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*Chapter Six

Entrepreneurship

and Starting aSmall Business

McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

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Learning Outcomes

Explain why people take the risks ofentrepreneurship; list the attributes of successfulentrepreneurs; and describe entrepreneurialteams, intrapreneurs, and home- and Web-based

businesses. Discuss the importance of small business to

economy and summarize the major causes ofsmall-business failure.

Summarize ways to learn about how smallbusinesses operate.

Analyze what it takes to start and run a smallbusiness.

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*The Job-CreatingPower ofEntrepreneurshipin the U.S.

Entrepreneurship -- Accepting the risk of startingand running a business.

-Process of add value to product or services

WHAT is ENTREPRENEURSHIP?

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*The Job-CreatingPower ofEntrepreneurshipin the U.S.

French immigrant lruthre Irne du Pont deNemours started Du Pont in 1802.

-Manufactures thousands of products under such

brand names as Telfon and Lycra.

David McConnell borrowed $500 from a friend tostart Avon.

George Eastman started Kodak with a $3,000investment in 1880.

Jeff Bezos started Amazon.com with investmentsfrom his family and friends.

NOTABLE ENTREPRENEURS

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http://www2.dupont.com/Our_Company/en_US/http://www.avoncompany.com/about/history.htmlhttp://www.kodak.com/global/en/corp/historyOfKodak/historyIntro.jhtml?pq-path=2/8/2217/2687http://www.amazon.com/Careers-Homepage/b/ref=amb_link_5763692_1?ie=UTF8&node=239364011&pf_rd_m=ATVPDKIKX0DER&pf_rd_s=left-4&pf_rd_r=19X9HPSE1YPQ87Z2GFAT&pf_rd_t=101&pf_rd_p=465323071&pf_rd_i=203348011http://www.amazon.com/Careers-Homepage/b/ref=amb_link_5763692_1?ie=UTF8&node=239364011&pf_rd_m=ATVPDKIKX0DER&pf_rd_s=left-4&pf_rd_r=19X9HPSE1YPQ87Z2GFAT&pf_rd_t=101&pf_rd_p=465323071&pf_rd_i=203348011http://www.kodak.com/global/en/corp/historyOfKodak/historyIntro.jhtml?pq-path=2/8/2217/2687http://www.avoncompany.com/about/history.htmlhttp://www2.dupont.com/Our_Company/en_US/

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Successful Entrepreneurs in

Malaysian

Robert Kuok- Kuok Group, Pacific Carriers Ltd-

assets worth US$ 7 billion, the richest man in

south east Asia.

Ananda Krishna- owner ofMaxis

Communication- Assets worth US$4.1 billion

Teh Hong Piow - bank clerk open up a small

bank in 1966- PUBLIC Bank. His assets worth

US$2.1billion

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Common part for all of these

entrepreneurs

One of a couple of entrepreneurs had a good

idea.

Borrowed some money from friends and

family.

Employ thousands of people and helps the

country prosper.

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*Why PeopleTake theEntrepreneurialChallenge

Opportunity-become own boss, freedom, anidea

Profit-extra income

Independence-become decision maker

Challenge-solve problem.

LG1

WHY TAKE the RISK?

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*Why PeopleTake theEntrepreneurialChallenge

Self-directed

-They should be self-disciplined and comfortablewith taking responsibility for success and

failure. Self-nurturing

-. Entrepreneurs must be able to believe in theirown ideas even when others don't. (especially,they present their business plan to investors orbankers)

LG1

WHAT DOES IT TAKE to be anENTREPRENEUR?(characteristics)

6-8

b

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WHAT DOES IT TAKE to be an

ENTREPRENEUR?(characteristics) Action-oriented (proactive rather than wait)

-Entrepreneurs aren't satisfied with a dream, they want to makethe dream a reality. (not only talk, take action.)

Highly energetic-They are willing to work hard to sustain their efforts over long

hours.

Tolerant of uncertainty (many uncertainty factors)

-Entrepreneurs can accept the risks and uncertainties inherent inrunning a business.

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*Turning YourPassion andProblems intoOpportunities

It fills customers needs.

You have the skills and resources(network/knowledge/information/experience/$) to

start a business. You can sell the product or service at a reasonable

price and still profit.

LG1

An IDEA is aGOOD OPPORTUNITY IF

You can get your product or service to customersbefore the window of opportunity closes.

You can keep the business going.6-10

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*EntrepreneurialTeams

Entrepreneurial team -- Agroup ofexperiencedpeoplefromdifferent areasof business

who join to form a managerialteam with the skills to develop,make and marketa newproduct.

An entrepreneurial team(Steve Jobs, Steve Wozniakand Mike Markkula) was keyto Apples success.

