CHAPTER 6 Entrepreneurship And Small Business Management

Transcription

CHAPTER 6Entrepreneurshipand Small BusinessManagementBecoming an Entrepreneur6-2Small Business Basics6-3Starting a Small Business Getty Images/PhotoDisc6-112445610 06 Ch06 p124-147.indd 12412/20/07 10:43:32 AM

Planning a Career in . . .CONSULTINGEmployment Outlook The employment outlook for business consultantsvaries by industry, but is generally growing at abetter than average rate. Employment demand is based on the expertise andreputation of the individual consultant and theconsulting business. Most consultants have expertise in organizationalchange, finance, technology, and management.Related Job Titles Business Analyst Management ConsultantPerformance ConsultantQuality Control ConsultantSecurity ConsultantTraining ConsultantNeeded Skills Ability to problem-solve with innovative solutions Research and analytical skills Specialization in specific aspects of business operations and management Effective written and oral communication skillsWhat’s it like to work in . . .ConsultingErin Gerrard works asa small business consultant for Security SavingsBank. The bank is committed to strengtheningits services to small businesses. Security employsa 10-person team tosupport its small businesscustomers.Erin has a degree inaccounting, worked five years for a major accounting business, and then operated her own accountingservice for five years. The bank asked her to work forthem as a small business consultant because of heraccounting expertise and reputation in the community.She decided the consulting opportunity would be aninteresting challenge.This morning, Erin is meeting with Dawn Perrot,who is planning to open a florist shop. Dawn hassubmitted a business plan, but the financial plan isincomplete. Erin is looking forward to helping Dawngather information and develop a complete picture ofthe financial needs of her business. Later today, Erinand the bank’s information management specialistare visiting The Sherron Company to help them plana new computerized payroll system. Digital VisionWhen businesses face unique problems or undertakemajor changes, they often turn to consultants for adviceand help. Consultants are not long-term employees ofa company, but are hired to complete a specific task orto focus on an important challenge facing the business.Consultants may be self-employed and work independently, or they may be part of a large consulting business that employs many specialists. Large companiesoften form teams of specialists to work with a client.Consultants bring expertise to a business thatmay not exist among its employees and that wouldbe difficult to develop quickly enough to solve a current problem. Consultants also may be more objective about the business than people who are workingthere. The primary work of consultants is to conductresearch and complete other types of analysis thathelp businesses address important challenges they arefacing. Consultants often prepare written reports andplans, provide advice to decision-makers, and mayeven offer help in reorganizing the company and redirecting its efforts.What about you? How do you believe Erin’s work asa consultant is similar to and different from the workshe did as the owner of a small accounting business?12545610 06 Ch06 p124-147.indd 12512/20/07 10:46:16 AM

6-1Becoming anEntrepreneurGoalsKey TermsFocus on Real LifeIdentify characteristics of successfulentrepreneurs.entrepreneurJerelyn Frank has been working as an aerobicsinstructor for the Phase 4 Fitness Center for the past sixyears. Jerelyn enjoys her work because she has always beenactive and athletic. Since high school, she has taken wellness,first aid, and nutrition classes at the local adult education center.She has completed a number of certification courses in aerobicsinstruction and yoga. In her spare time, she has developed fitnessprograms for some of her friends and members of the fitness center where she works.Jerelyn is seriously thinking about starting a personal fitnessservice. She wants to go to people’s homes and offices to helpthem plan and maintain a fitness schedule and offer half-hour toone-hour workouts. She already has a number of contacts to helpher get underway. Jerelyn is single with no family responsibilities, and she has no debts. She has been able to save more than 15,000 in her bank account.Jerelyn decides to go forward with the plan just as thousandsof other entrepreneurs do each year. Those that become newbusiness owners are willing to contribute a great deal of time andenergy and risk personal economic resources for their venture.They hold the hope of a successful business and a reasonableprofit.Recognize theimportance of entrepreneurship in theeconomy.Describe opportunities and risks ofentrepreneurship.main ideaIdentify characteristics of successfulentrepreneurs.126CHAPTER 645610 06 Ch06 p124-147.indd 126entrepreneurshipventure capitalinnovationimprovementCHARACTERISTICS OFENTREPRENEURSAn entrepreneur is someone who takes arisk in starting a business to earn a profit.Some key factors in starting your ownbusiness are having a real desire to be yourown boss and developing a good initialplan. Having special skills and abilitiesand coming up with innovative ideas arealso important.Can you think of some service orproduct that is not being offered at thistime but that could be in demand? Isthere some service or product that youcould offer more efficiently than others are doing now? Is there some special talent you have that could becomethe starting point for a business ofyour own? If so, you have the basis fora new business enterprise. There aregood opportunities for entrepreneurship through small business ownership. Entrepreneurship is the processof starting, organizing, managing, andassuming the responsibility for a business. Here are some real-life examples ofyoung entrepreneurs.Entrepreneurs in ActionJoshua Moore was a high school studentand brother to four-year-old Sophiewhen he developed an idea for a babystroller braking system. To fund workon his invention, Josh started PersonalENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT12/20/07 10:46:53 AM

