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Part 2Starting andGrowing aBusiness 2016 by McGraw-Hill Education. This is proprietary material solely forauthorized instructor use. Not authorized for sale or distribution in anymanner. This document may not be copied, scanned, duplicated, forwarded,distributed, or posted on a website, in whole or part.

5-2CHAPTER 4Options for Organizing BusinessCHAPTER 5Small Business, Entrepreneurship, andFranchising 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-3Learning ObjectivesLO 5-1Define entrepreneurship and small business.LO 5-2Investigate the importance of small business in the U.S.economy and why certain fields attract small business.LO 5-3Specify the advantages of small-business ownership.LO 5-4Summarize the disadvantages of small-businessownership, and analyze why many small businesses fail.LO 5-5Describe how you go about starting a small business andwhat resources are needed.LO 5-6Evaluate the demographic, technological, and economictrends that are affecting the future of small business.LO 5-7Explain why many large businesses are trying to “think small”.LO 5-8Assess two entrepreneurs’ plans for starting a small business. 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-4The Nature of EntrepreneurshipEntrepreneurship The process of creating and managing a businessto achieve desired objectives Entrepreneurship movement is accelerating, and manynew small businesses are emerging Technology is now easier to obtain by a small businessoWebsites, podcasts, online videos, social media, cellularphones, and expedited delivery services Growing trend among small businesses is socialentrepreneurshipoSocial entrepreneurs are individuals who useentrepreneurship to address social problems 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-5Great Entrepreneurs ofInnovative Companies 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-6What Is a Small Business?Small Business Any independently owned and operated businessthat is not dominant in its competitive area “Smallness” is relative Employs less than 500 peopleSmall Business Administration (SBA) An independent agency of the federal government thatoffers managerial and financial assistance to smallbusinesses 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-7The Role of Small Business in theAmerican Economy 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-8Women- and Minority-Owned esses Are responsible for employing7.7 million workers Contribute 1.3 trillion in sales Woman own more than 8million businesses nationwide Growing faster than otherclassifiable firms Represent 21.3 percent of allsmall businesses 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-9InnovationoSmall firms make up 52 percent of home-basedbusinesses and 2 percent of franchisesoEntrepreneurs provide fresh ideas and usually havegreater flexibility to change than do large firmsJeffrey Lubell foundedpremium apparelcompany True Religionin 2002. It has gone onto be listed amongForbes’ best publiclytraded small companiesin America. 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-10UniKeyOne of the most significant strengths of small businessesis their ability to innovate and to bring significant benefitsto customers Founder and CEO of the small firm UniKey, Phil Dumas,invented a new way for consumers to keep their doorslockedDumas invented Kevo, a motorized deadbolt lock that linksto users’ iPhones With just a touch of a finger, consumers can lock and unlocktheir doors from remote locations UniKey distributes products in major retailers such asLowe’s and Home DepotJust one example of a small company with the ability toinnovate and contribute to the benefit of customers 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-11Found in Nearly Every IndustrySmall businesses are found innearly every industry, butthese are some of the mostattractive: Retailing and wholesaling Services Manufacturing High technologyRelatively easy to enter andrequire low initial financing 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-12Industries that Attract Small BusinessRetailing and Wholesaling Retailers acquire goods from producers or wholesalersand sell them to consumersServices Service sector includes businesses that do not actuallyproduce tangible goods (80 percent of U.S. jobs)Manufacturing Manufacturing goods can provide unique opportunities forsmall businesses (like customizing products for customers)High Technology High technology is a broad term used to describebusinesses that depend heavily on advanced scientific andengineering knowledge 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-13Types of Stores that Attract Small BusinessesRetailing and wholesaling stores include independent:Music storesSporting-goods storesDry ice stationsHardware storesService sector businesses includes:Real-estateInsurance/personnel agenciesBarbershopsBanksTV/computer repair shopsCopy centersDry cleanersAccounting firms 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-14Small-Business OwnershipAdvantagesDisadvantagesIndependenceHigh stress levelCostsHigh failure rateFlexibilityUndercapitalizationFocusManagerial inexperience orincompetenceReputationInability to cope with growth10 SuccessfulTraits ofYoungEntrepreneurs 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-15Advantages Independence and CostsIndependence To do better for themselves than theycould do by remaining with their currentemployer or by changing jobs To choose whom they work with, theflexibility of where/when to work, andthe option to work in a family setting Spend less money on wages/salaries,rent, utilities, and other expensesCosts Use external firms to handleaccounting, advertising, and legalcounseling Friends and family may volunteer timeto work on projects 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-16Advantages Flexibility, Focus, and Reputation Small size allows flexibility to adapt tochanging market demandsFlexibility Usually only one layer of management(the owner) so decisions can be madeand executed quicklyFocus Focus efforts on a precisely definedmarket niche (a specific group ofcustomersReputation Because of their capacity to focus onnarrow niches, can develop enviablereputations for quality and service 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-17Hampton CreekHampton Creek, based in San Francisco, focuses onusing technology to produce sustainable proteinproducts Developed a new type of egg substitute made fromplant materials Concept is likely to attract vegetarians and consumersconcerned with sustainability Founder and CEO Josh Tetrick has bigger plans Concept is not to focus solely on a niche industryBelieves the solutions discovered at Hampton Creek willeventually help solve food shortages through alternativesthat do not place a strain on the environment 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-18Disadvantage High Stress Level Likely to provide a living for its owner,but not much moreHigh StressLevel Ongoing worries about competition,employee problems, new equipment,expanding inventory, rent increases, orchanging market demand Small-business person is often theowner, manager, sales force, shippingand receiving clerk, bookkeeping, andcustodian Multitasking can result in long hours formost owners 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.

5-19Disadvantage High Failure RateHigh Failure Rate (half fail within first 5 years)Undercapitalization:The lack of funds tooperate a businessnormallyManagerialinexperience orincompetenceInability to copewith growthToo manyentrepreneursthink that all theyneed is enoughmoney to getstartedJust becauseentrepreneur has abrilliant vision doesnot mean he/shehas the knowledgeor experience tomanageGrowth requiresthe owner to giveup an amount ofdirect authority(frequently hardfor owners togive up control) 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,duplicated, forwarded, distributed, or posted on a website, in whole or part.