Intro to Business Ch. 7

external locus of control

A deep-seated sense that forces other than the individual are responsible for what happens in his or her life.

internal locus of control

A deep-seated sense that the individual is personally responsible for what happens in his or her life.

venture capital firms

Companies that invest in start-up businesses with high growth potential in exchange for a share of ownership.

business plan

A formal document that describes a business concept, outlines core business objectives, and details strategies and timelines for achieving those objectives.

market niche

A small segment of a market with fewer competitors than the market as a whole. Market niches tend to be quite attractive to small firms.

Small Business Administration (SBA)

An agency of the federal government designed to maintain and strengthen the nation's economy by aiding, counseling, assisting, and protecting the interests of small businesses.

SCORE (Service Corps of Retired Executives)

An organization—affiliated with the Small Business Administration—that provides free, comprehensive business counseling for small business owners from qualified volunteers.

angel investors

Individuals who invest in start-up companies with high growth potential in exchange for a share of ownership.

Explain the key reasons to launch a small business.

Launching a business is tough, but the advantages of business ownership can far outweigh the risk and hard work. Most people who take the plunge are seeking some combination of greater financial success, independence, flexibility, and challenge. But some are seeking survival and simply have no other options.

Small Business Development Centers (SBDCs)

Local offices—affiliated with the Small Business Administration—that provide comprehensive management assistance to current and prospective small business owners.

Discuss ways to become a new business owner and tools to facilitate success.

Many people who are interested in owning their own business prefer to start from scratch and build their company from the ground up. But buying an established business, or even a franchise, can be an excellent choice as well. Each choice involves a range of pros and cons, but broadly speaking, it's less risky to buy an established business or franchise, but more satisfying (at least for some people) to start a new venture from scratch. Whichever path you choose—whether you're an ambitious entrepreneur or simply a small business owner—several strategies can help you succeed over the long term: gain experience in your field, learn from others, educate yourself, access SBA resources, and develop a business plan.

New Business Survival Rates YEAR IN BUSINESS SURVIVAL RATE CHANGE VS. PRIOR YEAR (PERCENTAGE POINTS)

Year 1-100.0%--Year 2-78%−22,Year 3-66%-−12, Year 4, 56%, −10, Year 5, 50%, −6, Year 6, 45%, −5, Year 7, 42%, −3, Year 8, 40%, −2, Year 9, 37%, −3, Year 10, 35%, −2. Source: Entrepreneurship and the U.S. Economy, Bureau of Labor Statistics, http://www.bls.gov/bdm/entrepreneurship/bdm_chart3.htm, accessed May 18, 2016.

Discuss funding options for small business.

For many entrepreneurs, finding the money to fund their business is the top challenge of their start-up year. The vast majority of new firms are funded by the personal resources of the founder, including personal accounts (e.g., credit cards), family, and friends. Other key funding sources include bank loans, angel investors, and venture capital firms.

Describe the typical entrepreneurial mindset and characteristics.

Not all small business owners are entrepreneurs. The difference is attitude: from day one, true entrepreneurs aim to dominate their industry. The entrepreneurial personality typically includes some combination of the following characteristics: vision, self-reliance, energy, confidence, tolerance of uncertainty, and tolerance of failure. While these qualities are very helpful, they aren't essential: it's clearly possible to succeed with a number of different personality types.

Analyze the opportunities and threats that small businesses face.Small businesses enjoy some key advantages but also face daunting obstacles as they fight for a foothold in the turbulent marketplace.

Opportunities:-Market niches: Many small firms are uniquely positioned to exploit small, but profitable, market niches.-Personal customer service: With a smaller customer base, small firms can develop much more personal relationships with individual customers.-Lower overhead costs: Many small firms can hold down overhead costs by hiring fewer managers and fewer specialized employees.-Technology: The Web has played a powerful role in opening new opportunities for small business in both local and global markets.----Threats:-High risk of failure: Starting a new business involves a lot of risk, but the odds improve significantly after the five-year mark.-Lack of knowledge and experience: Entrepreneurs often have expertise in a particular area but lack the background to run a successful business.-Too little money: Lack of start-up money is a major issue for most new firms, since ongoing profits don't usually begin for months, or even years.-Bigger regulatory burden: Small firms spend 45% more per employee than big firms, simply complying with federal regulations.-Higher health insurance costs: Small-scale health plans are much more expensive, making it harder to offer employees competitive coverage.

Entrepreneurs

People who risk their time, money, and other resources to start and manage a business.

Explain the size, scope, and economic contributions of small business.

Small businesses play a vital role in the American economy, generating about half of the U.S. gross domestic product and accounting for more than two-thirds of all new jobs over the past two decades. In addition to fueling employment growth, small businesses contribute innovations to the economy at a much higher rate than their big business counterparts. They also form the backbone of many inner-city economies, finding opportunities—and offering products and services—in places where most large firms opt not to operate. The entrepreneurship rate around the world varies dramatically from country to country, ranging from a high of 41% in Zambia to a low of 4% in Italy, Russia, and Japan. The differences among countries seem to depend largely on the national per capita income, the opportunity costs for entrepreneurs, and the national culture and political environment.