entrepreneurship midterm

3 most popular types of rewards for small business owners & a description of each

growth rewards: what people get from facing and beating or learning from challenges. income rewards: refer to the money made from owning your own business. For more than 75% of entrepreneurs, this means seeking to match or slightly better the income you had before you started your own business. Flexibility rewards: are considered the most rapidly growing type of reward. They refer to the ability of business owners to structure their lives in the way that best suits their needs.

What is the role of small businesses in creating new jobs?

Small business has added tens of millions of jobs. In the latest statistics, small businesses created 63% of the new jobs. Small business start-ups in the first 2 years of operation accounted for virtually all the net new jobs in America. Small business is the engine of job generation, but it is important for existing jobs, too. Small businesses employ more than half of all Americans, providing wages, salaries, and the taxes those working people pay the government. Small businesses are also key employers because they are more willing than most large businesses to offer jobs to people with atypical work histories or needs, like people new to the workforce, people with uneven employment histories, and people looking for part-time work. These employment issues are at the core of what makes small business attractive to local and state governments.

Why are part-time businesses important? Explain.

People working for themselves for less than 35 hours a week are practicing what is called a part-time business. There are two important reasons for working in part-time businesses. First, most entrepreneurs start out working part time on their new business. The ease and low cost of entry and exit make part-time entrepreneurship a great way to try a variety of different businesses without "betting the farm" each time they start a business. Second, the sheer number of part-time self-employed individuals make them a major force in the U.S. economy. Officially, of the 25.9 million small businesses in the United States in 2012, almost half (10.8 million) were part-time businesses.

What is creative destruction?

Small business is a key element of every nation's economy because it offers a very special environment in which the new can come into being. Austrian economist Joseph Schumpeter labeled this process creative destruction. It refers to the way that newly created goods, services, or firms can hurt existing goods, services, or firms.

3 key rewards that entrep mention

flexibility, a livable income, and personal growth

other rewards entrep mention less than other workers

social rewards ex: respect/ admiration of others power over others family rewards (continuing a family tradition in business)

Explain the key factors that an influential person looks for in a business plan pitch.

1) your passion for the business, (2) your expertise about the business and the plan, (3) how professional you are in your work, and (4) how easy it would be to work with you.

Briefly explain the steps involved in performing due diligence in purchasing an existing business.

1. Conduct extensive interviews with the sellers of the business. 2. Study the financial reports and other records of the business. 3. Make a personal examination of the site (or sites) of the business. 4. Interview customers and suppliers of the business. 5. Develop a detailed business plan for the acquisition. 6. Negotiate an appropriate price for the business, based upon the business plan projections. 7. Obtain sufficient capital to purchase and operate the business.

What are the most common myths about small businesses? What are the facts that contradict these myths?

1. Not enough financing: The SBA reports that bank financing is up from its low in early 2009, and the same is true for funding from family, friends, and angels. Crowdfunding and bootstrapping techniques are also being discovered by entrepreneurs. 2. It is not possible to start businesses during a recession: Businesses started in recessions start lean—no fancy offices, no bonuses. That means they learn from the start how to do more with less, which makes them better able to handle future times of scarcity and trouble. According to a 2009 BusinessWeek report, 7/10 largest companies in the 2009 Fortune 500 were started in recessions. 3. To make profits, entrepreneurs need to make something: In 2011, amid a recession, Sageworks reported that of the 10 most profitable industries for small businesses, 9 were services like dentists, tax preparers, mining support services, credit counselors, insurance brokers, and legal and health practitioners. Whereas getting a DDS or MD degree takes years and tens of thousands of dollars, bookkeeping and credit counseling require little specialized training. 4. if an entrepreneur fails, he or she can never try again: If entrepreneurs close a business & pay off their debts, they did not fail. If they learned how to do better next time, then they can honestly say they have paid for another piece of their education. A large number of today's successful entrepreneurs had failures along the way. 5. Students (or moms or some other group) do not have the skills to start a business: It would be hard for an undergraduate to open a medical practice, but lots of students have useful business skills. 6. 90% percent of all new business fail within two years: This statement is wrong in 2 ways. First, the percentage is wrong. 25% of new businesses survive for 15 years or more. Second, businesses that close often do not fail but close success.

Discuss some of the common critical risks in a business plan.