Getty Images/PhotoDiscAffections, selling key chains, pictureframes, mirrors, and personalized stickers at his Walhalla, South Carolina, highschool. He received an Entrepreneur ofthe Year award for an operational business from the National Foundation forTeaching Entrepreneurship. At age 15, hewas on his way to his dream of becomingan inventor and business owner.Pankaj Arora was not a typical highschool student in Rochester, Minnesota.In addition to a busy schedule of schoolwork and after-school activities, he alsoran two business ventures. Using hisadvanced computer skills, Pankaj createdand distributed software through his company, Pankaj Arora Software. His secondcompany, paWare, specialized in custombuilt computer systems and web design.Along with his college degree, Pankaj’stechnical and entrepreneurial skills helpedhim get a job at General Electric.Rich Stachowski of Moraga,California, is an avid scuba diver. Whileenjoying his hobby, he recognized thathe was unable to talk to others whowere snorkeling with him. He put hisimagination to work and invented WaterTalkiesTM. These walkie-talkies can beused under water. Rich worked with afamily friend who developed the manufacturing process. He then opened a businessto make and sell his product before he waseven a teenager. His Short Stack line ofwater toys is now sold by 100 chain retailers in the United States and several othercountries.Sometimes ideas for new productscome from problems in daily life. AbbeyFleck was watching her father use a microwave oven to cook bacon one morning intheir White Bear Lake, Minnesota, home.The bacon came out soaked in grease.Abbey had an idea to develop a pan thatwould cook the bacon while letting thegrease drain out below. She and her fathertested several designs that resulted in theMakin Bacon microwave bacon tray.Do you have ideas or skills that you could use to start a small business?They were able to convince the producersof Armour brand bacon to sell the traywith an advertisement and order formprinted on each package of bacon. Theproduct was an instant hit. Abbey’s company, A de F, Inc., has sold more than 3 million worth of Makin Bacon trays. The U.S. government is taking steps to support the morethan 6 million women who own their own businesses.One of the resources is a web site dedicated to providing information and networking opportunities to womenentrepreneurs. Access the web site shown below andclick on the link for Chapter 6. Read the latest news onwomen’s entrepreneurship. Review the types of resourcesthat can be accessed through the web site. Locate othergovernment web sites that provide information and helpfor people wanting to starting their own -145610 06 Ch06 p124-147.indd 127BECOMING AN ENTREPRENEUR12712/20/07 10:47:49 AM

