Chapter 6: Entrepreneurship and Starting a Small Business

Entrepreneurship

  • accepting the risk of starting and running a business

    • Jeff Bezos

People become entrepreneurs for OPPORTUNITY, PROFIT, CHALLENGE, and INDEPENDENCE

Entrepreneurs must be SELF-DIRECTING, SELF-NURTURING, ENERGETIC, TOLERANT TO UNCERTAINTY, ACTION-ORIENTED

Entrepreneurs can profit off of passion and problems

A good business idea follows:

  1. fulfills customer’s needs

  2. you have the resources and funding for the business

  3. you are able to provide the product or service at a reasonable and profitable price

  4. you can get the product or service before the window of opportunity closes

  5. you can keep the business going

Entrepreneurial Teams- a team of entrepreneurs knowledgeable in different areas of business join together and make a team to create and market a new product or service

Intrpreneurs- creative people who work as entrepreneurs within a corporation

  • uses existing resources of the corporation to create new products

Micropreneurs- entrepreneurs that accept the risk of starting and running a business that remains small

  • let’s them do work and keep a balance- usually home-based

  • Home-based businesses have grown due to technology, corporation down-sizing, social attitude changes, and new tax laws (lessen restriction)

  • Challenges of home-based businesses:

    • new customers are difficult

    • work and family tasks are not separated

    • Government ordinances restrict business

    • Homeowner’s insurance may not cover business claims

  • Can include:

    • personal creations

    • reselling

    • advisor/consult

    • in-home services

    • repairing/skill-based

    • shared-economy opportunities

  • Important criteria

    • something you truly love

    • something you know well or are willing to learn well while having another job

    • can identify the market for your product or service

Online Business

  • offer unique services or products

  • easy for copycats

Government Intervention

    Immigration Act of 1990- created a category of investor visas that encouraged entrepreneurs to immigrate to the U.S.

    Enterprise Zones- specific geographic zones where governments try to attract private business by lowering taxes and other support

    Jumpstart Our Business Startups (JOBS) Act of 2012- offers tax breaks to start funding and create jobs

    Incubators- centers that offer new businesses low-cost offices that have basic business services

    Self-Employment Assistance (SEA)- allows participants to collect self-employment checks instead of unemployment checks

Small Businesses

  • independently owned and operated, is not dominate in its field, the is limited in size in terms of employees or annuals receipts

    • 65% of the nations’ new jobs

    • responds to opportunities quickly

FAILURE OF SMALL BUSINESSES:

  1. managerial incompetence

    1. no knowledge about the industry or market

    2. not understanding business cycles

    3. taxes, insurance, and other business expenses

    4. you are NOT free from work

  2. inadequate financial planning

    1. underpricing or overpricing

    2. borrowing money without a plan to pay it back

    3. not planning for setbacks or random expenses

    4. too much on CREDIT

    5. failure to keep complete and accurate records

  3. choosing the wrong type of business

    1. does not test the waters first

  4. too little or too much capital

SUCCESS OF A SMALL BUSINESS:

  1. personal attention

  2. not easily made in mass-production

  3. sales are not large enough to get the attention of a larger firm

  4. neighborhood is not retroactive because of crime and poverty

  5. owners pay attention to new competitions

  6. business is in a growth industry

Take classes and talk to successful business owners

Start a part-time small business or gain three years in the field

Start as an apprentice and work your way up

Market- People with unsatisfied wants and needs who have both resources

and willingness to buy.

Hire, train, and motivate employees

Keep records of accounting and recordkeeping

Contact legal, tax, accounting, marketing, or finance advice

  • business professors

Commercial loan officers and insurance agents

Service Corps of Retired Executives (SCORE)- volunteers from industry, trade associations, and education who counsel small business at no cost

Business Plan

  • detailed written statement that describes the nature of the business, the target market, the advantages the business will have in relation to competition, and the resources and qualifications of the owner(s)

    • takes a long time to prepare

    • catches the attention of potential investors

    • getting it in the right hands

Cover Letter.

• Section 1—Executive Summary.

• Section 2—Company Background.

• Section 3—Management Team.

• Section 4—Financial Plan.

• Section 5—Capital Required.

• Section 6—Marketing Plan.

• Section 7—Location Analysis.

• Section 8—Manufacturing Plan.

• Section 9—Appendix

Financing your Business

  • business associates and family

  • banks and finance institutions

Community development financial institutions (CDFIs)- loan money and provide counseling (low-income communities)

Angel investors- private individuals who invest their own money in potentially

hot new companies before they go public

Crowdfunding- A large group of individuals provide donations in support of a

company or product

Venture capitalists- Individuals or companies that invest in new businesses

in exchange for partial ownership of those businesses

Small Business Administration (SBA)- A U.S. government agency that

advises and assists small businesses by providing management training and

financial advice and loans

  • microloan program started in 1991

            • Standard (7a) loans.

            • Microloans

            • SBA Express.

            • Export Express.

            • International trade loans.

            • Community Adjustment and Investment Program (CAIP).

            • 504 certified development company (CDC) loans.

            • CAPLine loans.

Small Business Investment Company (SBIC)- A program through which

private investment companies licensed by the SBA lend money to small

businesses

  • Keeps defaults low by identifying a business’s trouble spots early, giving entrepreneurs advice, and rescheduling loan payments

Small Business Development Centers (SBDC)- funded jointly by the federal

government and individual states

  • Help evaluate the feasibility of ideas, develop business plans, and complete the funding application-for no charge

Global

Advantages:

  1. overseas buyers enjoy dealing with individuals

  2. begin shipping faster

  3. provide a wide variety of suppliers

  4. personal service and attention

Obstacles:

  1. can’t find financials

  2. not knowing how to get started

  3. not knowing cultural differences

  4. too much paperwork