1. Overstated numbers: Examples include sales or profits that are too optimistic, owner salaries above the minimum needed to live. 2. Numbers that are wrong: Examples include balance sheets that do not balance, numbers in the financials that do not flow from one section to the next, no assumptions given for the financials, etc. 3. Inadequate cushion: The number one killer of young firms is, not enough money. Having enough cash to survive three months goes a long way to avoiding this risk. 4. Inadequate payback: There are always opportunities out there. Any plan that does not clearly specify the key paybacks will fail to sell them on the idea. 5. Narrative and financials do not fit: If you have a plan that calls for a large marketing campaign, but financials do not show costs for one, there is a problem. 6. No direct customer connection: If it sounds like you have not actually talked to potential customers about your product/service, readers will consider that a major problem. 7. Uncertain sales: You need to prove your sales estimate. The best way is to know your conversion rate. 8. Overlooked competition: You do not want to overlook a major player in your industry. If a search on the web or in a phonebook can turn one up, you could be in trouble. Be broad in your search for competitors. Recall Porter's five forces to find competitors. 9. Experience deficits: Do you have experience in (a) the line of business, (b) the industry, (c) the locality, (d) managing? Have it, find it, or say how you will learn it. 10. "What" problems: For the product or service, make sure it is explained clearly enough so anyone could understand it. Make sure the plan is clear about what is being asked of the reader. 11. Deadly aggravations: Looking and sounding professional is key. A plan with misspellings looks amateurish. Lacking a table of contents, or page numbers in the plan makes life harder for people you want to impress. Selling instead of summarizing in the executive summary comes across as hucksterism.

How can a start-up increase its chance of success?

1. Start the business in a business incubator. 2. Take part in a mentoring program. 3. Have a detailed start-up budget. 4. Produce a product or service for which there is a proven demand. 5. Secure outside investment. 6. Start with more than one founder. 7. Have experience managing small firms. 8. Have industry experience. 9. Have previous experience in creating a start-up business. 10. Choose a business that produces high margins. 11. Start the business with established customers. 12. Build trust in your "story."

What are the four key decisions that entrepreneurs need to make to build the strategy for their firms?

1. The major goals they set for their firms. 2. The types of customers they seek and what benefits they plan to offer them. 3. The stage and trend of their chosen industry. 4. The specific generic and supra strategies they choose to pursue.

Briefly describe the four types of business planning presentations.

1. The vision statement is a very simple 5-10 word sentence or better yet a tagline that expresses the fundamental idea or goal of the firm. 2. An elevator pitch is an action-oriented description of your business that is somewhat longer than a vision statement or tagline. It is designed to open the door to a more in-depth dialogue. 3. An executive summary gives a one- to two-page overview of the business, its business model, market, expectations, and immediate goals. 4. The business plan brings together every aspect of your business including your product and service, your market and your strategy.

Discuss the advantages and disadvantages of start-ups.

Adv: 1. A start-up begins with a "clean slate." There are no existing employee problems, debts, lawsuits, contracts, or other legal commitments that must be satisfied. 2. A start-up provides the owner with the opportunity to use the most up-to-date technologies. There are no "legacy" locations, buildings, equipment, or software that can hamper productivity. 3. A start-up can provide new, unique products or services that are not available from existing businesses or franchises. Existing businesses and franchises exist because of their success in providing proven products and services. 4. A start-up can be kept small deliberately to limit the magnitude of possible losses. A purchased business or franchise requires immediate and constant cash flows to meet ongoing obligations. Dis: 1. A start-up business has no initial name recognition. An existing business or franchise has invested in developing its market. The brand rights can guarantee immediate acceptance of the business. 2. A start-up will require significant time to become established and provide positive cash flows. An established business or franchise has built-in customers to provide immediate cash inflows. 3. A start-up can be very difficult to finance. Established businesses and franchises provide immediate assets, sales, and cash inflows that can be used to obtain financing for the business. 4. A start-up usually cannot easily gain revolving credit from suppliers and financial institutions. An existing business or franchise often has lines of credit that transfer with the business. 5. A start-up may not have experienced managers and workers. Established businesses and franchises provide experienced workforces, training, and management support.

What is the difference between small businesses and high-growth ventures?

