage Learning

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Intro to Business, 7e

WHAT IS A
BUSINESS PLAN?

Chapter 6

A business plan is a written description


of the business idea and how it will be
carried out, including all major business
activities.

2009 South-Western, Cengage Learning

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Intro to Business, 7e

ELEMENTS OF A
BUSINESS PLAN

Chapter 6

Description of the Business


The business idea
Major products and services
Ownership structure
Strengths/weaknesses
Long- and short-term goals

2009 South-Western, Cengage Learning

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Intro to Business, 7e

ELEMENTS OF A
BUSINESS PLAN

Chapter 6

(continued)

Description of Competition
Characteristics of the industry
Condition of the economy
Strengths and weaknesses of major
competitors

2009 South-Western, Cengage Learning

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Intro to Business, 7e

ELEMENTS OF A
BUSINESS PLAN

Chapter 6

(continued)

Customer Analysis
Description of customers
Location, number, and resources of
customers
Sales forecasts

2009 South-Western, Cengage Learning

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Intro to Business, 7e

ELEMENTS OF A
BUSINESS PLAN

Chapter 6

(continued)

Operations Plan
Organization of the company
Description of major operations
Analysis of resources needed
Human resource plans

2009 South-Western, Cengage Learning

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Intro to Business, 7e

ELEMENTS OF A
BUSINESS PLAN

Chapter 6

(continued)

Marketing Plan
Description of major marketing activities
Description of resources needed
Schedule of marketing activities

2009 South-Western, Cengage Learning

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Intro to Business, 7e

ELEMENTS OF A
BUSINESS PLAN

Chapter 6

(continued)

Financial Plans
Start-up costs
Short- and long-term financial needs
Sources of financing
Budgets and financial statements

2009 South-Western, Cengage Learning

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Intro to Business, 7e

STEPS IN DEVELOPING
THE BUSINESS PLAN

Chapter 6

Gather and review information


Develop the strategic alternatives
Write the plan
Ask an expert to review the plan

2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Checkpoint >>
What is the strategic alternatives in a business plan?
Answer
Strategic alternatives are alternative plans for production,
staffing, financing, and so on.
Even the best business plan cannot predict every possible
circumstance.
An alternate plan allows a business to be prepared for the
unforeseeable.
2009 South-Western, Cengage Learning

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Intro to Business, 7e

FINANCING
THE SMALL BUSINESS

Chapter 6

Types of financing
Start-up financing
Short-term financing
Long-term financing

Sources of financing
Owner-supplied funds
Borrowed funds
2009 South-Western, Cengage Learning

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Intro to Business, 7e
Chapter 6

Checkpoint >>
In addition to owner-supplied capital, what are several
other sources of financing for a small business?
Answer
Borrowed money may come from banks, finance companies,
or other individuals, such as friends and family.
Some suppliers may also be willing to extend credit.

2009 South-Western, Cengage Learning

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