Ch.06 Entrepreneurship and Starting a Small Business
Why might entrepreneurial teams be better than an individual entrepreneur
Because team members can combine creative skills with production and marketing skills right from the start. Having a team also can ensure more cooperation and coordination later among functions in the business.
Which of the following is among the challenges faced by those with home based businesses?
managing time
What is the "rule of thumb" about getting experience in small business? How do you get this experience?
"Rule of thumb" have three years' experience in a comparable business first. You can get this experience by working for a small business owner, and eventually learning the business well enough to allow the owner to take off weekends and holidays, and take a vacation. After working for several years and learning as much as you can about the business, make an offer to take over the management of the business.
Small business
A business that is independently owned and operated, is not dominant in its field of operation, and meets certain standards of size (set by the Small Business Administration) in terms of employees or annual receipts.
A small business:
is considered small relative to other businesses in its industry.
An incubator is:
A center that offers new businesses low-cost offices with basic business services.
A business plan is:
A 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)
Business plan
A 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).
What is peer-to-peer lending?
A form of individual investing. Websites match people who want money with people who are willing to lend it.
How can an accountant help in managing a small business?
A good accountant can help you decide whether to buy or lease equipment and whether to own or rent a building. He or she may also help you with tax planning, financial forecasting, choosing sources of financing, and writing requests for funds.
Entrepreneurial Team
A group of experienced people from different areas of business who join together to form a managerial team with the skills needed to develop, make, and market a new product.
Small Business Investment Company (SBIC) Program
A program through which private investment companies licensed by the Small Business Administration lend money to small businesses.
How is it that a business that employs 1,500 people, or has revenues of $22 million, be considered small?
A small business is considered small relative to the industry it is in. If it still meets the criteria listed above, a $22 million business would still be considered small. In manufacturing a company can have 1,500 employees and still be considered small.
Entrepreneurship
Accepting the risk of starting and running a business.
In general, what is the level of small businesses involvement in the global market place?
According to the U.S. Department of Commerce only about a third of small businesses now export, but half are expected to engage in global trade by 2018. Small and medium-sized business accounted for 99 percent of the growth in exporting in recent years.
Small business owners say they need the most assistance in the area of
Accounting
Steve Jacobie is an entrepreneur to the max. Steve has started three businesses, two of which he sold for a great deal of money. He is now involved in running his third business, with plans to sell it shortly and start yet another one. When commenting on his success as an entrepreneur, he says that once an idea comes to him, he just can't wait to start working on it and bring it to reality, and that is what he focuses on. Which of the traits of successful entrepreneurs does this suggest is characteristic of Steve?
Action-oriented
Service Corps of Retired Executives (SCORE)
An SBA office with volunteers from industry, trade associations, and education who counsel small businesses at no cost (except for expenses).
SCORE is:
An SBA service with 13,000 volunteers who provide counseling services for small businesses free, except for expenses.
Describe affiliate marketing. What is a widget, and how does it work?
An internet-based marketing strategy in which a business rewards individuals or other businesses (affiliates) for each visitor or customer the affiliate send to its website. i. Widget: a tiny application that links your page to the seller's site. Whenever anyone clicks on the widget (an image of the product) and buys a product the seller pays you a commission.
Affiliate marketing
An internet-based marketing strategy in which a business rewards individuals or other businesses (affiliates) for each visitor or customer the affiliate sends to its website.
The growth potential for small businesses internationally is minimal. (True or False)
False
The majority of new jobs in the United States are created by big business. (True or False)
False
If you want to be both independent and rich, you need to go after:
Growth
If you're a very small company, which funding source are you more likely to use, venture capital or an angel investor? Why?
If you're a small company, you don't have a very good chance of getting venture capital. Since the failure of early Web start-ups, venture capitalists are willing to invest less are willing to invest in a business and they expect more return on their investment. You'd have a better chance finding an angel investor.
What kinds of services are offered by incubators? How do they help businesses survive?
Incubators offer new businesses in the critical stage of early development low-cost offices with basic services such as accounting, legal advise, and secretarial help.
What kinds of services are offered by incubators? How do they help businesses survive?
Incubators offer new businesses in the critical stage of early development low-cost offices with basic services such as accounting, legal advise, and secretarial helpIncubators help companies survive because they provide assistance in the early stage of a businesses' development.
Venture capitalists
Individuals or companies that invest in new businesses in exchange for partial ownership of those businesses.
What was part of the intention of the Immigration Act of 1990? What are investor visas?
Intended to encourage more entrepreneurs to come to the United States. The act created a category of "investor visas" that allows people to come to the United States each year if they invest $1 million in an enterprise that creates or preserves 10 jobs.
In what ways can a lawyer help a small business owner?
Lawyers can help with leases, contracts, partnership agreements, and protection against liabilities.
In what areas will a marketing research study help a small business owner?