Both small businesses and high-growth ventures may be small when they start. However, small businesses are usually intended to remain small, generally a size that the owner feels comfortable controlling personally. High-growth ventures start small but are intended to grow rapidly, often requiring a team of partners or managers to handle the growth. The differences between small businesses and high-growth ventures are not just semantic, they are fundamental.

Name and briefly explain the stages of the entrepreneurial life cycle. Why is it important to understand this cycle?

For most small businesses the usual sequence of stages is emergence, existence, survival, success, and resource maturity. Emergence is the stage in which a person thinks about and takes actions toward starting a firm. Getting from entrepreneurial thinking to entrepreneurial action is the challenge of the emergence stage. Existence is defined by having the business in operation, but not yet stable in terms of markets, operations, or finances. Existence is the 2nd riskiest period after emergence. The reason risk is so high is that many business owners lack the key information or experiences they need in marketing, production, and management. The problems of mastering these three areas form what are called the liabilities of newness. The solution comes from getting expertise as quickly as possible. The success stage occurs once the firm is established in its market. Success stage firms show consistently growing financial performance, usually with slowly rising sales. Firms at this stage develop the information, skills, and most importantly the routines to grow the business's profits. These extra profits are slack resources. The resource maturity stage will follow the success stage for most firms. This stage is characterized by a stable level of sales and profits over several years. At this stage, the functional areas, the market, and the products or services are all being dealt with consistently and efficiently. The challenge of maturity is to avoid complacency.

What is meant by industry analysis? How does industry analysis help an individual in the strategy process?

Industry analysis (IA) is a research process that provides the entrepreneur with key information about the industry, such as its current situation and trends. Most entrepreneurs initially do an IA to find out what the profits are in an industry in order to better estimate possible financial returns. Taking this one step further, finding out how those profits are generated often makes the difference between success and failure. Armed with this information, the entrepreneur can tell if the industry is growing, stable, or in decline and what the degree of competition is. (IA) consist of knowing 7 pieces of information: SIC/NAICS number and description (online), industry size over time (online), profitability, how profits are made (interview or articles), target market competitor concentration (directory checking), analysis, and sources.

Define opportunity recognition and entrepreneurial alertness.

The search and capture of new ideas that lead to business opportunities is called opportunity recognition. This process often involves creative thinking that leads to discovery of new and useful ideas. The notion of entrepreneurial alertness is one that has captured the attention of scholars in the field. This phrase means that entrepreneurs have a special set of observational and thinking skills that help them identify good opportunities.

What does the total product mean? How does this approach help a small business owner?

The total product includes the entire bundle of products, services, and meanings of a business's offering; includes extras like service, warranty, or delivery, as well as what the product means to the customer. First, the total product is important for a small business owner because a product means more to a consumer than just the core component. Second, as a small business owner, using the total product approach can help the owner get inside his or her customers' heads and figure out the most cost-effective "bundle" of value and cost benefits to give the target market. Last, when the owner is designing the rest of his or her marketing plan, knowing what the product really "means" to consumers will help set an appropriate price, and select the distribution chain that will successfully carry out some of the service components.

In what ways do small part-time businesses need to deal with government? Explain.

There are two key groups outside business with whom one must deal—government and customers. Even part-time businesses have to deal with government, and the three issues that pop up include registration or licensing, taxes, and zoning. For businesses run from a home or commercial, most states and localities require some form of registration, but the requirements vary so it is important to check. It is also important to check whether the business needs special licensing. Even when one does not have to register a business, there is a need to keep track of sales in order to pay income taxes later. One should keep track of costs because if one has to itemize their deductions on Schedule C, one can deduct their costs from income. In many states and localities, one must also pay sales taxes, and these often need to be kept in a separate bank account and tracked as well.

What are the two market decisions that entrepreneurs need to make early in the process of going into business?

