Intro to Business: Chapter 6
market
people with unsatisfied wants and needs who have both the resources and willingness to buy
factors that increase the chances of small-business success:
- customer requires a lot of personal attention (beauty parlor) - product not made easily by mass-production techniques (custom tailored clothes, custom auto body work) - sales not large enough to appeal to a large firm (novelty shop) - neighborhood is not attractive because of crime or poverty. this provides unique opportunity for small grocery stores and launderies. - a large business sells a franchise operation to local buyers (franchising) - owner pays attention to new competitors - the business is in a growth industry (computer services, web design)
entrepreneurs must recognize that they need competent and motivated employees. since they can't compete with larger firms' pay and benefits, they need to:
- delegate more often - be respectful of employees' opinions - provide more challenging opportunities to learn
good reasons for going global
- exporting can absorb excess inventory - exporting can extend product life
reasons for small-business failure (p. 160)
- managerial incompetence - inadequate financial planning - plunging in w/out first testing waters on a small scale - underpricing or overpricing goods or services - underestimating how much time it will take to build a market - starting w/ too little capital - starting w/ too much capital and being careless in its use ....
reasons people are willing to take entrepreneurial risk
- opportunity - profit - independence - challenge
small businesses have several advantages over large business in international trade
- overseas buyers often enjoy dealing with individuals rather than with 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 overseas account is a major source of business to them
entrepreneur has several potential sources of capital
- personal savings - former employers - banks - finance companies - venture capitalists - government agences such as SBA, farmers home administration, development authority, inority business development agency - most common: friends and family
managing a small business
- planning your business ** - financing your business ** - knowing your customers (marketing) - managing your employees (human resource development) - keeping records (accounting) ** two primary concerns in the start up phase
entrepreneurial attributes
- self-directed - self-nurturing - action-oriented - highly energetic - tolerant of uncertainty - self-disciplined - comfortable being their own boss
inexpensive marketing research study may help determine:
- whom to select as your target market - where to locate - what is an effective strategy for reaching your target market
Service Corps of Retired Executives (SCORE)
a SBA office with volunteers from industry, trade associations, and education who counsel small businesses at not cost (except for expenses)
Small Business Administration (SBA)
a US gov't agency that advises and assists small businesses by providing management training and financial advice and loans
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 only considered "small" in relationship to other businesses in its industry - 27.8 million small businesses in US - of all nonfarm, 97% considered small bus by SBA stds. - nearly 600,000 tax-paying, employee-hiring businesses are started every year - generate 60-80% of new jobs each year - 80% US workers find first jobs in small businesses
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) - forces potential small biz owners to be specific about products or services they intend to offer. must analyze competition, calculate how much money needed to start, and cover other details of operation - mandatory for talking with bankers or other investors
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 summary: - each from diff areas of business - group of experienced people - members have complementary skills and are creative - they are able to develop, make, and market new products ex: Steve Jobs, Steve Wozniak - Apple team
Small Business Investment Company (SBIC) Program
a program through which private investment companies licensed by the SBA lend money to small businesses
entrepreneurship
accepting the risk of starting and running a business
Self-Employment Assistance (SEA) program
allows participants to collect unemployment checks while they build their business and provide training and counseling to the new business owner
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
experience for running your own business by
becoming an apprentice, talking to other owners, working for a successful entrepreneur
incubators
centers that offer new businesses low-cost offices with basic business services such as accounting, legal advice, and secretarial help 87% of incubator graduates remain in business
intrapreneurs
creative people who work as entrepreneurs within corporations idea is to use a company's existing resources--human, financial, and physical--to launch new products and generate new profits
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 ex: graphic design, writing, translating, consultants, video producers, architects, bookkeepers
home-based businesses
for people combining career and family - 60% are men reasons for home-based bus: - affordable technology - corporate downsizing has led many to venture out on their own - social attitudes changed - new tax laws loosened restrictions challenges: - getting new customers - managing time - keeping work and family tasks separate - abiding by city ordinances - managing risk
web-based businesses
in 2010, online retail sales reached $172.9 billion; apx. 7% if all retail sales will reach $250 billion by 2014
venture capitalists
individuals or companies that invest in new businesses in exchange for partial ownership of those businesses -may ask for a hefty stake (as much as 60%) in exchange for the cash to start your business
Immigration Act of 1990
intended to encourage more entrepreneurs to come to the US. created "investor visas" that allows 10,000 people to come to the US each year if they invest #1 million in an enterprise that creates or preserves 10 jobs
apprentice
is hired to assist the owner of a small business while gaining experience
Community Development Financial Institutions (CDFIs)
may be a source of funding for businesses in lower-income communities - play a big role in economic recovery have been successful because they: - maintained financial discipline other lenders lack - provide counseling on improving cash flow - offer counseling on marketing strategies
enterprise zones
specific geographic areas to which governments try to attract private business investment by offering lower taxes and other government support
microloan program
started by the SBA in 1991, this program provides very small loans (up to $50k) and technical assistance to small-business owners
entrepreneurs
take moderate and calculated risks
businesses with low failure rates, such as veterinary services, dental practices, and medical practices
- do not tend to produce much growth - often require advanced training to start
high-growth businesses (technology firms)
- extremely difficult to keep going - difficult to start
why are so many finding it difficult to enter huge global markets
- financing is often difficult to find - would be exportrs don't know how to get started and do not understand the cultural differences between markets - bureaucratic paperwork can threaten to bury a small business
SBA may provide these types of financial assistance
- guaranteed loans - microloans (from $100-$50k) - export express (max $500k) - Community Adjustment and Investment Program (CAIP) - pollution control loans - 504 certified development company (CDC) loans
learning about small-business operations
- learn from others - get some experience (apprentice, work for successful entrepreneur) - take over a successful firm
outline of comprehensive business plan
- cover letter sec 1: executive summary: consists of a two- or three-page management summary of the proposed venture, including a short description of the business, and discusses major goals and objectives sec 2: company background: describes company operations to date, potential legal considerations, and areas of risk and opportunity sec 3: management team: includes an organization chart, job descriptions of listed positions, and detailed resumes of the current and proposed executives sec 4: financial plan: provides five-year projections for income, expenses, and funding sources sec 5: capital required: indicates the capital needed to commence or continue operations, and describes how these funds are to be used sec 6: marketing plan: outlines sales, advertising, promotion, and public relations programs sec 7: location analysis: provides a comprehensive demographic analysis of consumers in the area of the proposed business as well as a traffic-pattern analysis and vehicular and pedestrian counts sec 8: manufacturing plan: describes minimum plant size, machinery required, production capacity, inventory and inventory-control methods, quality control, and plant personnel requirements sec 9: appendix