Marketing research study may help you determine where to locate, whom to select as your target market, and what is an effective strategy for researching it.
A Small Business Investment Company can help small businesses from defaulting on loans by
Often SBICs are able to keep defaults to a minimum by identifying a business's trouble spots early, giving entrepreneurs advice, and in some cases rescheduling loan payments.
What are the challenges in small businesses regarding promotion and delegating authority?
Often entrepreneurs are reluctant to recognize that to keep growing, they must delegate authority to others. Entrepreneurs who have built their companies often feel compelled to promote employees who have been with them from the start, even when those employees aren't qualified as managers. There is also sometimes the idea that you must promote, or can't fire, someone because they're family, and this can hinder growth.
Small businesses have an advantage over large business in international trade in all these ways except:
Their prices are usually lower.
Small Business Administration (SBA)
A U.S. government agency that advises and assists small businesses by providing management training and financial advise and loans.
What are two software programs that can help with writing a business plan?
1) Business Plan Pro by Palo Alto Software 2) MiniPlan
What are four hurdles small businesses face in the international market?
1) Financing is often difficult to find 2) Would-be exporters don't know how to get started and 3) Do not understand the cultural differences between markets 4) the bureaucratic paperwork can threaten to bury a small business.
What three criteria are critical for a small business owner with regard to managing employees?
1) Hiring 2) Training 3) Motivating employees
Three important factors for success in your small business are:
1) Knowing your customers 2) Managing your employees 3) Keeping efficient records
What are three ways to learn about small business?
1) Learn from others 2) Get some experience 3) Take over a successful firm
What are two advantages small business owners believe they have over big business?
1) More personal customer service 2) The ability to respond quickly to opportunities
What are the four reasons why people become entrepreneurs?
1) Opportunity 2) Profit 3) Independence 4) Challenge
List several sources of small business funding.
1) Personal savings 2) Relatives 3) Former employers 4) Banks 5) Finance companies 6) Venture capitalists 7) government agencies such as the Small Business Administration (SBA) 8) Farmers Home Administration 9) Economic Development Authority 10) Minority Business Development Agency
Five desirable attributes for entrepreneurs areL
1) Self-directed 2) Self-nurturing 3) Action-oriented 4) Highly energetic 5) Tolerant of uncertainty
Three factors used to determine the value of a business are:
1) What the business owns 2) What it earns 3.) What makes it unique
You may have a business idea that is a good opportunity if:
1) it fills customers' needs 2) you have the skills and resources to start a business 3) you can sell the product or service at a price customers are willing and able to pay- and still make a profit 4) you can get your product or service to customers before your window of opportunity closes.
What are five areas in which you may need assistance as a small business owner?
1) legal 2) Tax 3) Accounting 4) Marketing 5) Finance
Incubators
Centers that offer new businesses low-cost offices with basic business services.
List the information that generally should be included in a business plan.
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
Intrapreneurs
Creative people who work as entrepreneurs within corporations.
In general the easiest businesses to keep alive are:
Difficult to get started (like manufacturing)
How do employees of small businesses often feel about their jobs? Why?
Employees of small companies are often more satisfied with their jobs that are their counterparts in big businesses. Quite often they find their jobs more challenging, their ideas more accepted, and their bosses more respectful.
In addition to investor visas, what are two ways governments could encourage entrepreneurship?
Enterprise zones- specific geographic areas to which governments attract private business investment by offering lower taxes and other government support.
Micropreneurs
Entrepreneurs willing to accept the risk of starting and managing the type of business that remains small, lets them do the kind of work they want to do, and offers them a balanced lifestyle.
A Web-based business will be more successful if it offers the same products available in local stores at better prices. (True or False)
False
A market is basically anyone who wants to buy your product. (True or False)
False
An effective business plan should catch the reader's interest right away. (True or False)
False
Angel investors will ask for a stake in your business in exchange for the cash to start up. (True or False)
False
It is best to stay away from other small business owners for counsel, as they are likely to use your ideas before you can get started. (True or False)
False
It is not necessary to obtain legal advice when operating a small business, as it is unlikely that your business will be involved in legal matters. (True or False)
False
One of the easier elements of working at home is that it is easier to find customers, because you can start in your own neighborhood. (True or False)
False
The SBA offers a lot of advice, but no financial assistance to small business owners. (True or False)
False
Describe a shopping widget operator, such as Lemonade Stand.
Once an e-tailer is partnered with a shopping widget such as Lemonade Stand, the e-retailer provides Lemonade Stand access to product information and images. Lemonade Stand then funnels that information through its web site so users can select which products they would like to appear in the widget product galleries on their web sites, social network pages, or blogs. Widget users get commissions on sales generated through the widgets. Using a widget operator such as Lemonade Stand saves users from having to register as an affiliate with multiple sellers.