There are two market decisions entrepreneurs need to make early in the process of going into business. One of these is the scale of the market, which is the size of the market—whether they plan to aim for a mass market or a niche market. The other is the scope of the market, which defines the geographic range covered by the market—from local to global. Scale of the market: Mass market - A mass market is a market that involves large portions of the population—all men, all women, all teens, all elderly, all families, all manufacturers, all restaurants. Mass markets are broad, and a mass-market approach targets the entire market. Niche market - A niche market is a narrowly defined segment of the population that is likely to share interests or concerns—25-34 year-old women, families with twins, Boy Scouts, Italian restaurants, manufacturers in a city. Niche markets are specific and narrow, and in a niche market approach, entrepreneurs try to target only customers in the niche. Most industries have both mass and niche markets. Scope of the market: Local to Global - Market scope is related to market scale. Market scope refers to the geography of a target market. It can be local (like a neighborhood or a city), regional (e.g., a metropolitan area or a state), national, international (usually meaning two to a few countries), or global (meaning everywhere). Market scope is important for two reasons. First, knowing the market scope helps entrepreneurs decide where to focus their sales and advertising efforts. The second benefit is that knowing the target market gives them a way to determine which potential competitors they need to worry about most, namely those also in their market scope.

Describe the challenges faced by women and minorities in small businesses.

Women-owned businesses are one of the fastest growing sectors of all U.S. businesses. Between 1997 and 2012, the number of private businesses with at least 51% female ownership increased by 54%, while the rate for firms overall was 37%. Representing approximately 22% of all U.S. businesses, the number of minority-owned firms has likewise grown explosively in recent years. Despite the growth in the number of women and minority entrepreneurs, both groups still face the challenge of access. Access refers to the simplest form of discrimination.When business relationships build from shared hobbies, sports, or even college ties, social situations that are all male or largely white outside of work can lead to unintegrated business networks. Access problems for women- and minority-owned small businesses crop up most often as discrimination in financing. This means that they may not be given the same access to funds or contracting opportunities that white male-owned firms are given.

Explain the RBI Screening process, how to use it and the purpose of the screening.

You ask yourself five questions and rate the answers on a simple 5-point scale of "awful" to "great." The specifics of the five questions asked in the RBI (Alex Bruton's Really Big Idea) screen are: 1. People: Who are you? What is your (or your team's) relevant experience or knowledge? 2. Offering: What are you offering? What is the product or service or experience? 3. Customer: Who are you offering it to? Who is your customer? Who makes the buying decision? How many buyers are there? 4. Value Proposition: Why do they care? Why will it be important to the buyer/user? Why will they be happier with your offering than their current substitutes or alternatives? 5. Distinctive Competencies: Do you have any key or core science/technology or feature? Does your idea have something special compared to competitors that is valuable to your customers or buyers (e.g. better technology, better quality, easier to buy or use, better support, new/better features, costs less, gives your firm an advantage over competitors, rare, costly for others to imitate, etc.)?

Define a product and differentiate between goods and services.

anything that is offered to the market to satisfy consumer wants, needs, and demands. This includes goods, services, people, and ideas. These days, most of the things sold are combinations of goods and services.

2 other rewards that entrep mention more than other working people

building great wealth & creating products

Briefly describe the industry life cycle.

introduction stage starts with only a few firms. These firms elected to be innovative in their approach, making a new product or offering a new service. The number of firms typically grows slowly at first. Growth stage: once general public is aware pf offering. some stay within a few firms meeting the customer demand. other times, other firms jump in to meet demand which is called the boom stage. Firms begin to compete on features and price, and there may seem to be an explosion of choices. when this comes to an end, shake out stage begins when a lot of these firms close down The industry eventually reaches a relatively stable number of firms, with minor variations and a slow drop in numbers. This is called the maturity stage. Eventually mature industries begin a decline stage. Some industries face death, while others find new life in a process called retrenchment.

Why are websites important even for small businesses?

potential customers will use it for finding the business. Second, if they've heard about the business from something other than the Internet, they will use the site to find out more information about the business and to decide if they want to actually contact.

Discuss the challenge of succession faced by family businesses.

succession—the process of intergenerational transfer of a business. Often the lack of a clear succession plan is the death knell for those family firms facing their first intergenerational transition. If the founder dies, becomes seriously ill, before he or she can groom a successor, the new family leader may be suddenly thrust into the role before coming up to speed on vital company information and developing needed skills. lack of a succession plan, private and public dissension among various factions of the family becomes more likely, negatively affecting operations within the firm, and may eventually cause the business to fail. Succession plans deal with the people who will take over, what roles they will fill, and what supports they will receive describe different things that can go wrong- if theres no family members, if everyone wants to run it, example of my family