LG1

ENTREPRENEURIAL TEAMS

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http://www.apple.com/http://www.apple.com/

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*Micropreneurs andHome-BasedBusinesses

Micropreneur -- Entrepreneurs willing to accept therisk of starting and managing a business that remainssmall, lets them do the work they want to do, and

offers a balanced lifestyle.

Many micropreneurs are home-based businessowners writers, consultants, video producers,

architects, bookkeepers, etc.

Nearly 60% of home-based micropreneurs aremen.

LG1

MICROPRENEURS

6-12

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*Micropreneurs andHome-BasedBusinesses

Computer technology has leveled the playingfield. (internet, facebook)

Corporate downsizing has led many to venture on

their own. ( you are fired. The work of thedownsized employees still needs to be done, andcorporations are outsourcing much of it to smallercompanies.)

Social attitudes have changed. (work at home,more flexible)

New tax laws have loosened restrictions ondeducting expenses for home offices.

LG1

HOME-BASED BUSINESSGROWTH

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Source: St. Louis Small Business Monthly, February, 2004.

Ability to start your business immediately Minimal startup capital needed No rent or excessive set-up charges (use your own

laptop and home) Comfortable working conditions (nobody observe

you.)

Micropreneurs andHome-BasedBusinesses

LG1

BENEFITS of HOME-BASEDBUSINESSES

Reduced wardrobe expenses (not much cabinet) No commuting (no need travel, save time) Tax benefits (IRB difficult check) Elimination of office politics (no colleagues conflict)

Low risk for trial and error. (less time & capital_ 6-14

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Source: St. Louis Small Business Monthly, February, 2004.

Difficult to establish work habits (too flexible)

Limited support system (less people)

Isolation (less connection-what employees doing?) Work space may be limited (no stock? Customer

cannot visit and try your product)

Disruption of personal life (you work at home)

Clients may be uncomfortable coming to your home

Zoning restrictions (not everywhere you can sell)

Success is based 100% on your efforts

Micropreneurs andHome-BasedBusinesses

LG1

DOWNSIDES of HOME-BASEDBUSINESSES

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*Web-BasedBusinesses

Affiliate Marketing -- An Internet-based marketingstrategy in which a business rewards individuals orother businesses for each visitor or customer theaffiliate sends to its website. (seller pays you a

commission)

LG1

ONLINE BUSINESS

Web-based businesses havemore unique products thanmost brick and mortar stores.

Online sales reached $165.9billion in 2007, 8% of all retailsales.

6-16

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*EntrepreneurshipWithin Firms

Intrapreneur -- A creative person who works as anentrepreneur within a corporation.

Intrapreneurs use a companys existingresources to launch new products for thecompany.

Art Fry of 3M developed Post-

Its when he was trying to markpages of his hymnal withoutdamage.

LG1

INTRAPRENEURS

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http://www.3m.com/us/office/postit/http://www.3m.com/us/office/postit/

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Differences between a

businessman and an entrepreneur

Businessman

Would engage inbusiness activities to

support his living andfamily

A low risk taker

Would invest only inproven and testedmarkets

Entrepreneur

Would assume leadershipand commitment to

expand his venture forself-fulfillment

A moderate risk taker andwould take risk

Would use his creativity toventure into new areasthat have not been tested

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Advantages of Entrepreneurship

Ability to create own destiny Opportunity to make a difference

Able to reach full potential

Able to reap impressive

Able to contribute to society and be

recognized for their efforts Able to enjoy and have fun

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Disadvantages of Entrepreneurship

Uncertainty of income (you can becomemillionaire, you can bankrupt)

Risk of losing entire investment

Long hours and hard work. High stress level

Difficulty in obtaining customersnobody

know you.

Complete responsibility(to stakeholders)

Difficulty in obtaining loans- less confidence.

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*Small VersusBig Business

Small Business -- Independently owned andoperated, not dominant in its field of operation andmeets certain standards of size (such as under 2mil ayear for service business).

Businesses are small in relationship to other

businesses in their industries.

LG2

SMALL BUSINESSES

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*Importance ofSmall Business

More personal customer service (there is plenty ofroom for small companies to make a profit filling

those niches). The ability to respond quickly to opportunities(big

business dont serve all the needs of the market).

LG2

ADVANTAGES of SMALL OVERBIG BUSINESS

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*Small BusinessSuccess &Failure

Owner closing a business tostart another is reported as a

failure. Changing forms of ownership

is reported as a failure.

Retirement is reported as afailure.

LG2

BUSINESS FAILURES are LOWERTHAN the REPORTS BECAUSE

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Source: World Features Syndicate, 2009.