What is one of the greatest advantages small businesses have over larger businesses?
One of the greatest advantages that small businesses have over larger ones is the ability to know their customers better and to adapt quickly to their changing needs.
Small businesses have advantages over large business in the international market because:
Overseas buyers often enjoy dealing with individuals rather than large corporate bureaucracies. Small companies can usually begin shipping much faster Small companies can provide a wide variety of suppliers Small companies can give customers personal service and undivided attention, because each oversea account is a major source of business to them.
Market
People with unsatisfied wants and needs who have both the resources and the willingness to buy.
What are the primary sources of funding for entrepreneurs?
Personal savings and individual investors
What two management functions are of primary concern when you are first starting your business? What three functions are of concern after the start-up, when managing the business?
Planning and financing are the two management functions of primary concern when first starting a business i.) Knowing your customers (Marketing) ii.) Managing your employees (Human Resource Developing) iii.) Keeping records (Accounting)
Describe an angel investor.
Private individuals who invest their own money in potentially hot new companies before they go public.
Describe a Small Business Development Center, and how they help small businesses.
SBDC's are funded jointly by the federal government and individual states, and are usually associated with the state and community colleges and universities. SBDC's can help you evaluate the feasibility of your idea, develop your business plan, and complete your funding application- all for no charge.
Describe some important sources of information for small business owners.
Service Corps of Retired Executives (SCORE). This SBA has more than 10,500 volunteers from industry, trade associations, and education who counsel small businesses at no cost. www.score.org The SBA also offers a free, comprehensive online entrepreneurship course for aspiring entrepreneurs. Often business professors from local colleges will advise small-business owners for a small fee. It is also wise to seek the counsel of other small-business owners. YoungEntrepreneur.com Local chambers of commerce, the Better Business Bureau, national and local trade associations, the business reference section at library, and many small business-related sites on the Internet. www.4consulting-services.com
Once you have identified your market and its needs, you must:
Set out to fill those needs.
Computers can help a small business owner in the area of accounting by:
Simplifying record keeping and enabling a small-business owner to daily follow sales, expenses, and profits.
What are microloans and what criteria are used to award microloans?
Started in 1991 the SBA created a microloan demonstration program. The program provides very small loans (up to $50K) and technical assistance to small-business owners. Rather than award loans based on collateral, credit history, or previous business success, the program judges worthiness on belief in the borrowers' integrity and the soundness of their business ideas.
How would a small business owner benefit from the advice of a commercial loan officer and an insurance agent?
The commercial loan officer can help you design an acceptable business plan and give you valuable financial advice as well as lend you money when you need it. An insurance agent will explain all the risks associated with a small business and how to cover them most efficiently with insurance and other means like safety devices and sprinkler systems.
Which of the following is a false statement about small business?
The first job for most Americans will probably not be in a small business.
There are many reasons why small business owners don't go international. Which of the following is not one of those reasons?
The market doesn't have great potential.
Entrepreneurs take the risk of starting a business for all of the following reasons except:
They want to work less
What will other small business owners tell you when you talk to them about running your own business?
They'll tell you that location is critical and caution you not to be undercapitalized, that is, not to start without enough money. They'll warn you about the problem of finding and retaining good workers. And, most of all they'll tell you to keep good records and hire a good accountant and lawyer before you start.
Employees of small businesses are often more satisfied with their jobs than counterparts in big business. (True or False)
True
Entrepreneurs will sometimes look for opportunities by determining what customers don't need. (True or False)
True
Many of the businesses with the lowest failure rates require advanced training to start. (True or False)
True
Most small businesses can't afford to hire experts as employees, so they need to turn to outside assistance for help. (True or False)
True
One benefit of encouraging entrepreneurship is job creation. ( True or False)
True
One of the major hurdles for a small business in going international is cultural differences. (True or False)
True
Small business owners could consider borrowing from a potential supplier. (True or False)
True
Small business owners report that their greatest advantages over big companies are their more personalized customer service and the ability to respond quickly to opportunities. (True or False)
True
The Immigration Act of 1990 created investor visas which allow 10,000 people to come to the U.S. if they invest $1 million in an enterprise that creates 10 jobs. (True or False)
True
The Small Business Administration reports that a vast majority of small business failures are the result of poor management. (True or False)
True
What is one potential drawback with using venture capital?
Venture capitalists may ask for a hefty stake in your company (as much as 60%) in exchange for the cash to start your business. If the venture capitalist takes too large a stake, you could loose control of the business.
How "big" are Web based businesses?
Web based businesses have experienced a great deal of growth. In 2007 online retail sales reached $165.9 billion, approximately 8% of all retail sales. Online sales grew nearly six times faster than total retail sales.
What must Web-based businesses do to be successful?
Web-based businesses have to offer more than the same merchandise customers can buy at stores- they must offer unique products or services.