Digital VisionThe experiences of these entrepreneursare examples of the thousands of youngpeople who have creative ideas and turnthem into businesses each year. Not allideas lead to successful businesses, but eachprovides evidence of the opportunitiesthat exist for people who believe they canturn their idea into a profitable business.What Does It Take?Not all people who own or manage a business are entrepreneurs. It takes uniqueskills and personal characteristics todevelop a new idea for a product or service. A person must also have both theconfidence and capability to turn an ideainto a business.Entrepreneurs come from all age categories and racial and ethnic groups. Theyrepresent both genders as well as variedamounts and types of education. Manyentrepreneurs own their first businesswhile in their teens. Others do not takethe step until retirement. More businessowners are male, but young entrepreneursare more equally divided between maleand female.It is important to have an understanding of business operations andFIGURE 6-1Which characteristics of successful entrepreneurs do youpossess? Which ones wouldyou like to develop?What are some advantages and disadvantages ofturning a hobby into a business?management. This understanding doesnot always come from getting a businessdegree in college. People learn how to runa business in many ways. They may workin a business or ask for help and advicefrom an experienced business owner.They may read and study on their own aswell as in school.There are personal traits that are common to successful entrepreneurs, as shownin Figure 6-1. While some people alreadyhave many of these qualities, others donot. If you have a desire to become anentrepreneur, you can work to developthese characteristics.Personal Characteristics of Successful EntrepreneursENTREPRENEURS ARE MORETHEY HAVE persistent problem-solving skills inquisitive tolerance for ambiguity energetic strong integrity goal oriented personal initiative independent ability to secure resources self-confident capability to learn from failure creative willingness to work hard reliable competitive128CHAPTER 645610 06 Ch06 p124-147.indd 128ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT12/20/07 10:48:04 AM

checkpoint ››What personal characteristicare common to most successfulentrepreneurs?Employment Growth byBusiness Size (1993-2003)1 – 19 employees25.00%35.50%ENTREPRENEURSHIP AND THEECONOMYEntrepreneurship is a key part of theU.S. economy. Nearly one in ten of allAmericans 18–64 years old is involvedin some type of entrepreneurship activity. More than 670,000 new businessesare created annually. Entrepreneurship isalso risky. Nearly as many small businessesclose as begin each year.EmploymentSmall businesses are responsible for mostnew employment. Figure 6-2 showsemployment growth by firm size between1993 and 2003. Over 60 percent of newjobs were created by businesses with fewerthan 500 employees.FinancingMost of the money needed to start a newbusiness comes from the entrepreneurand his or her family and friends. Onein five Americans has invested in a business of someone they know well. Morethan 50 percent lend financial supportfor the business of a family memberor relative. Twenty nine percent givemoney to neighbors and friends. Eightpercent invest in businesses started bywork colleagues. Family and friendsinvest more than 100 billion in newbusinesses each year.Another source of money for somenew businesses is venture capital.Venture capital is money provided bylarge investors to finance new productsand new businesses that have a goodchance to be very profitable. In the late1990s, many venture capital companieswere formed. They supplied more than21.25%100 – 499 employees18.25%500 or more employeesSource: U.S. Bureau of Labor StatisticsFIGURE 6-2What percentage of job growth came from businesses with fewer than100 employees? 100 billion each year to new businesses.Many of the businesses receiving thosefunds were e-commerce and high-techstart-ups. When many of those businessesfailed, the amount of venture capitaldeclined to less than 22 billion in 2005.More than 2,900 companies receive venture capital each year. That shows thatmany people think new businesses provide a good investment opportunity. Theother sources of financing for new businesses are loans from banks and financialinstitutions and credit given by businessesthat sell products and services to the newbusiness.main ideaRecognize theimportance ofentrepreneurship inthe economy.ProductivityNew and small businesses produce a largevolume of goods and services for theeconomy. Businesses with just a singleowner and no staff account for morethan 600 billion in sales annually. Smallbusinesses are responsible for more thanhalf of the U.S. gross domestic producteach year. They account for 55 percentof all innovative products and servicesdeveloped.checkpoint ››What are the sources of financingthat entrepreneurs use for their newbusinesses?6-145610 06 Ch06 p124-147.indd 12920 – 99 employeesBECO

Entrepreneurship and Small Business Management 6-1 Becoming an Entrepreneur 6-2 Small Business Basics 6-3 Starting a Small Business 445610_06_Ch06_p124-147.indd 1245610_06_Ch06_p124-147.indd 124 112/20/07 10:43:32 AM2/20/07 10:43:32 AM. 125 When businesses face unique problems or undertake major changes, they often turn to consultants for advice and help. Consultants are not long