Tommy Hilfiger First store went bankrupt

Milton Hershey First confectionary failed

H.J. Heinz Company went bankrupt six years afterstart

Small BusinessSuccess &Failure

LG2

THEY DID WHAT?Famous Business Failures

Walt Disney First film companywent bankrupt

Henry Ford First two carcompanies failed

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Reasons for Failure and Success

(pg159) Failure

Poor management (entrepreneurial

team is important)

Neglect (ignore problem? Solution:

Pay attention to your businessduring each and every day.) Weak control systems (too much

Empowerment to their employees)

Insufficient capital (cash flowproblem) (Solution: Cut back

expenses, lookat and focus only on your corebusiness.)

2009 Pearson Education, Inc.

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Plunging in without first testing the waters on a smallscale.

Underpricing /overpricing goods & Services.

Reasons for Failure and Success

Failure

Reasons for success

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Success

Hard work, drive, and dedication. Many small business

owners spend 12 to 15 hours a day in the initial stages oftheir new business start up working to market, manageand promote their offerings. (Malaysia employees 8 hoursbased)

Market demand (growth industry)-You need to have a market to whom you can sell yourproduct or service, and you need to add value to yourproduct or service for it to be accepted in themarketplace.

Managerial competence (management should set atarget and achieve it. Provide reward to those employeesas a motivation)

Pay attention to competitors(what strategy and businessmodel they use and how we can respond?)Luck!!!

Reasons for success

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*Learning AboutSmall BusinessOperations

Learn from OthersInvestigate your localcolleges for classes on small business andentrepreneurship; talk to and work for successfullocal entrepreneurs. (to understand why they cansuccess)

Get Some ExperienceGain three yearsexperience in the field; then start a part-time small

business. Take Over a Successful FirmServe as an

apprentice and eventually take over once the ownersteps down.

LG3

LEARNING ABOUTSMALL BUSINESS

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*Managing aSmall Business

Planning

Financing

Knowing customers

Managing employees

Keeping records

LG4

MAJOR BUSINESS FUNCTIONS

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*Begin withPlanning

Business Plan -- A detailed written statement thatdescribes thenature of the business, thetargetmarket, theadvantages(competitive

advantages)the business will have overcompetition (how you can win?), and theresources ( manpower, idea , capital ,network)and owners qualifications.

A business plan forces potential owners to bespecific about what they will offer.

A business plan is mandatory for talking with

bankers or investors. (get financial support)

LG4

BUSINESS PLANS

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*Writing aBusiness Plan

A good plan takes a long time to prepare.

A good executive summarycatches interest and

tempts potential investors to read on. (1-2 pgs)

LG4

WRITING a BUSINESS PLAN

Getting the plan intothe right hands isalmost as important

as getting the rightinformation in it.

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*Getting Moneyto Fund a SmallBusiness

Personal savings

Relatives

Former employers (all employers contribute)

Banks & finance companies

Government agencies

Angel investors

Venture capitalists -- Individuals or companies thatinvest in new businesses in exchange for partialownership. Many well known businesses such asGoogle, Zappos and Apple received a first round of

funding from venture capitalists.

LG4

SOURCES of CAPITAL

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*Knowing YourCustomers

Market -- Consumers with unsatisfied wants andneeds who have both resources and willingness tobuy.

Set out to fill the markets needs by offering top

quality and great service at a fair price.

One of the great advantages of smallbusinesses is the ability to know the market andquickly adapt to market needs.

LG4

The MARKET

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*ManagingEmployees

Hiring, training and motivating employees iscritical.

Employees of small companies are often moresatisfied with their jobs they feel challengedand respected. (if not, turnover might behappen)

Entrepreneurs best serve themselves and thebusiness if they recruit and groom employeesfor management positions.

LG4

MANAGING EMPLOYEES

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*Keeping Records

Computers simplify the process by helping withinventory control, customer records and payroll(to employees).

A good accountant can help in:

- Deciding whether to buy or lease equipment.- Deciding whether to own or rent a building.- Tax planning.

- Financial forecasting.(future estimation)- Choosing sources of financing. (bank loan?Offer share?)

- Writing requests for funds. (to government?

Bank?)

LG4

ACCOUNTING ASSISTANCE

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*Looking for Help

Owners need outside consulting advice early inthe process.

Small and medium-sized firms cannot afford to

hire experts as employees. A competent lawyer can help with:

- Leases (Rent)

- Contracts- Partnership agreements- Protection against liabilities

LG4

LEGAL HELP

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*Looking for Help

Marketing decisions need to be made long beforeintroducing a product or opening a store.

A marketing research study can help you:- Determine where to locate. (match with external

environment such as culture, governmentpolicy,..)

- Whom to select as your target market.- What is an effective strategy for reaching the

market. (advertising? promotion?)

LG4

MARKETING RESEARCH

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*ProgressAssessment

Why are people willing to take the risks ofentrepreneurship?

What are the advantages of entrepreneurial teams?

What are some opportunities and risks of web-based businesses?

Can you describe at least five sections of abusiness plan?

PROGRESS ASSESSMENT

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