In measuring the value of a small firm, which of the following would not be included?
What products the business sells globally.
Would an Internet site be important if you aren't planning to sell products online?
Your business will benefit from a presence online even if you don't directly sell online. For example, a restaurant could feature their menu and daily specials, the head chef's credentials, and photos of the restaurant.
An entrepreneurial team is:
a group of experienced people who join together to develop and market a new product.
List the tips for small business owners who want to borrow money from a bank.
a. pick a bank that serves small businesses b. have a good accountant prepare a complete set of financial statements and personal balance sheet c. make an appointment before going to the bank d. go to the bank with an accountant and all necessary financial information e. demonstrate good character f. ask for all the money you need g. be specific h. be prepared to personally guarantee the loan
Small business owners often say that the most important assistance they need is in
accounting
According to the text, the most common source of funding is
after personal savings is friends and family
Affiliate marketing is:
an internet-based marketing strategy in which a business rewards individuals or other businesses for sending visitors to their website.
In general businesses that can make you rich are:
both hard to start and hard to keep going (like automobile assembly)
The primary concerns when first starting your business are:
financing and planning.
In general the easiest businesses to start:
have the least growth and greatest failure rate (like restaurants)
In addition to investor visas, what are two ways governments could encourage entrepreneurship?
i. Enterprise Zones- specific geographic areas to which governments attract private business investments by offering lower taxes and other government support. 1. Sometimes called "empowerment zones or enterprise communities. ii. States are also creating incubators and technology centers to reduce start-up capital needs. Incubators offer new businesses in the critical stage of early development low-cost offices with basic services such as accounting, legal advise, and secretarial help.
Describe a micropreneur and how he or she differs from an entrepreneur.
i. While other entrepreneurs are committed to the quest for growth, micropreneurs know they can be happy even if their companies never appear on a list of top-ranked businesses.
Describe the reasons for the growth of home-based businesses
i.) Computer technology has leveled the competitive playing field allowing home-based business to look and act as big as their corporate competitors. ii.) Corporate downsizing has led many to venture out on their own. iii.) Social attitudes have changed iv.) New taxes have loosened restriction on deducting expenses for home offices.
If you are interested in getting into a home office, you should focus on:
i.) Finding opportunity instead of accepting security ii.) Getting results instead of following routines iii.) Earning a profit instead of earning a paycheck iv.) Trying new ideas instead of avoiding mistakes v.) Creating a long-term vision instead of seeking a short-term payoff.
Identify 5 challenges faced by the owners of home-based businesses.
i.) Getting new customers ii.) Managing time iii.) Keeping work and family tasks separate iv.) Abiding by city ordinances v.) Managing risk
What are three criteria used by the SBA to classify a business as "small"?
i.) Independently owned and operated ii.) Not dominate in its field of operation iii.) Meets certain standards in its size in terms of its employees and or annual receipts
What is the failure rate of small business? Why are the statistics misleading?
i.) It has been reported that half of new businesses don't last five years. Yet a study by economist Bruce Kirchhoff showed that the failure rate is only 18% percent over the first 8 years. ii.) When small businesses close down one business to start another this is recorded as a "failure" even though they haven't failed at all. Also when businesses changed ownership or the sole proprietor retired this was recorded as a "failure" as well.
What are some statistics that illustrate the impact of small business on the American economy?
i.) There are 27.8 million small businesses in the United States ii.) Of all nonfarm businesses in the United States, almost 97% are considered small by the SBA standards iii.) Small businesses account for more than 50% of the gross domestic product (GDP) iv.) Nearly 600,000 tax-paying, employee-hiring businesses are started every year v.) Small businesses generate 60-80% of the new jobs each year vi.) Small businesses employ about half of all private-sector employees vii.) About 80% of the U.S. workers find their first jobs in small businesses
What is the difference between an entrepreneur and an intrapreneur? What is the idea behind intrapreneurs?
iWhile entrepreneurs are risk takers, intrapreneurs are creative people who work as entrepreneurs within corporations. The idea is to use a company's existing resources-human, financial, and physical- to launch new products and generate new profits.
Federico Romero is a business owner who works from home as a freelance video producer. He really enjoys his work, but isn't looking to "set the world on fire" with his company. He just wants to make a good living and spend time with his family when he can. Federico would be classified as a(n)
micropreneur.
Entreprise zones
specific geographic areas to which governments try to attract private business investments by offering lower taxes and other government support.
Miriam Njunge wants to start a small business importing some products from her native Kenya. Before she starts, some good advice to Miriam would be:
talk to others who have been or are in the import business
A business plan for a new business does not need to include:
the name of the lending bank.
According to the text, one of the drawbacks of using venture capital is that:
venture capital firms may ask for a stake in your business.
For a market to exist there must be potential buyers:
who have a willingness and the resources to buy.